Landlord and Tenant

Question 1

“I understand the advantages and disadvantages for both landlords and tenants of contracting inside or outside of Sections 24-28 of Part II of the Landlord and Tenant Act 1954. I have given advice on serving section 25 and 26 notices.
I understand the structure, content and form of leases and the importance of clear and transparent drafting. I can analyse sections of leases that can impact value such as alienation, alterations, repair, rent review, assumptions and disregards, break option, user clauses and disputes procedure.”

Question 2

what is The Landlord and Tenant Act 1927

Answer 2

The Landlord and Tenant Act 1927 is a UK public general act that provides for the payment of compensation for improvements and goodwill to tenants of premises used for business purposes, or the grant of a new lease in lieu thereof

Question 3

what is the The Landlord and Tenant Act 1954

Answer 3

The Landlord and Tenant Act 1954 is another UK public general act that regulates business tenancies in England and Wales. It provides security of tenure for business tenants and grants them the right to renew their tenancies at the end of the contractual term

Question 4

what is the The Landlord & Tenant (Covenants) Act 1995

Answer 4

The Landlord & Tenant (Covenants) Act 1995 is an act that modifies the law relating to landlord’s covenants in leases granted on or after 1 January 1996. It restricts the ability of landlords to enforce covenants against tenants after they have assigned their leases

Question 5

what is the Lastly, the Landlord and Tenant Act 1988

Answer 5

Lastly, the Landlord and Tenant Act 1988 is an act that makes new provision for imposing statutory duties in connection with covenants in tenancies against assigning, underletting, charging, or parting with possession of premises without consent2.

Question 6

Tell me about your understanding of the Code for Leasing Business Premises.

Answer 6

The Code for Leasing Business Premises is a set of best practices for commercial leases in the UK by RICS. It is designed to ensure that commercial leases are fairly drawn up and adhered to. The Code is especially useful for small businesses looking to lease business premises to guarantee the best possible deal. Although it is not a legal requirement, some parts of the Code are mandatory for RICS members. As a prospective tenant, you should not assume that a landlord complies with the Lease Code.

The Code for Leasing Business Premises is a professional statement developed by the Royal Institution of Chartered Surveyors (RICS) in collaboration with representatives of landlords, tenants, and other trade bodies. The objective of this code is to improve the quality and fairness of negotiations on lease terms and promote comprehensive heads of terms that facilitate efficient legal drafting1. It applies to lettings of premises in England and Wales for trade, professional, or other business activities1. The code does not prescribe the outcome but seeks to make it fair and balanced by identifying the terms that are usually important and encouraging both parties to obtain advice from property professionals. It aims to enable negotiations to proceed properly so that each party can make an informed decision about whether to proceed on the terms they negotiate.

The code consists of three parts:

10 point requirements for landlords: These requirements ensure that the lease is code-compliant.
Guide for occupiers: This guide explains lease terms and provides helpful tips.
Model Heads of Terms: This model can be completed online and downloaded.
RICS members can use the code, accompanying template heads of terms, and checklist as a reminder for negotiations before granting a new lease or at the time of any lease renewal. By adhering to this code, RICS members can help ensure that landlords, tenants, and guarantors have a clear understanding of their commitments.

Please note that while the code is considered best practice, it is not a legal requirement. However, some parts may be mandatory for RICS members.

Question 7

The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003

Answer 7

The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 is a statutory instrument that amends Part 2 of the Landlord and Tenant Act 19541. It streamlines procedures for renewing and terminating business tenancies under Part II of the Landlord and Tenant Act 19542. The order applies to commercial premises such as offices, shops, factories, warehouses, and leisure facilities2. It does not apply to residential property2.

The order introduces new procedures for terminating or renewing business tenancies under the Landlord and Tenant Act 19543. It also provides procedures for contracting out of sections 24 to 28 relating to security of tenure3.

Question 8

Tell me about your understanding of notices under the LTA 1954.

Answer 8

Notices under the LTA 1954 are an important aspect of the act. They include Section 25 Notices for lease renewals under the LTA 1954 and Declarations & Notices to Contract Out of the LTA 1954. These notices provide information to landlords and tenants regarding lease terminations, new tenancies, and contracting out of security of tenure provisions

The tenant serves a ‘Section 26 notice’ requesting a new tenancy to take effect in 6 to 12 months’ time on or after the contractual termination date and proposing terms.

The tenant terminates the lease giving a minimum of three months notice. N.B. The tenant is not obliged to serve notice if it wishes to end the tenancy on, and vacates the property before, the contractual expiry.

The landlord terminates the tenancy by serving a ‘Section 25 notice’ specifying the date on which the existing tenancy is to end which must be 6 to 12 months’ from the date of service and on or after the contractual termination date time stating whether or not the landlord would oppose a new lease.
N.B. Only the competent landlord (as defined by Section 44) or his agent can serve a Section 25 notice.

The notice must state the statutory ground(s) of opposition as set out in Section 30(1) :
1. Failure to repair
2. Persistent rent arrears
3. Other reasons or breach of covenant
4. Offer of alternative accommodation
5. Current tenancy created by sub-letting of part
6. Demolition, re-construction and construction
7. Landlord’s own occupation (5 year requirement)
1,2,3&5 are discretionary, 4,6&7 mandatory, and 5,6&7 grounds for compensation.

The Section 25 notice must state the landlord’s proposed terms for the new tenancy including at the very least:
* the property to be comprised in the new tenancy
* the new rent
* other terms including term length.

