L&T Flashcards
What are examples of information required from the client at the start of an instruction?
-Agreed terms of engagement
-An understanding of the client’s strategy and objectives
-Copy of the existing lease, any plans
-Any deeds of variation
-Copies of any licenses (e.g. alterations, improvements, sub-letting, assignment)
-Copy of any rent review memoranda
-Details of landlord/agent to arrange inspection-
-Copy of property management file
What must you do before accepting an instruction?
-Check you’re competent
-No conflict of interest
-Agree terms of engagement
-Refer to the standard terms of business
What can the fee basis be for RR/lease renewals?
In my organisation- fixed fee for stage 1 (report) and stage 2 (negotiations), hourly rate for expert witness
But can also be an incentivised fee but not for expert witness & hourly rate
What actions should a competent surveyor take when accepting a rent review instruction?
-Conflict of interest and competency check
-Agree terms of engagement
-Obtain understanding of client objectives
-Obtain all key information
-Read lease/any licences carefully- check if contracted outside of LTA (sections 24-28
-Undertake site inspection and measurement of property
-Advise on market rent, with regard to terms in the lease
-Prepare report for client setting out recommendations for basis of renewal, strategy e.g. who serves notice (always a lawyer)
-Upon receipt of instructions, open negotiations once notices served
-Check notice is valid
-Instruct solicitors to prepare the new lease in accordance with HoTs prepared for the new lease
What is the rent review process?
- Receive written instructions from the client.
- Check for conflicts of interest (e.g. acting on a neighbouring property would be a conflict) and
confirm the fee basis in writing. - Review legal pack – lease, any licences for alterations (this should always be disregarded if it’s
a tenant improvement, if done as an obligation to the landlord then it will usually be included),
deeds of variations etc.
A. Is time of the essence? Unless otherwise stated it is not unless there is a break clause
(this is backed by case law – a presumption).
- Check the contractual basis of valuation – e.g. upward only? Open market?
- Inspect and measure the property (surveying safely and IPMS/ RICS Property Measurement)
A. Part of negotiation to agree floor areas, often a nominal difference.
- Generate comparables & advise on market rent
- Report - make recommendations
A. This may include around the strategy and which party should service the trigger notice
B. If a trigger notice is received, check it is valid - Negotiate & document agreement in Rent Review Memorandum
- Refer to dispute resolution procedures if disputes or serve a Calderbank offer
What does without prejudice mean?
During negotiations, opposing parties cannot subsequently rely on documents/discussion labelled ‘without prejudice’ in court/expert witness/arbitration- information is privileged and can’t be used as evidence
What does subject to contract mean
Not an acceptance of the contract in its current form. But can be relied
on in court/ quasi-judicial bodies
What is a wayleave?
an annual payment in exchange for a temporary right. Usually relates to
installation of apparatus related to utilities (wires/lines etc.). Personal to the company and
cannot be automatically transferred.
What is an easement?
-Permanent right of one party over the land of another, in exchange for a capital payment.
-Registered via the Land Registry.
o If continuous and uninterrupted use over 20+ years can be proven, then a prescriptive
right of way/ prescriptive easement can be obtained
o Permissive rights can be granted by landowners to allow access over their land too –
these are not public rights and the public don’t have a right to use them. Permissive
rights usually come with signage.
If continuous and uninterrupted use of an easement can be proven, what happens?
If 20+ years of continuous and uninterrupted use of can be proven, a prescriptive right of way/prescriptive easement can be obtained
What is a permissive right?
Granted by landowners to allow access over their land- not a public right, usually comes with signage
What is adverse possession?
a process allowing someone to become the legal owner of land through
possession, but for a specified time only and without the true owner’s permission (squatting). (12 years before 2003, 10 years after 2003 unless not registered, then 12 years)
What is the key legislation to be aware of for this competency?
-Landlord and Tenant Act 1954
-Landlord and Tenant Act 1927 (Landlord not to unreasonably withhold consent; Section 18 Dilapidations (diminution) )
-Law of Property Act 1925
(Section 146 notice to serve a breach of repairs – can commence forfeiture, or
complete the works and recover costs)
What are the 4 types of leases?
-Fixed term
-Periodic
-Tenancy at Will
-Tenancy At Sufferance
What’s a fixed term lease?
1954 act provides for a renewal of up to 14 years
What’s a periodic lease?
