6. Leases: Structure and Content

Question 1

Which leases must be executed by deed?

Answer 1

Those over 3 years in duration

Question 2

What is a FRI lease?

Answer 2

Full repairing and insuring lease. Tenant meets all costs.

Question 3

When can leases commence?

Answer 3

Before, during, or after the completion of the lease.

Question 4

What is a reversionary lease?

Answer 4

One that commences after the lease is completed.

Question 5

What does ‘from and including’ mean?

Answer 5

Lease expires the day before specified commencement date at the end of the period.

Question 6

What does ‘from’ mean?

Answer 6

Lease commences the day after the ‘from’ day and expires on the from day plus lease duration.

Question 7

What is rack rent?

Answer 7

Market rent

Question 8

How is rent expressed and paid in a FRI commercial lease?

Answer 8

Expressed yearly, paid quarterly

Question 9

Traditionally, when do the quarters start?

Answer 9

25th Dec
25th March
24th June
29th Sept

Question 10

When do modern quarters start?

Answer 10

1st Jan
1st April
1st July
1st Oct

Question 11

If the lease doesn’t say, is the rent paid in advance or in arrears?

Answer 11

Arrears

Question 12

What happens if a party completes a lease during a quarter?

Answer 12

Quarter is apportioned.

Question 13

What is an upwards only rent review clause?

Answer 13

Rent can only go up or stay the same, no matter what the market is doing.

Question 14

What two things does a valuer consider when deciding on the new rent?

Answer 14

Rent payable for comparable premises and a hypothetical lease

Question 15

How do the parties record the new rent price?

Answer 15

Memorandum of rent review

Question 16

What period of rent is SDLT / LTT based on?

Answer 16

5 years.

Question 17

What are the different types of requirements in the Code for Leasing Business Premises?

Answer 17

Mandatory and Good Practice

Question 18

Three situations where the Code for Leasing Business Premises does not apply

Answer 18

1. Agricultural lettings
2. Tenancies less than 6 months
3. Where the tenant intends to wholly sublet premises

Question 19

When must good practice requirements be followed?

Answer 19

In all cases unless there are exceptional circumstances

Question 20

To whom does the Code for Leasing Business Premises apply?

Answer 20

Members of, or firms / landlords regulated by, the Royal Institution of Chartered Surveyors

Question 21

What are the Code’s four mandatory requirements?

Answer 21

1. Negotiate in a constructive manner
2. Inform unrepresented parties about the Code and recommend they seek professional advice
3. Ensure the heads of terms comply with the Code before draft lease is circulated (landlord)
4. Prepare written heads of terms covering various things

Question 22

What is good practice in relation to the repairing obligation?

Answer 22

Tenant’s obligation proportionate to lease length and state of repair; for newbuilds they should be protected against inherent construction defects

Question 23

What is good practice in relation to property damage?

Answer 23

Lease should be suspended if premises damaged by an insured risk.

In the case of uninsured risk, lease should be suspended unless it was the tenant’s fault