Key Lease Clauses & Terms Flashcards
(1) What type of Lease should you recommend to a Commercial Landlord?
(2) What does it mean?
(1) Full Repairing and Insurance (FRI) Lease
(2) T responsible for cost of (a) Repairs and (b) Insurance
What are the 9 key Terms / Areas of a Lease that a Solicitor should consider?
(CLUE - “Really Responsible Tenants Bring Rent In And Use Agreements”)
(1) RENT
(2) RENT REVIEW
(3) TERM
(4) BREAK CLAUSE
(5) REPAIR
(6) INSURANCE
(7) ALTERATIONS
(8) USE / PLANNING
(9) ALIENATION
“Really Responsible Tenants Bring Rent In And Use Agreements”
Key Term / Area (1) RENT.
What are the 5 key areas to consider for Rent in a Lease?
(1) Payment Schedule
(2) ‘Grace Period’
(3) Tax
(4) ‘Suspension of Rent’ Clause
(5) Deposit
Key Term / Area (1) RENT.
(1) What are the 2 main ‘Payment Schedules’ for rent?
(2) What is a ‘Grace Period’?
(1)
(a) Monthly OR
(b) Quarterly
(2) T has an extra few days to pay rent before INTEREST charged
Key Term / Area (1) RENT.
(1) What can the Landlord choose to do Re Tax and Rent?
(2) What is an advantage of this?
(1) Charge VAT on rent
(2) L recover VAT (e.g. on maintenance / refurbishment costs)
Key Term / Area (1) RENT.
What is a ‘Suspension of Rent’ Clause?
Suspend Rent if DAMAGE / DESTRUCTION to a Property from an ‘INSURED RISK’
Key Term / Area (1) RENT.
What are 2 examples of best practice for the L holding the ‘Deposit’?
(1) Separate account
(2) Allow interest accrue
Key Term / Area (2) RENT REVIEW.
What are the 4 main types of rent review and what does each one mean?
(1) ‘OEPN MARKET’ (Upwards Only) - open market rent & can only ever increase
(2) STEPPED - rent increases pre-agreed amounts (e.g. £100 each 2 years)
(3) INDEXED - rise in line with inflation
(4) TURNOVER - based on T’s business Turnover
Key Term / Area (2) RENT REVIEW.
For an ‘OEPN MARKET’ (Upwards Only) Rent Review, A 3rd party SURVEYOR will consider what a FRESH TENANT would pay for the property on the open market.
(1) What are the 2 components the Surveyor will use?
(2) Are these subject to negotiation?
(1)
(a) Comparable Premises (e.g. size, location)
(b) ASSUMPTIONS & DISGREGARDS
(2) Assumptions & Disregards are
Key Term / Area (2) RENT REVIEW.
For an ‘OEPN MARKET’ (Upwards Only) Rent Review, a SURVEYOR will make ‘Assumptions’ & ‘Disregards’.
What are 5 common ASSUMPTIONS?
(1) Willing L&T
(2) Property in VACANT POSSESSION
(3) SAME LEASE TERMS (e.g. strength of covenants) EXCEPT RENT AMOUNT
(4) T Complied ALL COVENANTS
(5) IF Property Damaged / Destroyed - FULLY REPAIRED
Key Term / Area (2) RENT REVIEW.
For an ‘OEPN MARKET’ (Upwards Only) Rent Review, a SURVEYOR will make ‘Assumptions’ & ‘Disregards’.
What are 3 common DISREGARDS?
(1) T’ in OCCUPATION
(2) GOODWILL (e.g. success of T’s business)
(3) Voluntary IMPROVEMENTS by T
Key Term / Area (3) TERM.
What 2 questions should be considered here?
(1) TYPE - Fixed term or Periodic?
(2) Security of tenure / ‘excluded’ from LTA 1954?
Key Term / Area (4) BREAK CLAUSE.
(1) What is a BREAK CLAUSE?