Question 9

Tell me about the LTA 1954 in relation to contracting out a lease.

Answer 9

To exclude a tenancy from the requirements of the LTA 1954 Part 2, the landlord must serve a warning notice on the tenant, allowing him at least 14 days to consider it before signing the lease

The Landlord and Tenant Act 1954 (LTA 1954) is a UK law that provides tenants with security of tenure, which means they have the right to renew their lease at the end of the contractual term1. However, under certain circumstances, landlords and tenants can agree to “contract out” of the LTA 1954 security of tenure provisions. This means that the tenant will not have a statutory right to renew their lease at the end of the contractual term and will have no statutory right to continue occupying the property. The lease must be granted for a fixed term.

When referring to a “contracted out” or “non-protected” lease, we are referring to a lease of business premises that has been excluded from the security of tenure provisions in the LTA 1954. By excluding security of tenure, landlords can retain the ability to choose their tenants, while tenants can protect their position in the market, which may be closely related to their location. The decision to contract out should be taken with appropriate legal advice.

Question 10

What are the Section 30 grounds under the LTA 1954?

Answer 10

The landlord terminates the tenancy by serving a ‘Section 25 notice’ specifying the date on which the existing tenancy is to end which must be 6 to 12 months’ from the date of service and on or after the contractual termination date time stating whether or not the landlord would oppose a new lease.
N.B. Only the competent landlord (as defined by Section 44) or his agent can serve a Section 25 notice.

The notice must state the statutory ground(s) of opposition as set out in Section 30(1) :
1. Failure to repair
2. Persistent rent arrears
3. Other reasons or breach of covenant
4. Offer of alternative accommodation
5. Current tenancy created by sub-letting of part
6. Demolition, re-construction and construction
7. Landlord’s own occupation (5 year requirement)
1,2,3&5 are discretionary, 4,6&7 mandatory, and 5,6&7 grounds for compensation.

Question 11

What does Section 40 of the LTA 1954?

Answer 11

Section 40 of the Landlord and Tenant Act 1954 covers the ‘duty of tenants and landlords of business premises to give information to each other’.

It states that when a person who is an owner of an interest in reversion expectant on a tenancy of any business premises has served on the tenant a notice in the prescribed form requiring him to do so, it shall be the duty of the tenant to give the appropriate person in writing the information specified in subsection (2) below2. The information required includes whether the tenant occupies the premises or any part of them wholly or partly for the purposes of a business carried on by him, whether his tenancy has effect subject to any sub-tenancy, and if so, details about the sub-tenancy2.

Question 12

What tenancies are covered by the LTA 1954?

Answer 12

Does the tenancy qualify as a business tenancy under Section 23 of the Landlord and Tenant Act 1954 (‘the Act’)?
“… this Part of this Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes…”

If the tenancy falls into any of the categories below is is not contracted inside the act

Does the tenancy fall under any of the following exclusions:
* ‘Contracted out’ of the Act;
* Tenancy of farmland, mines, for specified public uses or granted by reason of an ‘office, appointment or employment’;
* Tenancy for a fixed term of 6 months or less without provisions for renewing or extending and without previous occupation for more than 12 months (or their predecessor in carrying on of the business);
* Tenancy at will or a licence and not a lease;
* The tenant is using the property for business without the landlord’s consent;
* The parties have already agreed a further tenancy of the property once the current tenancy ends (Section 28);
* The land is owned by a public body which has certified that the Act should not apply as a matter of national security or other public interest; or
* If the tenant has applied for, and been granted, a new tenancy by the court but then changes its mind so the court revokes the earlier order (i.e. so the tenant cannot change its mind again and seek the protection of the Act a second time).

Question 13

What is alienation?

Answer 13

Alienation in a lease refers to the right granted to a tenant to assign, sublet, or share occupation of their property. It is an important factor for tenants when negotiating leases. Here are the main alienation provisions in a lease from a tenant’s viewpoint:

Assignment: Assigning (or transferring) a lease is the method by which a tenant disposes of the remainder of their leasehold interest in the property to a purchaser. The landlord’s consent is usually required, and they may impose conditions on assignment, such as requiring an authorized guarantee agreement (AGA).
Subletting: Subletting allows the tenant to grant a sublease of either the whole or part of the property to a new tenant. The landlord may impose conditions on underletting, such as requiring the existing tenant to give a guarantee for the sub-tenant or the sub-tenant providing their own guarantor to the landlord.
Sharing occupation: A lease will typically prohibit sharing of the property except where expressly permitted. One of these permissions is the ability to share occupation with group companies. A group company will usually be a subsidiary or parent of the original tenant.
It’s important for tenants to consider alienation provisions at the outset of negotiations and ensure their choices for the future are as flexible as possible1. If you require further advice regarding assignment, subletting, sharing occupation, or any other real estate matter, please consult with a legal professional.

Question 14

what is an authorized guarantee agreement (AGA).

Answer 14

An authorised guarantee agreement (“AGA”) is an agreement where the outgoing tenant enters into an agreement guaranteeing that the assignee will observe and perform the covenants in the lease. This may occur when the owner of a veterinary practice may decide that they want to sell their practice to a proposed buyer.

Question 15

What were the 62 St George Street lease requirements and conditions for serving a break notice?