Continues at intervals until either party ends it, including when ‘holding over’- length relates to the basis of rent e.g. monthly or annually
What is a tenancy at will?
Exclusive right of occupation, but can be terminated by either party at will. No formal notice required, no renewal rights or legal interest in land.
-Becomes periodic when payments for specific lengths of time are agreed
-Typically used to allow tenants early entry for fit out works/negotiating a new contracted out lease after expiry
What is a tenancy on sufferance?
where the LL allows an occupier to remain in occupation after expiry, without formal consent OR dissent. Determined at will by the LL, at which point the occupier is a
trespasser.
What are the four requirements of a lease?
1.Exclusive occupation
2.Payment of rent
3.Duration of specified term (although can be periodic)
4.If more than 3 years, terms must be in writing, signed as a deed and registered
What is a licence?
Permission to do something on someone’s land, which would otherwise be trespass but passes no interest in the land and is usually personal and short term
-Does not grant exclusive possession
-No specific notice required to end the licence
-Due to privity of contract cannot be transferred to a third party
What is the difference between a lease and a licence?
Street v Mountford (1985) sets out the three main differences:
- Lease- an estate in land; licence- permission for lawful use of the land
- A lease can be assigned (not personal); a license cannot
- A lease cannot be terminated until expiry (unless there is a break), licence can be revoked at any time
What is the general principle when deciding if something is a lease or a licence?
If exclusive possession is granted for over 6 months then it’s probably a lease
Is a rent review a statutory process?
No, it is a contractual process and is governed by the lease
If the parties can’t settle a rent review, how do you decide what to do?
Non-agreement procedure is set out in the lease- usually by independent expert or arbitrator appointed by the RICS.
-Can also be referred to court but only a point of law if appropriate
What are the key rent review clauses?
CHECK LEASE:
a) Machinery for settling the review i.e. serving notice (generally a written notice served to the tenant, no prescribed form)
b) basis for valuation
c)whether time is of the essence (if silent, it isn’t)
d) assumptions and disregards
e)dispute resolution procedures
What are the different bases of rent review valuation?
-Normally upwards only to market rent using standard assumptions
-Other bases include indexation (RPI, CPI with caps & collars), turnover rents and stepped increases
What is the hypothetical term in a rent review?
-Subject to lots of litigation
-Unless explicit in the lease, the assumed term is likely to be the unexpired residue of the lease
-Typically 5 years (because if it was longer the rental value would fall considerably or shorter would be higher)
What are the standard assumptions for a rent review?
Standard assumptions for a hypothetical letting include:
-Fit for immediate occupation and use
-Available on the open market by willing parties for a hypothetical term with vacant possession
-All covenants in the lease observed by the tenant (i.e. property in good condition)
-Property may be used for any purpose permitted in the lease
What are the standard disregards?
-Goodwill (tenant or property e.g. brand reputation)
-Effect of the tenant on the occupation (covenant strength)
-Tenant’s improvements
-Licenses personal to the tenant e.g. for alcohol
*May also disregard rent free periods
What is a headline rent review?
Ignores all incentives/concessions granted on a letting, whether for fit out/pure incentive/in lieu of dilapidations/works
-Rare in modern commercial leases, which typically disregard fit out related incentive and devalue any further cash incentive
What are deeming provisions?
In older leases the RR clause might require the landlord to specify the rent in the trigger notice
-If the tenant doesn’t respond with a counter notice within specified time frame, the tenant will have deemed to accept the new rent
What is the key case law relating to time of the essence?
Bello v Ideal View (2008) reinforced the 1978 case decision that generally time is not of the essence. The LL had not initiated the review for 13 years, court held time was not of the essence and review could proceed
Is comparable evidence after the rent review date admissible in rent review arbitration?
Yes a 1984 case concluded that evidence after the RR date was admissible. Thus as a tenant it’s good to settle rent reviews asap unless the market is falling
What is hierarchy of evidence in a rent review?
This is the relative weight attached to comparable evidence, the common weighting is:
-Open Market Lettings
-Lease renewals
-Rent Reviews
-Independent Expert Determinations
-Arbitrator awards
-Court determinations under LTA 1954
-Asking prices (hearsay evidence)
-Sale and leasebacks
-Surrender and renewals
What should rent review memoranda include?
*Names of both parties
* Address of the property
* Date of the lease and rent review
* Confirmation of new rent agreed
* Signed and dates by both parties
How else can rent reviews be recorded if not by memorandum?
