Key lease terms and their implications to property management

Question 1

What is Alienation?

Answer 1

Refers to provisions in leases which govern tenant’s ability to:

• transfer the lease (known as an assignment)
• underlet the premises (known as an underletting or sub-letting)
• share occupation of the premises (known as sharing occupation)

ALWAYS Read the Lease (RTL)

Question 2

What is the difference between assignment and sub-letting?

Answer 2

Upon assignment the new tenant (T2) has a direct relationship (privity of contract) with the Landlord

When sub-letting, the new sub-tenant (T2) has a direct relationship with the tenant (T1) and pays him the rent, who then pays rent to the landlord

Question 3

What is privity of contract for new leases?

Answer 3

Original tenant can assign interest in tenancy but not relationship with the landlord

Question 4

What are alterations?

Answer 4

Alterations = carried out by tenant during lease

Must be approved in writing by landlord prior to works

Some works may not require landlord’s formal consent so always Read The Lease (RTL)

Question 5

What is a licence for alterations?

Answer 5

To be completed before works commence

Obtain undertaking for costs at commencement of instruction

Protects landlord and tenant for future rent reviews, lease renewals and dilapidations

Remember LTA 1988 requirements for Landlords to act within a reasonable timescale

Question 6

What are TWO useful functions of a licence for alterations?

Answer 6

To protect the parties at end of lease / renewal

To protect dilapidations at the end of the lease

Question 7

What does the LTA 1927 state about alterations?

Answer 7

Landlord must be reasonable when dealing with requests from tenants for alterations

Landlord’s consent must not be unreasonably withheld (section 19)

If Section 19 = followed landlord may be obliged to pay compensation for alterations if they constitute improvements

Question 8

What are the THREE key themes of the Code for Leasing business Premises (2020) PS?

Answer 8

Fairness, Accountability and Transparency (FAT)

Question 9

What are dilapidations?

Answer 9

ALWAYS RTL

Are negotiations taking place at lease expiry to bring property back to its condition at start of the lease, assuming there is a repairing liability

Check lease to see if any licences for alteration were granted

Question 10

What responsibilities might the property manager consider in relation to empty buildings?

Answer 10

Maintaining fabric of the building

Clear building to remove any combustible material

Undertake and record regular inspections (for insurance purposes)

Undertake a health and safety and FRA of the building

Inform LPA for payment of empty rates

Planned maintenance programme to include servicing of plant

Maintain the asbestos register

Question 11

What are the requirements for building insurance?

Answer 11

Usually responsibility of landlord to arrange and re-charge tenant

Cover for reinstatement of the building for a range of insurance perils (such as fire, storm, flood, subsidence, loss of rent, theft, terrorism, public liability etc.) + VAT

Usual basis of measurement = GIA for commercial properties

Regular revaluations should be undertaken

Question 12

What are the two fundamental principles of rent collection?

Answer 12

1. Accuracy of information

2. Timing

Question 13

What is Forfeiture? (commercial application)

Answer 13

Must be a forfeiture clause in the lease

Enables landlord to re-enter property following breach by the tenant, and by doing so, terminate the lease

Question 14

What are service charges?

Answer 14

Charges to tenants of multi-tenanted properties of costs incurred by a landlord to maintain and manage a property

Many prospective tenants = now trying to negotiate SC caps / link increases to RPI / CPI

Always RTL

Question 15

What are the FOUR methods of SC apportionment?

Answer 15

1. Floor area = most common using RICS Code of Measuring Practice 2015
2. Fixed percentages = may be specified in lease
3. Rateable value – difficult if RVs change or are appealed (therefore RICS SC PS no longer
   recommends)
4. Weighted floor area – such as a department store (different costs for servicing different sized units)

Question 16

What is SC benchmarking?

Answer 16

Benchmarking ensures operational performance standards = checked against industry-used indices

Ensures best practice and high levels of performance

Question 17

What does RICS promote for SC?

Answer 17

FAT:
 Fairness
 Accountability
 Transparency

Question 19

Are there alienation provisions with ASTs?

Answer 19

Under ‘USE OF THE PROPERTY’, clause states ‘Not assign, take a lodger, sublet or part with or give up to another person possession of the Property or any part of it without our written permission (which will not be unreasonably withheld).’

Question 20

What is a repairing obligation?

Answer 20

An obligation for a landlord to keep the dwelling house in good state of repair throughout the tenancy is implied in most agreements.

Question 21

Which Act is relevant with repairing obligations in ASTs and what does it state?

Answer 21

LTA 1985 - SECTION 2

LL must keep in repair the structure and exterior of dwelling house

keep in repair and proper working order the installations in dwelling house for supply of water, gas, electricity, sanitation, space heating, and heating water.

Question 22

What does the SC Resi Mgmt Code state about xxx

Answer 22

xxx