Grant of a Lease Flashcards by Berke Elmaz

What are the different types of leases?

Long-term residential lease (e.g. 99 or 999 years)
Assured shorthold tenancies (short term residential lease)
Commercial lease

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What is the definition of a lease?

Exclusive possession for a determinate term less than the grantor’s own interest

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What are the essential ingredients of a lease?

1) Exclusive possession
2) Fixed term or periodic tenancy
3) Formalities
4) Reversion

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What is a fixed term or periodic tenancy?

Lease must have a definite term (e.g. 6 months, 5 years) – or periodic (monthly, yearly)

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Can a lease term be indeterminate?

Typically, no.

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What are the formalities of a lease?

If over 3 years – must be created by deed.

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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

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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

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Tell me about the landlord’s perspective about a no-alteration lease

Prefers property unchanged (easier to re-let)
Alternative methods available (reinstatement clauses)

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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

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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

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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

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What must a lease term be?

Determinate

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What constitutes a determinate term?

a) Fixed term
b) Periodic tenancy (weekly, monthly, yearly)

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What are the reasons for short leases recently being more popular?

a) Business plans drafted in 5 to 10 year cycles
b) Tenant pays less Stamp Duty Land Tax or LTT on shorter tenancy

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How do you calculate the expiry of a lease term?

A 10 year term expires 10 years after term commencement

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Why is a break clause important for ending a lease?

Because without it, generally neither landlord nor tenant can bring lease to an end before end of fixed term without agreement of the other

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Say there are two leases. One is 5 years. One is 10 years with a 5 year break. Which one is better?

The 10 years with 5 year break. Why? Because towards the end of the 5 years, of the first one, the tenant will start looking for other leases, whereas the other one will not feel the panic of having to do so.

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How is market rent paid?

Paying rent per annum, but without a premium

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How is long lease with ground rent paid?

Usually will pay a premium for the lease, but literally a very low ground rent

What happens if the lease is quiet on whether rent is payable in advance?

If the lease is silent, the rent is payable in arrears

What are the types of rent review?

1) Stepped rent
2) Index-linked rent
3) Turnover rent
4) Open market rent review

What is an open market rent review?

Landlord will look at market rent – usually upwards only

What happens if landlords and tenants cannot agree on open market rent review?

Valuer will decide on:
1) Comparable premises
2) Hypothetical lease

What does a valuer assume in a hypothetical lease?

- Premises is vacant - Willing landlord and willing tenant - Tenant has complied with covenants - Landlord complied with covenants - On terms of an actual lease

What are common disregards of a hypothetical lease?

- Ignores what the tenant has done voluntarily - Goodwill attached to property

Is the assumption that tenant / landlord complied with covenants in hypothetical lease fair?

Tenants – yes. If it falls into disrepair, they shouldn’t pay less rent for it. Landlords – no. If the lift doesn’t work, they should not benefit from it.

What happens once a new rent review is agreed upon?

It is agreed in a rent review memorandum

What happens if review happens before 5th year of lease?

Tenant may need to pay SDLT / LTT

Who is obliged to take account of the Code for Leasing Business Premises in negotiations?

RICS regulated body

What is the Code for Leasing Business Premises divided into?

1) Mandatory requirements – must 2) Good practice – should

What are the mandatory requirements in the Code for Leasing Business Premises?

1) Negotiations must be constructive and collaborative 2) Unrepresented party must be advised about existence of Code and recommended to seek professional advice 3) Landlord (or letting agent) responsible for ensuring heads of terms is compliant with the Code

What are the mandatory requirements when preparing heads of terms in the Code LBP?

Must include: - Extent of premises - Length of term and break rights - Rent and rent review - Repairing obligation - Rights to assign or under - Permitted use of property - Rights to alter property and obligations

What is good practice for premises?

Should include plan and list all rights tenants need (e.g. electricity, water)

What is good practice for length of term, and breaks?

Conditions should be fair and clearly stated

What is good practice for rent review?

Tenant must be informed on rent review and rent frequency

What is good practice for landlord’s title?

Landlord should be responsible for obtaining consent needed to grant the lease

What is good practice for repairs?

Repair obligations should match lease length and property condition. i.e., short term tenant should not be responsible for full repairs

What is good practice for insurance?

Rent should be suspended if property is damaged by insured risk. Lease should also cover uninsured risks.

When will RICS members / firms not follow good practice?

If exceptional reasons for not doing so

What is engrossing a lease?

To print a copy for signature

Who executes what for a lease?

Landlord executes original lease – tenant executes the counterpart

How should the tenant’s solicitor do searches on a lease property?

Same way as they would on a freehold property

How do landlord’s and tenant’s exchange?

Same as freehold – Law Society B

What pre-completion searches should be carried out for lease?

OS1 search – lease of whole OS2 search – lease of part

What pre-completion searches should be carried out for non-registrable lease? What is the effect of this search?

OS3 – but does not confer priority

What happens when a lease is registered?

Registered at Land Registry and will have its own title number

When can a lease be noted on landlord’s title?

If more than 3 years and up to 7 years

What is the procedure for registering a lease?

1) Pre-completion – Conduct OS1 (whole) or OS2 (part) search for priority 2) Apply using AP1 if landlord’s title is registered or FR1 if unregistered 3) Submit certified copy of lease 4) Acquire lender consent if mortgaged property