Grant of a lease - essentials of a lease

Question 1

Lease definition

Answer 1

The grant of a right to the exclusive possession of land for a determinate term less than that which the grantor has himself in the land.

Question 2

What are the three essential ingredients of a lease?

Answer 2

1) exclusive possession

2) fixed term or periodic tenancy

3) formalities (if over 3 years - must be executed by deed)

Question 3

What is meant by exclusive possession?

Answer 3

the tenant must be able to exclude strangers & even the landlord (except where the landlord is exercising its right to enter the premises - to inspect it) from the premises let

• exclusive possession distinguishes a lease from a licence

Question 4

What is meant by fixed term / periodic tenancy?

Answer 4

The lease must be for a fixed term (six months, 5 years) or a periodic term (weekly, monthly, yearly tenancy)

• it may not be for an indeterminate time (eg for as long as the tenant is an employee of the landlord) - but there are exceptions

Question 5

What are the formalities for a lease?

Answer 5

A legal lease must be created by deed if the term is over 3 years

A tenancy of 3 years or under may be created in writing, or orally.

Question 6

What is meant by ‘the reversion’?

Answer 6

The reversion is the interest that the landlord holds subject to the lease.
At the end of the lease term, the property reverts to the landlord.

Question 7

What is a lease?

Answer 7

The document that creates a leasehold interest.

Question 8

What is stated in the lease?

Answer 8

• contractual term, rent payable etc

(there are some statutory principles & common law that apply to a simple lease).

Question 9

Does the lease go into detail about the respective obligations of the landlord & tenant?

Answer 9

Yes, most leases do.

Question 10

Who is in the dominant negotiating position, in most cases?

Answer 10

The landlord.

Question 11

What type of lease will institutional landlords insist on?

Answer 11

A full repairing & insuring (FRI) lease - any costs are met by the tenant, whether directly or indirectly.
This means rent paid by tenants is clear of deduction.

Question 12

The landlord will want a lease that ensures the premises are…

Answer 12

• insured
• kept in repair
• only used for the permitted purpose

Question 13

Landlord’s objectives - the landlord will also want…

Answer 13

• to control whom may occupy of the premises (Eg if the tenant tries to pass the lease on)
• to have a say over how the premises are altered by the tenant
• to increase the rent in line with the market rent over the contractual term of the lease (by way of rent review)

Question 14

The tenant will want a lease that..

Answer 14

• allows them to use the premises for its intended purpose
• has a contractual term (eg 10 years) that’s satisfactory to the tenant (not too short or long fir business purposes)
• provides some flexibility if circumstances change

Question 15

What does the tenant not want?

Answer 15

• onerous restrictions that prevent the tenant from using the premises for its intended purpose or that make it difficult to pass the lease to a third party
• provisions that allow for a steep rise in rent
• excessively unfair provisions (that favour the landlord over the tenant)

Question 16

What is a break clause?

Answer 16

A clause that allows the party benefitting from it to end the lease (eg five years into tenancy).

Question 17

Example of term in lease - 20 year lease with no break clause

Answer 17

Landlord perspective - good for the value of the landlord’s reversion as the landlord can expect a long period of uninterrupted rent

Tenant perspective - 20 years is a long commitment, especially if future of business occupying the premises is uncertain - tenant might ask for10 years with 5 year break or 5 year lease.

Question 18

Example of term in lease - rent reviewed every 5 years, to higher of market rent & current rent (upwards only)

Answer 18

Landlord perspective - usual for a FRI lease, landlord doesn’t want rent to go down if market dips

Tenant perspective - might want rent to go down if market rent goes down, difficult to find a landlord will offer this.

Question 19

Example of term in lease - no alterations to the property

Answer 19

Landlord perspective - may want to ensure the premises are returned unaltered

Tenant perspective - unless there’s good reason (say the building is listed) - the tenant will want to at least alter the interior for their purposes.

Question 20

What is the landlord’s concern?

Answer 20

To maximise their investment by ensuring a clear rental stream & retaining control over the premises.

Question 21

What is the tenant’s concern?

Answer 21

To be able to use the premises for their intended purpose, and have flexibility to, for example, pass the premises on if needed.