Answer 15

In simple terms, the Break notice will have no affect if, at the break date, you have not paid any part of the rent and VAT due and the property is not returned to the landlord with vacant possession. It also states that at the Lease end, any disputes raised by WCC over any of covenants in the lease, for example, the repairing obligations or payment of service charge sums will not affect the Break Notice, but they are still enforceable

Question 16

How did you ensure the break conditions were met prior to accepting keys back?

Answer 16

I requested a terminal schedule of dilapidations from the building surveying team, I then met with the tenant onsite and agreed what they needed to do to satisfy the dilapidations, items to remove repair and repaint. I also prepared a rent account summary and detailed and rent /service charge due. The tenant then agreed what works they would do and if not the sum which would be owed. The tenant did not hold a rent deposit. I then agreed a date to return to the property to inspect and sign off and return the keys.

Question 17

What negotiations took place regarding dilapidations?

Answer 17

The lease did not have a schedule of condition and so the obligations of the tenant was to keep the property ‘in good repair’ The tenant was operating as a hair dresser, they removed the sinks and chairs, mirrors and made good the walls. There was a small reception counter which was removed and the shop front was cleaned as it had been decorated within the last 12 months with receipts. The floor was in good condition and the tenant had an EICR certificate.

Question 18

On the 3 The Square rent review, what were the assumptions and disregards?

Answer 18

3 The Square
I received instruction to represent my client (the landlord) in respect of an upcoming rent review. I summarised the lease and inspected the property taking detailed notes of the specification and condition with photographs. I conducted market research and collated information on relevant transactions. I noted that there was a lack of recent transactions for office space of the same period and style so I canvassed local agents for further advice on market demand for this property type. My market research identified that the tenants were paying a suitable level of market rent considering the lease obligations for ‘putting and keeping’ a listed building ‘in substantial repair and condition’. The property layout over 4 floors, no lift and facilities only located at basement level also had an impact on rental value. I reported to my client that the current rent passing was in line with current market conditions and supported a NIL increase for the rent review. This was satisfactory to my client.

The assumptions and disregards were:

assumption
property was in repair
available to be let in the open market by a willing lessor and lessee without premium and with vacant possession, for a term equal to the unexpired residue. no rent free and included within the landlord and tenant act. covenants had been fully observed and performed

disregards
any goodwill
tenants improvements

Question 19

What fee did you charge your client for determine a nil Increase In rent?

Answer 19

My client in this instance is the Landlord and my fee payable is my daily working flat rate.

Question 20

How did you overcome the lack of comparable evidence?

Answer 20

I spoke to other experts in the field to gain their opinion of the market and demand for office space to this specification and lease conditions. This helps me to gauge an understanding of demands for office space.

Question 21

How do you collate, analyse and adjust comparable evidence?

Answer 21

I gather evidence online using Radius and property link (estates gazette) I canvass local agents for transactions at the rent review date. I also ask their opinion of market rent for similar property of the assumptions in the review. When inspecting the premises I look at the properties within the location to look for comparable and request information and contacts within that property if appropriate. This evidence is organised in a simple table with the relevant details and pictures. Then when I select suitable comparable transaction I then make valuation adjustments for example, term, quantum, shape/access, specification etc.

Question 22

What is the hierarchy of evidence?

Answer 22

RICS have categorised comparables into three categories, forming a hierarchy of evidence: Comparable evidence in real estate valuation (1st edition) this document was reissued in April 2023 as a professional standard

Category A – direct transactional evidence

Category B – general market data providing guidance rather than a direct indication of value, such as evidence from published sources, commercial databases, indices, historic evidence and demand/supply data

Category C – other sources, such as transactional evidence from other property types and locations and other relevant background data

Question 23

what is an An expert witness

Answer 23

An expert witness is an individual who, by reason of their education, training, skill, or experience, has specialist knowledge of a particular field or discipline beyond that of a layman1. In the context of property, an expert witness provides independent expert/technical analysis and opinion to assist the court in reaching a decision1. The primary duty of an expert witness is to the court, which overrides any obligation to the instructing and paying party or parties1. Expert evidence should be independent, objective, and unbiased1.

The role of an expert witness in property involves the following responsibilities:

Providing objective and unbiased opinions on matters within their expertise2.
Assisting the court or tribunal in areas that they cannot reasonably form a view on without assistance from someone qualified to advise on that particular area2.
Stating the facts or assumptions on which their opinion is based and not omitting material facts that could detract from their concluded opinion3.
Ensuring that their written report and oral evidence are truthful as to fact, thorough in technical reasoning, and complete in coverage of relevant matters1.
It’s important to note that an expert witness must not be biased towards the party responsible for paying their fee1. The duties an expert witness owes to the court may sometimes conflict with those they owe to the client1.

Question 24

How does the role of an expert witness change from when you are negotiating?

Answer 24

An expert witness is a person who provides testimony in a legal proceeding based on their specialized knowledge or experience in a particular field. The primary duty of an expert witness is to the court, and their evidence should be independent, objective, and unbiased

When an expert witness is negotiating, they are not providing testimony in a legal proceeding. Instead, they are working with one or more parties to reach an agreement or settlement. In this context, the role of an expert witness may change depending on the nature of the negotiation. For example, an expert witness may be called upon to provide advice on the strengths and weaknesses of a particular case, or to help identify areas where compromise may be possible.

It is important to note that when an expert witness is negotiating, they are not bound by the same rules of evidence as they would be in a legal proceeding. This means that they may be able to provide more informal opinions or advice without having to worry about the same level of scrutiny as they would in court.

In summary, while the primary duty of an expert witness is always to the court, their role may change when they are involved in negotiations outside of a legal proceeding.

