Key lease covenants and the law relating to their breach

Question 1

Set of standard clauses required by HMLR which MUST appear at the beginning of certain registrable leases:

Answer 1

LR1 – date of lease
LR2- title number(s).
LR3 – parties to this lease
LR4 – property
LR5 – prescribed statements
LR6 – terms which the property is leased.
LR7 – premium
LR8- prohibitions OR restrictions on disposing of the lease.
LR9 – rights of acquisition
LR10 – restrictive covenants given in this lease by the landlord in respect of land other than the property.
LR11 – easements
LR12 – estate rent charge burdening the property.
LR13 – application for standard form of restriction
LR14 – declaration of trust, more than one person comprising the tenant.

Question 2

HMLR relies on the information given in the prescribed clauses when?

Answer 2

registering a lease that compulsorily contains prescribed clauses
AND when making entries in the registers in respect of rights created OR reserved by the lease.

Question 3

Both parties interests to ensure that the prescribed clauses are completed properly to ensure?

Answer 3

the landlord’s AND/OR tenant’s rights are properly noted in the title registers.

Question 4

Following registrable leases dated ON OR AFTER 19 June 2006 MUST contain prescribed clauses:

Answer 4

Leases that are granted out of registered land AND which are compulsorily registrable.
Leases that are required to be completed by registration following an event that has triggered a first registration of the superior estate.

Question 5

HMLR will reject the application for registration IF?

Answer 5

the prescribed clauses AREN’T drawn up in the correct manner
OR if prescribed clause ‘LR4 – property’ HASN’T been completed.

Question 6

Repair:

Answer 6

*Tenant WILL normally covenant to keep the demised premises in repair.
*Covenant to keep property in repair includes an obligation to put the property into repair IF IT’S in despair at the start of the lease.
*Drafting a lease of part, care SHOULD be taken to ensure that there ARE NO gaps OR overlaps in the parties’ responsibility for repair.
*Lease of whole of the building the term full repairing lease indicates the tenant has full responsibility for the repair of the whole of the property.
*Lease of part of the building the term full repairing lease means the tenant is:
Directly responsible for repairing the demised premises
AND
Indirectly responsible for the cost (or a proportion of the cost) of repairs to the structure, exterior, AND common parts of the property through the service charge.
*Covenant that requires the tenant to keep the property in good repair AND condition is more onerous than one that simply specifies good repair.
*Before an obligation to repair can take effect, property MUST be in disrepair (property must have deteriorated).
*Standard and nature of the work that the tenant has to carry out depends on the age AND nature of the property at the date of the grant of the lease.
*Property is an old building, covenant to repair it WILL NOT require the tenant to modernise it.
*Duty to repair DOESN’T equate to a duty to make safe IF there is no disrepair.
Unsafe DOESN’T mean in disrepair.
*Tenant is responsible for carrying out repairs, normally be for the tenant to choose the method of repair
UNLESS tenant’s covenant requires repairs to be carried out to the satisfaction of the landlord’s surveyor.
Surveyor entitled to stipulate the work to be carried out as well as the method of repair.

Question 7

Whole of the building HAS been let to a single tenant, that the landlord takes out the insurance with the cost being passed to the tenant (AKA insurance rent).
Pursuant to such a covenant:

Answer 7

*Tenant will pay insurance rent.
*Landlord will insure the property for the full reinstatement value AND the loss of annual rent where the tenant is unable to use the building.
*Landlord will use the insurance proceeds to reinstate the property (if possible).

Question 8

Broadly, landlord of a multi-tenanted building WILL NOT permit the tenants to take out their own insurance of their demised premises,
BUT WILL structure the leases so that one landlord will:

Answer 8

*Insure at the tenants’ expense (full reinstatement value AND loss of annual rent).
*Make all insurance claims.
*Use all insurance monies received to repair AND reinstate the building AND the loss of annual rent.

Question 9

Insurance -
In doing so, landlord avoids the following conflicts:

Answer 9

*Any impracticable issues about each tenant trying to individually reinstate AND rebuild their particular unit (demise of the internal parts) while the landlord tries to do the same with the external AND structural parts.
*Two OR more insurers for claims arising from the same event, damage, AND building, it raises issue of double insurance AND contributions which could result in claims being refused OR delayed.
*Several parties insure parts of a building, be multiple AND possibly inconsistent applications/disclosures which COULD result in insurance claims being refused OR delayed.

