Grant of a Lease

Question 1

What are the essential characteristics of a lease?

Answer 1

A lease gives the
tenant exclusive occupation..

It is a contract between a landlord and a tenant.

The consideration is usually rent and/or the covenants that each party enters into for the benefit of the other eg. to repair and insure.

A lease of three years or more must be made by a deed.

Question 2

What is the basic anatomy of a lease?

Answer 2

Basic anatomy of lease includes the following:
• Parties, date, definitions and interpretation provisions

• Demise (Grants) and rents
• Tenant’s covenants (e.g. pay rent, repair, alterations, use, sublet, assignment etc)
• Landlord’s covenants (e.g. quiet enjoyment, insurance)
• Guarantor’s covenants (e.g. if tenant has poor covenant strength)
• Provisos, agreements and declarations (forefeiture, damage, destruction)
• Rights granted (e.g. right of way to access the property)

• Rights excepted and reserved (e.g. landlord reserves right to access property if he needs to
access building to do repairs)

• Other provisions that are common:
• Rent review (mechanism to increase rent at regular levels)
• Service charge (where lease is part of property)
• AGAs (Form of future documents, rent deposits)

Question 3

What do you need to do if you have a lease granted for a term exceeding 7 years?

Answer 3

S. 4(1) LRA 2002 – A lease granted for a term exceeding 7 years must be registered at the Land Registry.

Question 4

What does a grant of a lease mean?

Answer 4

Creation of a new lease.

Question 5

What does assignment of a lease mean?

Answer 5

the sale of an existing lease.

Question 6

What does an FRI lease mean?

Answer 6

Fully repairing and insuring lease. Usually an institutional lease.

Question 7

As a tenant, why is it so important to ensure that the term “Premises” is specifically defined in a lease?

Answer 7

T’s are responsible for repairs, service charges and insurance. The costs and responsibilities of these things will ultimately depend on what is defined under “premises”.

Question 8

What is an absolute covenant?

Answer 8

an absolute prohibition against doing something.

Question 9

What is a qualified covenant?

Answer 9

a covenant not to do something without another party’s consent (usually the landlord).

Question 10

What is a fully qualified covenant?

Answer 10

a covenant not to do something without another party’s consent, but that consent cannot be unreasonably withheld.

Question 11

What is a break clause?

Answer 11

allow for either landlord or tenant (or both) to end lease before its contractual
end-date - conditions usually attached (e.g. tenant may only exercise break clause if it is up-to- date with rent payments).

Question 12

If you were a company and looking for a long term commercial lease and you come across a commercial lease with a fixed term, what right do you have following expiry of a contractual term?

Answer 12

Commercial leases benefit from protection afforded by Landlord and Tenant Act 1954 - gives tenant of business premises the automatic right to renew lease following expiry of contractual
term unless the parties agree to its exclusion.

Question 13

What are the general fixed terms of a commercial lease?

Answer 13

typically 3, 5, 10 or 15 years

Question 14

As a lawyer (acting on behalf of a landlord) when drafting up the rent section in a lease agreement, what do you need to consider?

Answer 14

The frequency in which rent should be paid (ie usually quarterly: usual quarter days”)

The manner of payment - e.g. whether it is payable in advance, or in arrears

What happens if the T doesn’t pay: input a grace period for payment of rent (typically 7, 14 or 21 days) -
if rent not paid before end of grace period lease will typically allow landlord to charge interest on
unpaid rent from date it was due up until payment date.

Question 15

Why would a landlord try to include more charges under the heading of “rent” rather than just the rent itself?

Answer 15

Commercial landlords typically include as many payments as possible (e.g. service charges etc) under the heading of ‘Rent’ in the lease

• this is because if the tenant defaults in making these payments, the landlord will have additional remedies available only to the non-payment of rent at his disposal (e.g. landlord will not have to serve a s146 notice before exercising forfeiture).