Question 25

How does an advocate differ from an expert witness?

Answer 25

An expert witness is a professional who provides impartial and objective evidence in a court of law to help the judge or jury understand complex scientific, technical, or medical issues 1. They are not advocates for either side of the case and are expected to provide independent opinions based on their expertise 2.

On the other hand, an advocate is a person who represents a client’s interests in a legal proceeding. They are responsible for presenting their client’s case in the best possible light and persuading the judge or jury to rule in their favor 3.

In summary, while an expert witness provides objective evidence to assist the court, an advocate presents their client’s case in the most favorable way possible 4.

Question 26

what is an arbitrator

Answer 26

an independent person or body officially appointed to settle a dispute:

Many disputes go to Court, but not all – sometimes the parties choose an “alternative” way of resolving their dispute. “Alternative dispute resolution” or “ADR” means resolving a dispute other than by going to Court. Parties choose ADR because Court proceedings can be lengthy and expensive, and there are strict procedural Court rules that the parties have to follow. Court proceedings are also held in public.

The parties might prefer to resolve their dispute privately, quickly, or with a view to saving costs. They might prefer a more flexible approach to the process compared to the strict rules of Court. That’s where ADR comes in.

The parties might choose mediation, for example, where the parties ask someone to help with their negotiations. But sometimes the parties want someone who is independent and neutral to given them a binding decision, having heard the parties’ arguments and seen their evidence, and that’s when the parties might choose to use arbitration.

Question 27

What is an expert?

Answer 27

An independent expert is a professional who is appointed to resolve a property dispute. They are typically impartial and provide an unbiased opinion on the matter at hand.

In the context of a property dispute, an independent expert listens to both sides of the argument and makes a decision on how the dispute should be settled. This process can be written into a contract or agreed upon by the parties involved. Independent expert determination is often used in construction-related matters, such as workmanship and completion issues under development agreements, as well as dilapidations and service charge disputes.

Question 28

How does an arbitrator and expert’s roles differ?

Answer 28

The roles of an arbitrator and an expert differ in several ways. Here are some key differences:

Arbitrator: An arbitrator is a neutral third party who is appointed to resolve a dispute between two or more parties. They act as a judge and make a final and binding decision on the matter. The arbitrator’s role is to listen to both sides, consider the evidence and arguments presented, and then make a decision based on the law and facts of the case1. The decision made by an arbitrator is legally enforceable.

Expert: An expert, on the other hand, is someone who has specialized knowledge or skills in a particular field. They are appointed to provide their professional opinion or advice on a specific matter. Unlike an arbitrator, an expert does not have the authority to make a final decision or resolve disputes between parties1. Instead, their role is to provide their expertise and assist the parties involved in understanding complex technical or scientific issues.

In summary, while both an arbitrator and an expert play important roles in dispute resolution, an arbitrator acts as a judge and makes binding decisions, whereas an expert provides specialized knowledge and advice to assist parties in understanding complex matters

Unlike the quasi-judicial function that an arbitrator performs, the expert is required to exercise his own skill and judgment. He is responsible for the information gathering process and, therefore, unlike an arbitral tribunal, can adopt an inquisitorial approach. Inevitably, in practice, this includes receiving submissions from the parties, but the expert is not bound to have regard to them: Palacath Ltd v Flanagan [1985] 2 All ER 161. Conversely, an arbitrator is likely to seek the parties’ permission before carrying out its own investigations and the parties should be given an opportunity to make submissions on the results of such investigations before the final award is made.

The expert, as the name suggests, is chosen for his particular knowledge and expertise. He is expected to draw on his own experience to decide the questions referred to him and may dispense with the need for the parties to instruct their own independent experts if deemed appropriate. An expert is required to make his own inquiries unless he reasonably considers that the evidence provided by the parties is sufficient. It is very rare that an expert will conduct an oral hearing, whereas in arbitration, similar to litigation, there is often a fully contested hearing with involving examination of witnesses and experts and oral submissions by legal representatives of the parties.

Unlike an arbitrator, unless the contract expressly provides that an expert can, for example, order a party to disclose relevant documents or to issue a witness summons compelling a witness to give evidence, there will be no jurisdiction for him to do so (British Shipbuilders v VSEL Consortium plc [1997] 1 Lloyd’s Rep 106). Consequently, expert determination is often less suitable for cases in which there are substantial issues of fact in dispute.

Question 29

How would you establish the relevant third party procedure for a rent review?

Answer 29

Where the new rent cannot be agreed then well drafted rent review clauses will provide for referral to an independent third party either by the landlord or by either party. The clause will also state who chooses whether the third party is to act as an expert or arbitrator.

Question 30

How much does it cost to submit an RICS Dispute Resolution Service application?

Answer 30

The cost for a RiCS DRS application is £195.001. If more than one holding is to be referred to arbitration, a fee is payable in respect of each holding1. There is also an application fee of £425 inclusive of VAT23. This payment is non-refundable whether or not the President/Chairman makes the appointment3.

Question 31

What is the difference between the hypothetical lease at a rent review and lease renewal?

Answer 31

A rent review clause is used to provide the landlord with an opportunity to review the level of rent payable by a tenant during the term of a lease. It allows the landlord to reassess the rent at certain points in the lease. Rent reviews can take place at any time agreed upon by the landlord and tenant, generally every 3 or 5 years1. There are various types of rent reviews, such as index-linked and stepped rent reviews.