Question 10

Alterations:

Answer 10

Lease is silent on alterations, tenant CAN proceed with its alterations subject to an obligation NOT TO commit waste OR go beyond the boundary of the demised premises.

Question 11

Generally, leases WILL contain provisions for alterations that:

Answer 11

*Prohibit alterations to the exterior (elevation) AND/OR structure of the premises AND/OR outside the demise.
*Allow non-structural alterations to the interior.
*Restrict the tenant’s ability to alter the service media (example, electricity supply) serving the premises.

Question 12

LTA 1927 gives the tenant of premises that are used for trade AND business certain rights regarding alterations which qualify as improvements EVEN IF alterations are restricted by the lease:

Answer 12

*Landlord’s consent is needed for improvements, then that consent IS NOT TO BE reasonably withheld (s.19(2)).
*Certain situations a tenant can:
Carry out improvements EVEN IF forbidden to do so by lease (s.3).
Obtain compensation at the end of the term for improvements that have been carried out (s.1).

Question 13

LTA 1927 DOESN’T apply to works that repairs within?

Answer 13

the tenant’s repairing covenant.

Question 14

Applies to improvements WHICH are works that increase the value OR?

Answer 14

usefulness of the property to the tenant
BUT CAN STILL result in a reduction in value of the landlord’s reversionary interest.

Question 15

Alteration for which consent is NOT required are carried out by the tenant, the landlord SHOULD insert covenants in the lease to ensure that:

Answer 15

*Tenant will have regard to the landlord’s requirements when carrying out such works.
*Notify the landlord of any alterations carried out including the provision of any plans.

Question 16

Leases of commercial property normally include restrictions on:

Answer 16

*Purposes for which the tenant can use the property.
*Right for the tenant to request a change to the permitted uses.

Question 17

Tenant will want flexibility to ensure the lease is wide enough for the tenant’s immediate business purposes
AND?

Answer 17

the possibility to assign/underlet the lease to any potential assignees AND undertenants which CAN have a different use in mind.

Question 18

Permitted use is defined by reference to?

Answer 18

a Use Classes Order (under planning law), lease SHOULD make it clear whether the reference is to the Use Classes in effect, in England OR Wales, at an agreed date.

Question 19

Shopping centre environments, the landlord CAN?

Answer 19

stipulate certain use restrictions for good estate management purposes.

Question 20

Landlord generally, provision in the lease that the tenant MUST?

Answer 20

comply with the all laws
AND CAN include further provisions that prohibit illegal use OR nuisance use
(to the landlord, other tenants, OR neighbouring owner-occupiers).

Question 21

Leases will normally include?

Answer 21

a clause dealing with the payment of rent, EVEN WHERE it is only a peppercorn rent (token OR nominal rent).

Question 22

Rent provisions in a commercial lease are likely to ensure that following are covered:

Answer 22

*Amount of rent payable
*Dates on which rent is to be paid
*Rent is paid in advance OR in arrears.
*Date from which the rent is payable, might not be the start of the lease IF there is a rent-free period.
*Calculation of the first rent payment (if apportionment applicable).
*Rent payment method
*Payment of value added tax on the rent.
*Tenant CAN make any deductions from the rent, OR otherwise withhold sums from it,
*tenant has a claim against the landlord.
*Any provisions for reviewing OR otherwise changing the rent, such as an open market rent review clause
OR upward only rent review.

Question 23

Tenant fails to pay rent, landlord CAN?

Answer 23

sue for the rent AND interest on unpaid sums OR damages OR take steps to forfeit lease
OR exercise the procedure for commercial rent arrears recovery (recover rent arrears by instructing an enforcement agent to take control of the tenant’s goods
AND sell them to recover an equivalent value in rent.

Question 24

Alienation:

Answer 24

is the disposal of an interest in leasehold property.

Question 25

Alienation includes:

Answer 25

*Assignment (if tenant wants to sell its interest in the lease, the sale is referred to as an assignment).
*Underletting (if tenant wants to keep its interest in the lease, BUT allow someone else to use the demised property – in whole OR in part),
tenant COULD grant an underlease AKA sub-lease.
*Charging of an interest to a lender.
*Parting with possession.