Rent reviews can also be recorded via an independent expert’s determination or an arbitrator’s
award, or written acceptance of a Calderbank offer, or an open letter.
To establish in court whether a tenant is entitled to a new lease what test is used?
An O’May test.
The criteria for the test is as follows:
1. The tenant must have occupied the property for business purposes for the relevant period.
2. The tenant must intend to continue to occupy the property for business purposes.
3. The tenant’s use of the property must not breach any statutory or contractual obligations.
4. The tenant must be able to pay the rent.
What is a without prejudice save as to costs offer?
Gives a party some protection against the high costs of dispute resolution, but also helps to focus the attention of disputing parties to achieve an agreement
-these offers are BINDING if accepted
examples- calderbank offer (usually for rent reviews) or part 36 offer for lease renewals (though either can be used)
What’s the difference between a calderbank offer and a part 36 offer?
Should seek legal advice on which is more appropriate- part 36 are more prescriptive and should be drafted and served by solicitors because they potentially carry greater cost sanctions than a calderbank
What’s the difference between an independent expert and an arbitrator?
Arbitrator
* An arbitrator acts on the evidence and arguments submitted.
* Cannot decide without receiving evidence.
* Procedure of the Arbitrator is regulated by the Arbitration Act 1996.
* A party can compel disclosure of documents (through the court)
* May not delegate any duties.
* Can determine fees and costs and can order a party to pay all or part.
* Arbitrators fees can be determined by the Court.
* Some right of appeal on a point of law.
* Not liable for negligence.
Independent Expert
* An expert has a duty of investigation but may receive evidence from the parties.
* Bases decisions on own knowledge and investigations. May be required under the lease to obtain evidence.
* No legislative procedure.
* No such powers.
* May seek assistance.
* No power to make any orders as to costs (unless lease specifies it can award the costs of the independent expert only)
* No procedure.
* No right of appeal but Court might set it aside.
* Liable for damages through negligence.
*useful when dealing with a property/lease terms with scarce comparable evidence
How can rent reviews be resolved by dispute resolution?
Check lease- either independent expert or arbitrator. Sometimes a landlord can choose.
Typically application made to the RICS Dispute Resolution Service to appoint a dispute resolver- fee of £425
Can you appeal an arbitration award?
Yes, you can appeal to the High Court within 28 days of the award on THREE grounds:
- A challenge to the tribunal’s jurisdiction
- On a point of law
- Serious irregularity
When acting for a landlord, is an expert or arbitrator better in a rising/falling market?
In a falling market, arbitrator preferable.
In a rising market, independent expert best
*opposite way around for a tenant, want an expert to interrogate the evidence and be a market expert in a falling market
What role does an expert witness play in dispute resolution proceedings?
Gives evidence to court concerning a lease renewal or rent review.
-Duty to the tribunal/court, not the party
-Cannot be appointed on success related fee
What is a calderbank offer?
A genuine offer to settle “without prejudice, save as to costs” (evidence cannot be used in court, except for the issue of costs once arbitrator made their award)
-Protects against high costs of dispute resolution (if the award is not more favourable than your offer the other side must pay fees/costs of arbitration)
-Must be genuine, clear and unconditional terms, open for enough time that the other side can consider the offer
-Only to be used where there is an arbitrator
What role does an advocate play in dispute resolution?
Can give evidence in court/tribunal on rent reviews
-Duty to the client but must act with integrity toward the court
-Can be appointed on success related fee
Can you detail the key sections of the 1954 Act?
S23 - Application of the Act.
S24 - Holding over.
S24a - Interim rent.
S25 - LL notice to end (friendly or hostile).
S26 - Tenants notice to seek new lease.
S27 - Tenants notice to end the lease.
S28 - Renewal of tenancy by agreement.
S29 - Order by Court for a new tenancy.
S30 - LL grounds for opposition.
S32-35 - Terms of the new lease.
S34 - Basis of valuation for the new rent.
S37 - Compensation provisions.
S38a - Contracting outside the Act.
S40 - Notice to request info about either party.
S44 - Definition of competent landlord
What are the key elements of S23 of the LTA 1954 Part II?
Sets out which leases the LTA 1954 can apply to:
-Must be a business tenancy
-Must be used for business purposes
-In occupation more than 6 months
-Business must be carried out by the tenant
-Not contracted out (section 38a) or Tenancy at Will
What does S24 of the LTA 1954 Part II cover?