On the other hand, a lease renewal allows a tenant to prolong a current lease past its scheduled end date. It is a new contract that updates the duration of the rental period and may contain new terms. Lease renewal agreements can also be used to renegotiate terms, such as a rent increase or new tenant amenity benefits after the current lease period ends.

The hypothetical lease at a rent review is based on exactly the same terms as the existing lease, but with some pre-agreed assumptions and matters to be disregarded about the lease. The review takes place by pretending that a new ‘hypothetical lease’ will be entered into based on these assumptions and disregards.

Question 32

What is PACT

Answer 32

PACT stands for Professional Arbitration on Court Terms. It is a joint initiative established by RICS (Royal Institution of Chartered Surveyors) and the Law Society1. PACT is a form of alternative dispute resolution (ADR) used to resolve lease renewal disputes in the property sector1. It involves delegating the determination of all or some of the terms of a renewal lease to an independent third party, who can act as either an arbitrator or an independent expert1. The process offers a viable alternative to litigation and can be used to resolve disputes related to various aspects of a new lease, such as duration, rent, drafting, repair, service charge, alienation, break clauses, and other terms1. The professionals appointed under the PACT scheme are experienced specialists who have been specifically trained in commercial lease renewals1. Any decision made by an arbitrator or independent expert is legally binding1.

PACT provides several benefits compared to traditional court proceedings:

Flexibility: Parties can choose whether a lawyer or surveyor is appointed and whether they act as an arbitrator or independent expert.
Quick Resolution: PACT can be set up speedily and should be less time-consuming than going to court.
Expert Decisions: Only professionals with high levels of knowledge and experience in the subject matter are appointed.
Adaptability: The scheme allows bespoke solutions to be developed to suit the needs of the parties1.

Question 33

what is a calderbank offer

Answer 33

A Calderbank offer is a private and confidential offer made by one party to another party with the intention of settling a dispute. It is expressed as ‘without prejudice save as to costs’ and must be a genuine offer capable of being accepted. The offer cannot be disclosed to a third party, except on the matter of costs2. If accepted, it is legally binding and provides protection on costs.

Answer 34

The process is kicked off either by 
the landlord serving a notice under 
s25 of the Act, or the tenant serving a request for a new tenancy under s26 of the Act. There is a prescribed form for the request: Form 3 to Schedule 2 of the Act Part II

Whether serving a s25 notice or responding to a tenant’s s26 notice, the landlord will have to state whether:

it opposes the grant of a new tenancy per se (on one of the grounds specified in s30(1)); or
a new tenancy is unopposed in principle, but some or all of the terms are in dispute. Service of the notice or request and counter-notice is often a trigger for negotiations between the landlord and tenant.

if there is a dispute as to entitlement or terms, that dispute needs to be resolved. Because of the strict statutory time limit for the issue of proceedings, tenants are often forced to issue, so how can large costs be avoided?

Agree with the landlord, prior to the termination date, that there should be an extension of the date by which the application must be issued in order to allow negotiations to proceed: s29B. This agreement must be in writing to 
be effective: s69(2).
If the lease renewal is unopposed and the scope of the dispute is limited, it might be appropriate to agree that, instead of issuing proceedings, the parties will enter into a lease on terms to be determined by an arbitrator. This enables the parties to have more control over the timing than using the court system and avoids the need to prepare costs budgets. It also enables the parties to choose, for example, to agree that each side should bear their own costs – or to leave the decision about costs to the arbitrator. If the parties agree to arbitrate it would be wise nevertheless to agree extensions of time for the issue of proceedings in writing, and renew them as necessary, in case the arbitration is abortive for 
any reason.
Issue proceedings with the intention of seeking an immediate stay for negotiation (or, in an appropriate case, mediation). The proceedings will be in Part 7 form if the renewal is opposed, and Part 8 form if the dispute is simply about terms. The matters that need to be included in the claim form are set 
out in detail in the Practice Direction to Part 56.

Question 35

what are the Jackson reforms?

Answer 35

The Jackson Reforms are a set of cost reforms that came into force on 1 April 20131. They were the result of Lord Justice Jackson’s review of the civil litigation costs system, which aimed to promote access to justice at proportionate cost2. The reforms deal with how litigation is funded, how litigation is conducted, and how costs are dealt with13. Although the focus of the reforms is on personal injury claims, they will have implications across all aspects of civil litigation

Question 36

what is a part 36 offer?

Answer 36

A Part 36 offer is a provision under the Civil Procedure Rules (‘CPR’) to encourage parties to settle a dispute without commencing or continuing proceedings. It is a form of offer used to settle all or part of a dispute between parties to civil litigation. A Part 36 offer is made based on a ‘without prejudice save as to costs’ basis and therefore the judge will not know of the offer until the case has been decided. It is a tactical step designed to convince the other party to settle the claim early without the matter having to go to Court

Question 37

Can you serve a Calderbank offer at a lease renewal?

Answer 37

It is possible to make a Calderbank offer, which is an offer made without prejudice save as to costs, at a lease renewal. A Calderbank offer is privileged and cannot be referred to until the substantive decision has been made and the court is deciding the question of costs. Once the offer is accepted, it is enforceable as a contract.

Question 38

what is Section 34 of the Landlord and Tenant Act 1954 ?

