Essentials of a Lease Flashcards
What is the definition of a lease?
Exclusive possession for a determinate term less than the grantor’s own interest
What are the essential ingredients of a lease?
1) Exclusive possession
2) Fixed term or periodic tenancy
3) Formalities
4) Reversion
What is exclusive possession for a lease?
Tenant can exclude strangers and landlord (except when landlord exercising right to inspect)
What is a fixed term or periodic tenancy?
Lease must have a definite term (e.g. 6 months, 5 years) – or periodic (monthly, yearly)
Can a lease term be indeterminate?
Typically, no.
What are the formalities of a lease?
If over 3 years – must be created by deed.
What is reversion?
Property is reverted to the landlord after the lease expires
So in basic, what is a lease?
- A document that creates leasehold interest
- Basic lease states contractual term and rent payable
- Most leases include detailed obligations of landlord and tenant
What is a landlord’s objective in lease negotiations?
- Full Repairing and Insuring (FRI) lease: Tenant covers repair and insurance
- Property is insured and maintained
- Property only permitted for use purpose
- Control over occupancy
- Control over alterations
- Rent increases in line with market
What is a tenant’s objectives in lease negotiations?
- Allow for intended use
- Have a satisfactory term
- Provide flexibility
What does a tenant want to avoid in lease negotiations?
- Onerous restrictions on use or assignment
- Steep rent increases
- Unfair lease provisions favouring landlord
Tell me about the landlord’s perspective about a 20-year lease with no break clause
- Favourable – ensure long-term, uninterrupted rent
- Increases value of reversion
Tell me about the landlord’s perspective about a rent review every 5 years (upwards-only review)
- Protects investment, rent won’t decrease if market drops
- Standard for FRI leases
Tell me about the landlord’s perspective about a no-alteration lease
- Prefers property unchanged (easier to re-let)
- Alternative methods available (reinstatement clauses)
Tell me about the tenant’s perspective about a 20-year lease with no break clause
- High commitment risk
- May negotiate break-clause / shorter term
Tell me about the tenant’s perspective about a rent review every 5 years (upwards-only review)
- Prefers adjustment in both directions
- Difficult to find landlords offering downward rent reviews
Tell me about the tenant’s perspective about a no-alteration lease
- Wants ability to modify interior for business needs
- Restrictions acceptable for listed buildings or special cases