Question 16

If you were a landlord and and your tenant stopped paying rent, what remedies would you have for non payment?

Answer 16

1) Bring a debt action against the tenant in respect of rent that has fallen due within the 6 year period prior to the issue of proceedings
2) Commercial Rent Arrears Recovery (‘CRAR’) - from April 2014 this allows landlords to take goods belonging to debtor provided outstanding sums exceed minimum 7 days’ rent and 7 clear days notice is given to debtor
3) Forfeiture - no s146 notice required, therefore easier to pursue.

Question 17

What is the problem with the term: “to put and keep the premises in repair”?

How can you qualify it?

Answer 17

Beware of a covenant to ‘put and keep’, -this means
tenant is liable to put the property into repair, even if it was not in repair at the beginning of the term.

You should correct it by putting:

“the Tenant shall MAINTAIN the Premises in REASONABLE repair and condition.”

“The Tenant shall not be required to put the Premises in any better condition or repair than as evidenced by the schedule of condition annexed to this lease”.

Question 18

When you’re acting for the tenant, what are the 6 things you need to ensure for in terms of the repairing covenant with respect to insurance?

Answer 18

1. Ensure that (in the repairing covenant section) it expressly states that T will not cover for damages caused by risks which will be insured.

“The Tenant need not repair where the disrepair is caused by one of the INSURED RISKS.”

2. Ensure that there is an express term (in the Insurance section) which states that the Landlord will be responsible for keeping the Building insured against damage caused by the Insured Risks.
3. Then check that the definition of “Insured Risks” (in the definition section) covers a wide range of events (eg flood, fire).
4. Check that a rent suspension period will kick in (in the insurance section) if damage occurs by way of an Insured Risk and the premises is unfit for occupation or unusable or access to them is destroyed. (Tenant can usually withhold rent for up to three years).
5. Check (in the Reinstatement section) to ensure that you put “whenever Insured Damage does occur, the Landlord will immediately notify the insurer of the damage and claim all money under the insurance policy”. Secondly, need to ensure that: “Landlord use all the insurance money to reinstate the Premises as soon as the Permissions have been obtained”. Thirdly, (under the Termination section) “if reinstatement is impossible, or has not been achieved in three years, the lease can be brought to an end on notice by either party”.
   6) Need to check that there is a covenant by the landlord to insure the Insured Risks and a covenant by the tenant to pay the insurance premium, or a fair proportion if it is a lease of part.
   - where tenant’s name is not on insurance policy, make sure that insurer has waived its rights to subrogation.

**Make sure the T has a copy of the insurance policy to ensure that it observes the conditions and does not breach the policy.

Question 19

With respect to decorations, what is the standard requirement for tenants to decorate?

Answer 19

decoration obligations should typically be once every 5 years and once in the final
6 months of the term.

The tenant shall not have to decorate twice in one year

Question 20

With respect to repairing or replacing any of the fixtures or fittings, what is the standard requirement for tenants?

Answer 20

The tenant shall replace any of the futures and fittings during the Term that are beyond repair at any time during or at the end of the Term.

The replacement articles should be of a kind and quality which are substantially the same as those being replaced.

However the Tenant shall not be obliged to replace any futures and fittings WHERE THE DISREPAIR IS CAUSED BY ONE OF THE INSURED RISKS.

Also the Tenant shall not be obliged to purchase and replace any fixtures or fittings which can simply be repaired.

Question 21

With respect to the Landlord having a right to enter into the premises for inspection and repairs, what should be stated in the contract with respect to this?

Answer 21

The Landlord may enter the Premises on REASONABLE NOTICE during NORMAL BUSINESS HOURS (except in an EMERGENCY when the Landlord may enter AT ANYTIME) to inspect its condition.

The Landlord may give the Tenant notice of any breach of any of the tenant covenants in this lease relating to the condition of the Premises.

The Tenant shall carry out and complete any works needed to remedy that breach within the REASONABLE time required by the Landlord, in default of which the Landlord may enter the Premises and carry out the works needed.