Answer 38

Section 34 of the Landlord and Tenant Act 1954 governs the rent payable under the terms of a renewal business tenancy123. It gives the court the power to determine the level of rent when the parties have not been able to reach an agreement on that aspect of a renewal lease1. In the absence of agreement to the contrary, the rent payable under the renewal lease is the “open market rent” for the premises within the holding on the terms of the renewal lease

Question 39

what is Compensation for disturbance?

Answer 39

Compensation for disturbance is a payment made to a tenant who would be entitled to a new lease but for the non-fault grounds specified above1. The payment is made to compensate the tenant for the loss incurred for moving or in consequence of losing the lease1. The amount of compensation for disturbance will normally be equivalent to the costs and expenses that the tenant has reasonably incurred in giving up the tenancy and moving to a new home. Reasonable costs and expenses may include removal expenses, disconnection and reconnection of services (such as telephone and electricity) and agent’s fees

Question 40

What does Section 18 mean in relation to the LTA 1927?

Answer 40

Commentators and judges have frequently referred to s. 18(1) as a “cap” or “statutory ceiling” on the landlord’s recoverable common law damages.

Question 41

What recent county court cases have there been on Covid lease renewals?

Answer 41

Poundland Ltd v Toplain Ltd
Summary
Poundland (the Tenant) had requested that a new term be incorporated within their renewal lease which would reduce the annual rent and service charge by 50% during any so-called “use prevention measures” (being the term used to define the recent Covid-19 lockdowns). Whereas the vast majority of the lease terms had already been agreed, Poundland was arguing that the inclusion of such a pandemic clause would “modernise” the existing lease terms.

Toplain (the Landlord) disagreed with this point of view, arguing that there was no precedent for this type of clause to be added to the lease renewal and it would also significantly change its commercial relationship with Poundland. The Landlord further argued that any future Covid-19 lockdowns would be controlled by Government legislation, as has been the case since the outbreak of the pandemic, and that the Tenant would benefit from such legislation.

As the two parties disputed the inclusion of this Covid-19 related clause, it was to be determined by the Court under Section 35 of the Landlord and Tenant Act 1954, which provides the Court with discretion to determine the terms of a new lease when one party is proposing new terms which the other party does not consent to.

Judgment
When considering these types of cases (e.g. where the terms of a lease renewal cannot be agreed between parties), the Courts will adopt the approach applied in the case of O’May v City of London Real Property Co Ltd [1983]. This case asserts that the Court should not permit for a departure from the terms of the existing lease unless the proposed change is fair and reasonable for both parties and the burden of changing the lease falls on the party proposing it.

As a result, the County Court ruled in favour of the Landlord, with District Judge Jenkins deciding that it would not be fair and reasonable to Toplain to introduce such a clause to the lease, as:

They could not be expected to share the risk in the situation with which they would have no control; and
Where the Tenant could benefit from Government reliefs or schemes.
The judgment in this case, whilst not binding since it is at County Court level, means that tenants seeking new pandemic related clauses may struggle to have them included in new leases.

Question 42

What is the index linked rent reviews?

Answer 42

An index linked rent review is simply a rent review clause that is linked to an index that tracks inflation, notably RPI and CPI.

They are generally still not as popular in leases as open market rent reviews.

A reason for this could be down to RPI being linked to inflation and the UK not seeing a lot of high inflation periods until recent times. Another factor could be that inflation is a general metric that affects all goods and services. It, therefore, does not account for strengths & weaknesses, location and supply and demand forces at the property level.

Question 43

Following the Chartbrook case, what was the outcome of the Monsolar IQ Ltd v Woden Park Ltd case?

Answer 43

In 2013 the Defendant granted to the Claimant a lease of 15 acres of formerly agricultural land to be developed as a solar farm. Rent was payable half-yearly in arrears and the was to be reviewed annually by reference to the following formula:

Revised Rent = Rent payable prior to the Review Date (disregarding any suspension of Rent) x Revised Index Figure /Base Index Figure

The Revised Index Figure was defined to mean the RPI a date shortly before the review date. The Base Index Figure was defined to mean the RPI on a date shortly before the lease commenced.

Read literally, the indexation clause would therefore operate as follows: on the first rent review, the rent would increase by the RPI increase over the first year of the term; on the second review, the revised rent would be further increased by the aggregate RPI increase over the first and second years of the term; on the third review, that further revised rent figure would be increased by the aggregate RPI increase over the first, second and third years of the term; and so on for the rest of the term. So, read literally, the formula repeatedly applied inflation occurring in past years again and again in later years. The practical result was that, taking the average rate of inflation over the 20 years prior to the date of the Lease (2.855% p.a.), the rent payable by year 25 of the lease would have risen to more than £76,000,000 pa, as compared with less than £30,000 if the rent was merely increased in line with RPI.

The High Court applied the well-known approach set out in the speech of Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, and found that the indexation provisions in the lease contained a clear mistake, which did not reflect the intentions of the parties, objectively assessed. Read literally the clause produced absurd, irrational and arbitrary results which could not have been intended. On its true construction the formula meant that the rent passing at the end of each complete year of the term was to be increased or decreased on review in accordance with any proportionate change in the RPI during that year.

The landlord appealed, on the basis (a) that the Chartbrook approach required modification in the light of the Supreme Court’s decision in Arnold v Britton, so that the rationality (or lack of rationality) of the clause’s operation could not be taken into account in deciding whether a mistake had been made in the drafting of the lease, and (b) that even if there was a mistake, it was not obvious what the parties meant: because the lease referred to “increases” in the rent, they might have intended the review mechanism to be upwards only, in which case there were multiple ways of correcting the mechanism, with arithmetically different results for the passing rent.

