5. Grant of a lease and underlease Flashcards
What are prescribed clauses?
A standard set of clauses which must be included in leases dated on or after 19 June 2006
Summary of the important details in the lease
What are the three different options for the term of the lease?
Fixed term
Periodic tenancy - continues indefinitely from one period to another
Tenancy at will - tenant occupies property with the permission of the landlord on the terms that tenancy may be terminated by either party at any time
What are the three types of tenant covenants?
Absolute covenant - cannot carry out stated action (landlord may allow it but only by either one-off consent of a permanent variation of the lease)
Qualified covenant - can only carry out stated action with landlord’s consent
Fully qualified covenant - landlord cannot unreasonably withhold consent
What is FRI?
Full repairing and insuring
What are the key points regarding repair which have been established by case law?
- There must be disrepair first, before the tenant can be in breach of a covenant to repair
- Property need not be kept in perfect repair
- Works of renewal and improvement go beyond repair
- Repairing covenant does not oblige the tenant to give back to the landlord a property that is wholly different from that leased to them, but can oblige a tenant to remedy an inherent defect in the design and / or construction of the building if the only way to effect the repair
What is the implication obligation of “good repair”?
More onerous than just keeping the property in “repair” - a higher standard
What is the common position regarding landlord’s covenant to insure the property?
Commonly insure property against defined risks
Should be insured to its full reinstatement value
What is the common position regarding tenant’s covenant to insure the property?
Often a covenant to pay a sum reserved as rent which includes the premium for the buildings insurance policy and an associated policy covering the landlord for loss of the annual rent during any period
What is the standard position regarding a covenant from the landlord to reinstate the property?
Usually a covenant to use the insurance proceeds to reinstate the property (rather than an absolute obligation to reinstate even if the proceeds are insufficient)
What is the standard position regarding rent suspension?
Unless there is a contrary express term, rent will continue to be payable even if property is unusable
What happens if a property is destroyed by an uninsured risk?
The tenant will be liable to repair under the repairing covenant
What is the standard position regarding termination?
Unless there is a contrary express term, if building is totally destroyed, doctrine of frustration will only apply in exceptional circumstances
If the lease contains an absolute covenant against structural or exterior alterations, what can a business tenant do to enable it to carry out works?
Use s 3 LTA which enables it to carry out improvements
What is the procedure for the tenant under s 3 LTA 1927?
Serve notice on landlord that works will be done - if landlord refuses then can take to tribunal
Court can authorise improvements if add to the letting value of the property, are reasonable and suitable to the character of the property and do not diminish the value of any other property of the landlord
How long does a landlord have to respond to a s 3 LTA 1927 notice and what happens if they do not respond during the time frame?
3 months to object - failure to do so then enables tenant to lawfully carry out the works
If there is a qualified or fully qualified covenant regarding alterations, where will consents and conditions typically be contained?
In a licence to alter (separate document)
What is the impact of s 19(2) on qualified covenants?
Allows a qualified covenant to be converted into a fully qualified covenant (and therefore landlord’s consent cannot unreasonably be withheld) if the alterations can be argued to be improvements
When can a tenant receive compensation for improvements?
When they have obtained prior authorisation under s 3 LTA statutory procedure, and these have added to the letting value of the holding (subject to statutory limits)
What does “alienation” cover?
Assignment
Underletting
Charging
Sharing occupation
Parting with possession
What is the impact of s 19(1)(a) LTA on any covenants regarding assignment?
It is implied into the qualified covenant that landlord’s consent cannot be unreasonably withheld
What is the impact of s 19(1A) on any covenants regarding assignment?
Allows the landlord and tenant to agree in advance any conditions and circumstances in which is would not be unreasonably for landlord to refuse consent
What is the impact of s 1 LTA on any qualified covenants on assignment?
When the tenant has made a written application for consent for assignment, the landlord must within a reasonable time
- Give consent, except when reasonable to not do so
- Serve written notice on tenant of decision (including any conditions / reasons for withholding the consent)
What is the impact of section 19(1)(a) LTA on any covenants regarding underletting?