The REASONABLE and PROPER costs incurred by the Landlord in carrying out any works pursuant to this clause (and any REASONABLE professional fees and any VAT in respect of those costs) shall be debt due from the Tenant to the Landlord and payable on demand.

Question 22

What remedies does a landlord have with respect to breach by the T?

Answer 22

1) Exercise Forefeiture of Lease
2) Action for Damages
3) Exercising Self-Help Clause in Lease agreement (Jervis v Harris Clause)
4) Take money out of deposit.

Question 23

What is the process behind allowing a Landlord to exercise forefeiture if the T breaches a repair covenant?

Answer 23

Forfeiture of the Lease - this is a proviso allowing the landlord to re-enter the property and prematurely end the lease.

Landlord must first under s.146 of the LPRA 1938 serve a notice setting out the breach, and requiring T to remedy the repair within a reasonable time. T can then apply for relief against forfeiture.

If lease originally granted for at least 7 years and there are at least 3 years left to run, then ss1(1)-(5) and s7 Leasehold Property (Repairs) Act 1938 states that the s146 notice must set out the right for the tenant to serve a counter notice on the landlord within 28 days which will then require landlord to get leave of court before proceeding with a remedy against the tenant.

Question 24

What are the limitations of allowing a Landlord to pursue an action for damages if T breaches a repair covenant?

Answer 24

Where a lease was granted for a term of at least seven years and has more than three years to go, then as with forfeiture the landlord must first serve a “section 146 notice” and the tenant may serve a counter notice. In those circumstances the landlord will again need permission from court to take further action. T can then apply for relief against damages.

s18(1) LTA 1927 limits this to the amount of a reduction in value of the landlord’s reversion. This is difficult to determine so not very useful in many cases.

Also note that s18(1) LTA 1927 prevents the landlord from recovering any damages if the
landlord intends to demolish the premises

Question 25

How does the landlord exercise the self-help remedy where the T breaches a covenant to repair and how does this circumvent the limitations posed by the remedy of damages and forefiture?

Answer 25

If the lease has a Self help clause (Jervis v Harris), the landlord can enter premises and carry-out repairs himself, and then charge the tenant for the cost of those repairs.

• Case confirms that this gets around the cap on damages imposed by s18(1) LTA 1927, and avoids the landlord having to serve a s146 notice.
• However, from a practical point of view, it may not be the best remedy - e.g. landlord will incur an immediate cost, and he may not be able to get his money back easily.

Question 26

How would a T know if a L was bringing an action for damages or forfeiture for the breach of any covenant?

Except for which covenant is would s146 apply to?

Answer 26

Forfeiture:

Note this right must be available in the Lease, it is not an automatic right!

S.146 of the Leasehold Property and Repairs Act requires landlord to serve notice informing T: there is a breach, it requires T to remedy the breach within a reasonable time and payment of compensation where appropriate.

If lease originally granted for at least 7 years and there are at least 3 years left to run, then ss1(1)-(5) and s7 Leasehold Property (Repairs) Act 1938 states that the s146 notice must set out the right for the tenant to serve a counter notice on the landlord within 28 days which will then require landlord to get leave of court before proceeding with a remedy against the tenant.

Same process is required for damages =) a s.146 notice will be required from landlord.

S.146 of Leasehold Property and Repairs Act 1938 doesn’t apply to the covenant to pay rent.

Question 27

Why must the insurance be held in joint names of the T and L?

Answer 27

Insurance must be in joint names of landlord and tenant to ensure that insurance proceeds are paid to both parties jointly, and the tenant avoids subrogation.

Subrogation = if (in the case of a landlord being solely listed on the policy) the tenant caused or contributed to damage that led to a claim being paid out to the landlord, the insurance company may have a right to pursue tenant for losses incurred. - therefore where tenant’s name is not on insurance policy, make sure that insurer has waived its rights to subrogation