Question 26

Usual for commercial leases to contain a prohibition on the tenant parting with possession
(assignment and underletting)
AND?

Answer 26

sharing occupation
(granting licenses OR concessions to other retailers).

Question 27

Lease CAN contain?

Answer 27

an absolute prohibition on assignment, underletting, charging, OR parting with possession.

Question 28

Alternatively, lease CAN contain qualified prohibition on assignment etc. by the tenant WITHOUT?

Answer 28

obtaining the landlord’s consent.

Question 29

Lease permits the tenant to assign OR underlet with the landlord’s consent
(qualified prohibition)
it’s implied that?

Answer 29

the landlord’s consent CAN’T be reasonably withheld (s.19(1)(a) LTA 1927).

Question 30

s.19(1A) of the LTA 1927 allows a landlord AND a tenant to agree AND set out in a commercial lease granted on OR after 1 January 1996:

Answer 30

*Circumstances in which the landlord CAN withhold consent to an assignment.
*Conditions subject to which any such consent CAN be granted.

Question 31

Agreement HAS been made in accordance with s.19(1A)
landlord WILL NOT?

Answer 31

be regarded as unreasonably withholding consent OR imposing an unreasonable condition IF IT acts in accordance with that agreement.

Question 32

LTA 1998 states (regarding assignment only):

Answer 32

tenant covenants NOT to assign an applicable lease WITHOUT the landlord’s consent,
that consent NOT to be unreasonably withheld

Question 33

LTA 1988 imposes the following statutory duties on the landlord:

Answer 33

*Give consent, EXCEPT where it is reasonable not to do so.
*Give consent within a reasonable time.
*Give tenant written notice of the decision:
Consent is given subject to conditions, those conditions
IF consent withheld, reasons for doing so.

Question 34

Options for the term of a lease:

Answer 34

*Term in a lease is a period of time for which the lease is granted.
*Fixed term lease is fixed for a specific period of time given to the tenant at the end of which the lease expires (no need to serve a notice to quit).
*Periodic tenancy granted for a period which will then renew from one period to the next UNTIL determined by a notice to quit.
*Parties SHOULD be aware of the following statutory requirements when considering the term of a lease:
Lease of less than 6 months generally CAN’T benefit from the protection given by the LTA 1954
BUT those that do satisfy the exception criteria CAN be able to extend
AND renew their lease (such as, lease containing a provision for extending the term beyond six months, OR where tenant has been in occupation for more than 12 months).
*Lease granted for a term of 7 years OR less DOESN’T generally require substantive registration at the HMLR.

Question 35

Code for leasing business premises, England & Wales 2020 (1st Edition) Lease code:

Answer 35

*Lease Code aims to improve the quality AND fairness of negotiations on business lease terms
AND to promote the issue of comprehensive heads of terms to make the legal drafting process more efficient.
*The Royal Institution of Chartered Surveyors (RICS) members (which could include agents AND/OR landlords)
MUST comply with certain mandatory requirements of the Lease Code for leasing business premises.
*Other aspects of the Lease Code indicate non-mandatory best practice statements
AND RICS members SHOULD only depart from those in exceptional circumstances as they
CAN be required to justify their decisions to do so.
*Lease Code DOESN’T bind landlords who AREN’T regulated by RICS
UNLESS its provisions are incorporated in the lease.

Question 36

Liability on covenants in leases granted before 1 January 1996:

Answer 36

*Privity of contract AND privity of estates applies to leases granted BEFORE 1 January 1996.
*Privity of contract = covenants will be enforceable between the original landlord
AND original tenant for the term of the lease.
*Original tenant remains bound by the leasehold covenants for the duration of the contractual term of the lease,
EVEN WHERE the lease is assigned to another party UNLESS released by the landlord.
*Tenant is liable for breaches by his successors in title.
*Privity of estate = exists between two parties IF they are in direct landlord and tenant relationship BUT aren’t original landlord OR original tenant since the interests have been assigned.
*Successors in title to the original landlord to the original tenant CAN be liable to each other on the covenants in the lease IF there is privity of estate BUT NOT privity of contract,
IF covenants touch AND concern the land AND AREN’T personal in nature.