Question 44

Can you challenge an arbitrator’s award and, if so, under what grounds?

Answer 44

Yes, an arbitrator’s award can be challenged under certain circumstances. In the United Kingdom, an arbitration award can be challenged and set aside on the following grounds 1:

The tribunal lacked substantive jurisdiction.
There has been a serious irregularity affecting either the tribunal, the proceedings or the award.
The parties are free to agree on the form of an award. Absent an agreement, an award must be in writing and signed by all arbitrators or all those assenting to the award. The award should contain reasons, unless the parties have agreed to dispense with reasons or it is an agreed award. The award should also state the date on which the award was made and the seat of the arbitration. Unless an alternative process is agreed by the parties, the award should be notified to the parties by service on them of copies of the award without delay after the award is made

Question 45

Can you challenge an experts determination

Answer 45

There are three main grounds for challenging an expert determination:
The decision made by the expert has exceeded his jurisdiction and therefore the parties have not agreed to be bound by it.
The decision has been vitiated by fraud or dishonesty.
The expert was biased in reaching his decision.
Grounds (1) and (2) arise from the expert’s duty of good faith

Question 46

what is The presumption of reality

Answer 46

The presumption of reality or reality principle is a presumption of interpretation that applies to the assessment of reviewed rent in the field of rent review. It is defined as a presumption that the reviewed rent should be assessed based on the factual and legal state of affairs that exists on the valuation date in reality, rather than on some other artificial basis1. The force of this principle varies according to the circumstances1.

This principle is not exclusive to rent review and has been applied in other valuation fields such as capital taxation and rating1. It is often used when a contract or statute provides for the fixing of an amount by reference to a hypothetical transaction

Question 47

What is a turnover rent?

Answer 47

Turnover rent is a method of paying rent based on a percentage of the tenant’s gross turnover. It is usually combined with a fixed base rent that the tenant pays regardless of turnover. Turnover rent is commonly used for retail properties, especially in shopping centres. It gives the landlord security and a share of the tenant’s profits.

Question 48

what is a geared rent

Answer 48

A geared rent is a term used in real estate to describe a type of rent that is adjusted based on certain factors, such as the market rent or the tenant’s income. It can be used in different contexts and has different meanings depending on the situation.

In the context of long-dated reversions, a geared rent refers to a rent review mechanism where the rent payable after the market rent is agreed or ascertained would be some percentage of the market rent1. This means that the rent can be fixed throughout the term, or with preset fixed increases at specified intervals, or subject to rent review, either formulaic or geared to market rent1. The percentage of the market rent can vary depending on the terms of the lease1.

Question 49

What does the RICS say about conditional fee agreements when proceeding to third party as an expert witness?

Answer 49

Conditional fees
You should not undertake expert witness appointment on any form of conditional or
other success-based arrangement.
It is inappropriate to be remunerated by way of a conditional fee arrangement when
acting as an expert witness but may be an appropriate fee basis when acting as an
advocate. When acting in a dual role as expert witness and advocate, where permitted
in lower tribunals, a conditional fee arrangement may be acceptable because it will be
seen as attached to the role of advocate. Such a dual role improves access to justice
by reducing costs and therefore a conditional fee payment can be supported in these
limited and strict circumstances.
When acting in a dual role and where a conditional fee arrangement has been agreed,
this must be declared to the tribunal.
It is unlikely that a dual role will be permitted in higher tribunal formats and
consequently previously agreed conditional fees when the surveyor has appeared in a
lower tribunal will, at the point of transferring to the superior or higher tribunal, need to
be commuted and replaced by an hourly rate or fixed fee arrangement.

Question 50

What does disclosure mean in relation to a lease renewal?

Answer 50

When renewing a lease, the landlord must give the tenant a disclosure statement no later than 21 days before the end of the lease1. The disclosure statement outlines essential lease information, such as the term of the lease and occupancy costs. The lessee must also disclose the future lease payment requirements for the first five years and the total for the remaining lease term.

Question 51

How would you deal with post-dated rent review evidence?

Answer 51

Post-dated rent review evidence is generally inadmissible as evidence because what happened after the valuation date is not a foreseeable event on the valuation date1. However, transactions after a review/valuation date are generally admissible in evidence. The weight to be given to such evidence is a matter of assessment. The longer the period between the valuation date and the post-review date comparable, the less weight the evidence may carry.

Segama NV v Penny Le Roy Ltd.
Segama NV v Penny Le Roy Ltd [1984] 1 EGLR 109 concluded that a number of transactions on comparable properties which occurred after the review date were admissible in a rent review arbitration.

Question 52

How do you treat tenant’s improvements at rent review?

Answer 52

It is important to establish whether the works carried out by the tenant are classified as “improvements” or simply as repair and maintenance under the lease.

Under the Landlord and Tenant Act 1927, an improvement is an alteration that goes beyond repair, and from the tenant’s subjective point of view, improves the premises. This will be the case even if the improvement reduces the value of the landlord’s interest.

In a renewal under the Landlord and Tenant Act 1954, improvements carried out by the tenant are to be disregarded when establishing the new rent. This is for the tenant’s benefit, as an improved property will likely have a higher rentable value on review.

Sheerness Steel Co v Medway Ports Authority makes it clear that a tenant should not have to pay an increased rent for the improvements they have made at their own expense.