It is implied into the qualified covenant that landlord’s consent cannot be unreasonably withheld
What is the impact of s 1 LTA on any qualified covenants on underletting?
When the tenant has made a written application for consent for underletting, the landlord must within a reasonable time
- Give consent, except when reasonable to not do so
- Serve written notice on tenant of decision (including any conditions / reasons for withholding the consent)
What is the Royal Institute of Chartered Surveyors (RICS) Code?
Professional statement containing mandatory requirements that RICS surveyors must follow
What are the mandatory requirements in the RICS Code?
Lease negotiations must be approached in a constructive and collaborative manner
Any party not represented by an RICS member or other property professional must be advised of the existence of the code and must be recommended to obtain professional advice
Transaction terms must be recorded in writing, subject to contract and must summarise specified details
What is an agreement for lease and when is it required?
A contract - commonly by-passed however is useful where there is going to be a delay between agreeing the lease/ underlease and actually granting it but the parties want to be bound
What does SC 8.2 / SCPS 11.2.3 provide for regarding the form of the lease / underlease?
Must be in the form annexed to the draft contract - therefore once contract has been signed, no further amendments can be made
What steps should be taken by tenant, and landlord’s solicitor, regarding title, before drafting the lease or underlease?
Tenant - will want landlord to deduce title to the freehold interest
Landlord’s solicitor - investigate client’s title
What documents should the landlord’s solicitor provide to the tenant’s solicitor, for pre-contract enquiries and searches?
o Draft agreement for lease (if applicable)
o Draft lease/ underlease
o Evidence of the freehold/ headlease title
o Copies of any relevant planning consent,
o Evidence of lender’s consent to the grant of the lease/ underlease
Who enters into a licence to underlet?
The head-landlord, head-tenant and undertenant
How is contractual liability usually dealt with in the licence?
Undertenant usually enters into a direct covenant with the head-landlord to perform the covenants in both the lease and underlease
What is a key provision to be included in the licence?
Consent of the head-landlord to granting the underlease
In unregistered land, if a tenant has a registered lease with absolute title, does the undertenant need to deduce evidence of title?
No
When can an undertenant call for the title of the freehold to be deduced?
When the headlease is unregistered AND is for a period of more than 7 years
If SC 8.2.5 or SCPS 11.2.5 apply, when do the lease / underlease and counterpart need to be executed?
At least 5 days before contractual completion
What is SDLT chargeable on in relation to the creation of a lease or underlease?
Any capital sum being paid (i.e. any premium) and the net present value of the rent chargeable during the term of the lease
What are the SDLT payment brackets?
£0 to £225,000 – zero
Portion from £1,225,000 to £2,000,000 – 1%
Portion above £2,000,000 – 2%
What length legal lease must be registered with its own title at the Land Registry?
More than 7 years
Does an underlease of more than 7 years need to be registered?
Yes
What is the time frame for registering a legal lease of more than 7 years at the Land Registry?
Within 2 months of the grant
What is the function of a self help / Jervis v Harris clause?
Clause within the contract allowing the landlord to recover the cost of repairs as a debt and not damages - can enter the property and carry out the works
What are the requirements for a tenancy to fall within the 1954 Act?
Must be a tenancy (not licence)
Occupied by the tenant
For business purposes
What types of business tenancies are excluded from the 1954 Act?
Tenancies at will
Fixed term tenancies not exceeding 6 months
Contracted out tenancies
How is a tenancy contracted out of the 1954 Act?
- Landlord must give tenant notice in a prescribed form warning tenant that they are agreeing to a lease without security of tenure and advising them to obtain professional advice
- Tenant must make a declaration in a prescribed form that they have received the notice and agree that the lease should be contracted out
If the tenant is given the notice less than 14 days before the grant of the lease, the tenant’s declaration must be made in the form of a statutory declaration before an independent solicitor