(2) What are the 3 types and what one is most common?
(1) Allows lease to be TERMINATED before end of Term
(2)
(a) T Break Clause (most common)
(b) L Break Clause
(c) Mutual Break Clause (T&L)
Key Term / Area (5) REPAIR.
If a Lease has a ‘Repair Covenant’ that states the property “KEEP in good repair” or “PUT in good repair”.
(1) What does this ‘Repair Covenant’ mean?
(2) What should the T’s solicitor (a) Do instead? (b) Replace the phrasing with?
(1) KEEP = PUT (i.e. T’s responsibility to put in ‘good repair’ even if not given in that state)
(2)
(a) Surveyor report on state of property with pics & annex this in ‘SCHEDULE OF CONDITION’
(b) “MAINTAIN the premises as per the SCHEDULE OF CONDITION”
Key Term / Area (5) REPAIR.
What 3 exclusions should a T solicitor seek from the ‘REPAIR COVENANT’?
(1) Damage caused by ‘INSURED RISKS’ (why? - T NOT pay twice)
(2) ‘Fair wear and tear’
(3) Inherent Defects
Key Term / Area (5) REPAIR.
A ‘Repair Clause’ / “yield up in repair” will often set the standard as being to the “Landlord’s Satisfaction”.
What 2 options should the T’s solicitor do for a clause like this?
(1) REMOVE clause
(2) Change standard to “Independent Surveyor’s Reasonable Opinion”
Key Term / Area (6) Insurance.
Under an FRI Lease, how does ‘Insurance work?
(1) L insures property
(2) T pays ‘Premiums’
Key Term / Area (6) Insurance.
What 3 INSURANCE COVENANTS should T aim to get from the L?
(1) L Insures Property
(2) L uses Insurance Money fully for Repairs (i.e. not spend on other things)
(3) Both L and T on Insurance Policy
Key Term / Area (6) Insurance.
What Clause should the:
(1) T aim for?
(2)
(a) Both T and L aim for?
(b) When would this clause be used by a:
(i) L
(ii) T
(1) ‘RENT SUSPENSION CLAUSE’ - Suspend Rent if DAMAGE / DESTRUCTION to a Property from an ‘INSURED RISK’
(2)
(a) TERMINATION CLAUSE - Lease to be TERMINATED before end of Term
(b)
(i) L - impossible repair / restore property
(ii) T - END ‘rent suspension’ period
Key Term / Area (7) ALTERATIONS.
What is the definition of ‘IMPROVEMENTS’ re Alterations?
Anything increases VALUE / USE property from T’s POV
Key Term / Area (7) ALTERATIONS.
If a Lease has an ABSOLUTE Alteration Covenant:
What is the rule on whether Alterations can be made?
NO Unless IMPROVEMENTS
(Improvements - Anything increases VALUE / USE property from T’s POV)
Key Term / Area (7) ALTERATIONS.
If a Lease has a QUALIFIED Alteration Covenant.
(1) What is the rule on whether Alterations can be made?
(2) What role has s19(2) LTA had in (1)?
(3) If L consents to the ‘Alteration’ what is this typically recorded in?
(1)
(a) IMPROVEMENTS can be made
(b) L’s consent CANNOT be ‘UNREASONABLY’ Withheld
(2) ‘Upgraded’ covenant from QUALIFIED TO FULLY QUALIFIED
(3) ‘Licence to Alter’
Key Term / Area (8) USE / PLANNING.
(1) What does a ‘User covenant’ do?
(1) Does LTA ‘upgrade’ qualified to fully qualified covenants for a ‘user covenant’
(1) Prevents property being used for certain uses (e.g. types of business)
(2) NO - LTA NOT apply to ‘User covenants’
Key Term / Area (9) ALIENATION.
(1) What does ‘Alienation’ mean?
(2) What are the 2 main types?
(1) T DISPOSES of their INTEREST in a lease
(2)
(a) Assignment
(b) Subletting / Underletting