Security of tenure and holding over
-At lease end the tenancy will not end if the tenant remains in occupation
-Continues on same terms until terminated
-AKA ‘Continuation tenancy’ or ‘holding over’
What does S24a of the LTA 1954 Part II cover?
Interim rent- introduced 1969
-Sets out how interim rent is decided for the period that the tenancy may be in dispute at court/in negotiations (i.e. from the date in the S25/S26 notice until new lease agreed)
-Either LL or T can apply to the court for interim rent to be determined (cannot be made more than 6m after termination of the tenancy)
-Decided by court based on market, lease terms, will be fair
What is S25 of the LTA 1954 Part II about?
The Landlord’s notice to terminate the tenancy- either non-hostile (grant renewal) or hostile (oppose renewal)
-LL gives notice in prescribed form (S25 notice) specifying termination date (cannot be earlier than lease expiry)
-Must state if LL opposes or grants a renewal
-Notice must be given between 6 and 12 months before the date of termination
-If non-hostile, must state the proposed terms of the new lease including rent
-If hostile, must include the grounds of opposition (S30(1))
What is a notice to quit and how does it differ from a S25 notice?
Notice to quit is a clause included by the LL in the lease that allows the LL to terminate the tenancy without grounds for opposition/reasons. It normally includes a specific time period for the tenant to leave the property.
S25 notice is a notice to terminate as per the LTA 1954 & grounds of opposition must be provided and the tenant can oppose the termination in court.
What is s26 of the LTA 1954 Part II about?
Tenant’s notice to request a new tenancy (renewal)
-Must be made in writing and specify a date for the beginning of a new tenancy not more than 12 or less than 6 months after the request is made and not before the lease expiry date
-Must be in the prescribed form
-Must state the tenant’s proposals for a new lease, including rent
-Cannot be served if LL has already served a S25 or tenant served a S27 notice
What must be included in a S25 notice?
-Name and address of landlord and tenant
-Address of property
-Notice of date to end the tenancy (hostile or friendly)
-Confirmation whether new lease is opposed or granted
-Confirmation of date tenant must ask the court for a new tenancy
-Friendly- proposals for new rent and lease terms
-Hostile- grounds for opposition must be stated
How can a landlord oppose a S26 notice requesting a new tenancy?
Landlord can oppose by serving a counter notice within 2 months stating grounds of opposition
What happens if a tenant misses the date specified in a section 25 notice?
Tenant loses security of tenure unless:
-A new lease is in place
-Either party has applied to court
-The parties have agreed in writing to extend the deadline
What happens if a landlord does not respond to the tenant’s S26 notice?
Must apply to the court within 6 months of serving the notice
What is s27 of the LTA 1954 Part II about?
Sets out how a tenant can terminate its tenancy
-Vacate by contractual expiry
-Serve S27(1) notice giving at least 3 months notice before lease end, stating intention to vacate
No requirement to serve a S27(1) notice, unless tenant is holding over following expiry of contractual term
What is s28 of the LTA 1954 Part II about?
Refers to the renewal of a tenancy by agreement, leading to a new tenancy contracted outside of LTA 1954 (and therefore the old tenancy also becomes contracted out)
What is s29 of the LTA 1954 Part II about?
Sets out the process of the court ordering a new tenancy/ terminating a current tenancy
-Court will make an order if the LL does not establish grounds for opposition or vice versa
What is s30 of the LTA 1954 Part II about?
Sets out the seven grounds for opposition to grant a new tenancy:
a) Breach of repairing covenant
b) Persistent delay in paying rent
c) Other substantial breaches
d) LL has offered suitable alternative accommodation
e) Uneconomic subdivision (loss of rent/capital due to tenant subletting)
f) Demolition/ Reconstruction
g) LL occupation for business/residence
What are the fault based grounds (S30)?
Grounds A-C (tenant breaches- repair, rent, other breaches)
What are the non-fault grounds (S30)?
Grounds D-G (no tenant breaches of covenant)
For the redevelopment ground (F), what must a landlord do to support this claim?
Prove firm intention- prove funding and planning permission, substantial work and need for vacant possession in order to redevelop
What must a landlord demonstrate to support ground G (owner occupation)?