Question 37

Liability on covenants in leases granted after 1 January 1996:

Answer 37

*LT(C)A 1995 applies to leases granted AFTER 1 January 1996.
Replaces privity of contract AND privity of estate with new rules AFTER 1 January 1996.
*Between original tenant AND original landlord, ALL covenants in the lease are enforceable.
*Upon assignment of the lease ALL covenants pass to the assignee
EXCEPT those expressed to be personal AND they cease to be liable on the covenants in the lease.
Assigning tenant is automatically released from liability under the lease.
*Outgoing landlord’s release NOT automatic, MUST follow the criteria in ss.6 and 8 of LT(C)A 1995 to be released from the landlord covenants.
*Post 1995 lease contains a qualified covenant against assignment,
AND the current tenant asks for permission to assign, the landlord CAN ask the current tenant (assignor) to enter into an authorised guarantee agreement.
*Assignor, guarantees the new tenant (assignee) WILL perform the covenants
AND the guarantee would only last as long as the assignee remains the owner of the lease.

Question 38

Action in debt:

Answer 38

Landlord CAN sue the current tenant for non-payment of rent, a former tenant (using privity of contract)
OR rely on the authorised guarantee agreement.
This action DOESN’T bring the lease to an end.

Question 39

Forfeiture:

Answer 39

*Forfeiture is the right to re-enter AND is exercised against the tenant in possession.
*Landlord takes physical possession of the property AND prematurely terminates the lease.
*Lease MUST contain an express forfeiture clause allowing for the landlord to terminate the lease for non-payment of rent
OR other breaches of covenant.
*Landlord can forfeit by peaceable re-entry OR a court order for possession.

Question 40

Commercial rent arrears recovery:

Answer 40

*Landlord enters the premises AND seizes the current tenant’s goods AND sells them to pay any rent arrears.
*This action DOESN’T bring the lease to an end.

Question 41

Pursue Guarantors AND/OR rent deposit:

Answer 41

*Guarantee OR rent deposit CAN be requested by the landlord where there are concerns about a financially weak tenant
OR with a tenant with a relatively new credit history.
*Guarantee document – guarantor will guarantee the covenants by the tenant for which the guarantor will now be held liable in the event of a default by the tenant.
*Guarantee gives the landlord a direct contractual claim against the guarantor.
*Rent deposit is a cash deposit by the tenant as security for the payment of rent
AND the performance of the tenant’s covenants under the lease.
*Deposit will be held according to the terms set out in the rent deposit deed
AND provide the circumstances under which the landlord CAN draw upon it for a breach by the tenant WITHOUT the need for court action.

Question 42

Specific performance:

Answer 42

Specific performance is discretionary remedy.
Only available to ensure a tenant complies with a positive covenant provided NO other remedies (such as damages) are available OR appropriate.

Question 43

Damages:

Answer 43

*Contractual claim for damages for breach of contract (covenants in the lease) is available pursuing a damages claim AGAINST a tenant CAN be protracted AND incur significant litigation cost, which MAY NOT be recoverable.

Question 44

Landlord’s right to recover damages for breach of repairing covenants during the term of the lease CAN be restricted by the following provisions:

Answer 44

S.18(1) LTA 1927 – limits the damages that a landlord CAN recover for breach of the tenant’s repair covenants to the diminution in the value of the landlord’s reversion caused by the breach.
S.1 LP(R)A 1938 – only relevant where the lease was granted for a term of at least 7 years
AND has at least 3 years left to run.

Question 45

Rather than pursue a damages claim for breach of repair, landlords instead seek to rely on?

Answer 45

self-help (Jervis v Harris clause) under the lease.

Question 46

Self-help/Jervis v Harris Clause:

Answer 46

Provided the lease has a contractual self-help remedy clause AKA a Jervis v Harris clause,
the landlord WILL be entitled to do the following:
Enter the property
Carry out any repair works
Recover the cost from the tenant.

The landlord CAN recover the cost of doing the works from the tenant as a debt
AND not as damages.

Question 47

Effluxion of time:

Answer 47

This is where the lease ends as the term has come to an end.
No notice is required.

Question 48

Surrender:

Answer 48

Tenant yields the lease AND the landlord accepts the surrender.
Normally documented in a deed of surrender.

Question 49

Merger:

Answer 49

Where the tenant acquires the freehold estate
AND the lease merges into the reversionary title.