Owned the property for five years and prove intention to occupy/and/or run business
What is S32-35 of the LTA 1954 Part II about?
Detail the terms of a new lease and how they may be determined (either by agreement or by the court)
S32- the property
S33- the term (court cannot grant a term of more than 15 years)
S34- rent
S35- other terms
Under S37, what compensation may a tenant be entitled to if a landlord successfully opposes a business tenancy renewal on grounds e, f or g?
If tenant period of occupation is less than 14 years = 1 X rateable value of property
14years or more- 2x rateable value (at date of S25/26 notice)
What is s38a of the LTA 1954 Part II about?
Sets out the procedure for contracting outside of the Act
-LL serves notice with ‘health warning’
-T must confirm and accept prior to completing the lease
What is the key case law regarding departure from the terms of the current lease?
O’May v City of London Real Property (1982)
-Any departure from the terms of the current lease must be fair and reasonable e.g. reasonable modernisation
-Burden of persuading the court is on the party proposing the change
What recent case law is relevant to the Kirkby lease renewal in achieving a change to the break option via court proceedings?
Kwik-Fit v Resham (2024)
KwikFit sought 15 year lease with tenant only 5 yearly break options (in line with company policy and the market)
- LL opposed due to diminution in value of freehold reversion
-Court found market evidence wasn’t strong enough to support a break
-Didn’t satisfy the test of proving the property could become unsuitable in 5 years time i.e. a need for a break
-County Court judgement- not binding precedent
Why might you want to contract outside of the LTA 1954 Part II?
-Requirement of headlease to grant sublets outside the act
-LL wishes to reoccupy/redevelop
-Lower rent
-More flexibility for LL
How can you inadvertently create a protected tenancy?
If LL accepts rent beyond lease expiry and the tenant is in occupation (and meets the requirements of S23 business tenancy)
How would you advise a tenant on notice strategy for lease renewals?
In a rising market, as a tenant you should seek an early renewal.
In a falling market, as a tenant seek a late renewal.
What would the valuation date be for determining the new rent for a lease renewal?
Technically is the commencement of the new lease, but for valuation practical reasons it usually agreed
beforehand at the date of the dispute hearing/ expert witness reports.
What is S40 of the LTA 1954 Part II about?
Notice requesting information
-Can be served at any time during the tenancy by LL or T
What is S44 of the LTA 1954 Part II about?
Defines what a competent landlord is
-The person/body upon whom a notice should be served/ who should serve the notice
-Either the freeholder or the superior tenant (with unexpired term of 14+ months)
What are the different ways you can terminate a lease?
Forfeiture
Surrender and negotiation
Merger
Disclaimer (due to insolvency)
Break clauses
Lease expiry
Service of notices under LTA 1954
What are the two types of leases as set out by the LTA 1954?
building or ground lease – the lessee (the person who takes the lease) erects buildings on a
freeholder’s site. These leases tend to be long because of the commitment made in building,
e.g. 99 or 125 years but possibly 999 years
- occupational lease – both the land and buildings are leased for occupation. Very common in
commercial property, with rent reviews usually every three to five years
What are the two options for lease renewal disputes?
Default dispute resolution method is a referral to the County Court (litigation)
Other option if both parties agree is PACT (encouraged by courts and RICS as an ADR method)
How does a determination by the County Court work for disputed lease renewal proceedings?
The default dispute resolution method, as per the 1954 act, is County Court (litigation), with
clear procedural steps:
-Either party can apply to the court after a S25 or S26 notice has been served (issue
proceedings)
- A pre-trial review is held and a timetable for resolution is agreed
-Must comply with the procedural steps and deadlines! - A date is fixed
- Lawyers and witnesses present a case and the court orders a new tenancy
- Judges can award costs at their discretion
-The tenant can still reject a new tenancy and vacate – there is a cooling off period
How does PACT work for disputed lease renewals?
- However, if both parties agree (hence ability to string it along) then ADR can be pursued via
PACT (Professional Arbitration on Court Terms) - PACT is jointly run by RICS and Law Society
- Encouraged by the courts and RICS for unopposed renewals
- Typically rent is decided by a surveyor and non-rent issued by a lawyer
- Flexibility in procedural steps to be agreed by parties (e.g. arbitrator or independent expert)
– appointed by RICS (DRS) or Law Society after an application. - The decision is binding.
- Advantages: faster, cheaper, flexible, decision be experts rather than a county court judge.