Many rent review clauses state that the effect on value of the tenant’s improvements will only be disregarded if they were carried out with the landlord’s consent. If the landlord unreasonably refuses consent, the landlord would then be prevented from relying on the absence of consent.

Even if the improvements were carried out before the date of the grant of lease, they may still be disregarded provided that they meet the requirements under Section 34 Landlord Tenant Act 1954, which are:-

The improvements were completed no more than 21 years before the application for renewal of the lease

The holding or part of the holding affected by the improvement has at all times since the improvement been compromised in a tenancy to which Section 23(1) applies

At the termination of the tenancy, the tenant did not quit the holding
Rent review clauses will usually only disregard the works carried out by the tenant or the tenant’s predecessor in title. The same will also apply if the rent review clause incorporates Section 34 LTA, which refers to improvements as “carried out by a person who at the time was the tenant”.

If an agent carried out the improvements for the tenant (a third party under an agreement with the tenant), they will also be disregarded on review.

However, if the improvements were carried out by a licensee, they will not be disregarded as a tenant does not include a person who is a licensee. This was illustrated in Euston Centre Properties v H&J Wilson Ltd.

Summary

Usually, anything in excess of standard repairs/maintenance will be considered improvements.

Improvements are often disregarded from lease renewal rent calculations. However, before carrying out works, it is prudent to speak to your solicitor and request consent from your landlord.

Question 53

What is a dilapidations schedule

Answer 53

A Schedule of Dilapidations is the document
prepared by the landlord (or their surveyor)
listing outstanding reinstatement, repair,
legal compliance and decoration items to
the property, suggesting remedial works and,
in some cases, estimating the cost of the
remedial works

Question 54

What is a quantified demand?

Answer 54

A Quantified Demand is a document setting
out further details of the allegations. It is
prepared by, or on behalf of, the landlord and is
issued after the end of the lease. It will include
details of what the landlord considers to be its
likely loss as a consequence of the alleged
breaches. The loss may be different to the cost
of the works that will be in the Schedule of
Dilapidations.

Question 55

What is a response to a dilapidations schedule

Answer 55

A Response is the reply from the tenant (or
their surveyor) to the Quantified Demand and/
or the Schedule of Dilapidations. This is usually
a letter/email and a Scott Schedule

Question 56

what is a scott schedule

Answer 56

A Scott Schedule is an extended version of
the Schedule of Dilapidations which enables
the tenant (or their surveyor) to respond to
the content of the Quantified Demand and/
or the Schedule of Dilapidations.

Question 57

what is the dilapidations protocol

Answer 57

The Dilapidations Protocol is a document
published by the Ministry of Justice setting
out the courts’ expectations of the landlord
and tenant about lease-end dilapidations.
The protocol is available on the Ministry of
Justice website

Question 58

What timings apply to a dilapidations claim?

Answer 58

A dilapidations claim is a claim by a landlord for damages caused by a tenant to a leased property. The Dilapidations Protocol is a set of guidelines that aims to encourage the parties to resolve the claim without litigation. According to the Protocol, the landlord should serve the Schedule of Dilapidations and Quantified Demand within 56 days of the end of the lease. The tenant then has another 56 days to respond. The landlord has at least 6 years from the end of the lease to commence a dilapidations claim.

Question 59

what is Diminution in value

Answer 59

Diminution in value is a legal term used when calculating damages in a legal dispute1. It describes a measure of value lost due to a circumstance or set of circumstances that caused the loss1. Diminution Valuations is the term which describes the legal limit on damages paid in dilapidations disputes2.

Question 60

What legislation relates to diminution valuations?

Answer 60

Section 18 of the Landlord and tenant act 1927 Disputes about dilapidations can be very
complex and can involve a number of
specialists. For example if a landlord has
not completed the dilapidations works but is
proposing to litigate to recover damages from
the former tenant, a specialist valuation report
on the property will need to be prepared (called
a diminution valuation). This is usually prepared
by a chartered valuation surveyor.
Other specialists may be necessary to advise
on particular aspects, such as lifts, air
conditioning, cladding, land contamination etc.
If the dispute does end up in the courts then
barristers will probably need to be engaged to
review the case and act on behalf of the parties.
If the dispute cannot be resolved and does end
up in the courts then expert witnesses will
probably be required. It is normal, but not a
requirement, for the parties’ surveyors to be
engaged as expert witnesses. This is because
of their prior involvement and knowledge of the
dispute. If this does happen then the surveyors’
duty will be to the courts and not the parties
that originally appointed them.

Question 61

Remedies for landlords during a dilapidations claim

Answer 61

Remedies for landlords during a dilapidations claim

Make a claim to force the tenant to undertake repair works
Seek monetary damages as a result of the disrepair of the property
Forfeiture of the lease as a result of a breach in the lease
Enter the premises to carry out necessary repairs and recovering the cost from the tenant, if there is such provision in the lease

Question 62

what is supersession

Answer 62

After premises are delivered up in disrepair the landlord often upgrades or refurbishes. Sometimes this work is so extensive that, had repairs been carried out by the tenant, they would not have survived the refurbishment. In these cases the tenant will say that the landlord gets a windfall. The landlord will say that the tenant should not be able to disregard its obligations without financial consequences. Who is right?

In Sunlife Europe Properties Limited v Tiger Aspect Holdings Limited [2013] EWHC 463 (TCC) the judge considered when “supersession” applies and, on his analysis, both the landlord and the tenant can be right.

Sunlife concerned prime Soho office premises let in 1973/74 on fully repairing leases which expired in 2008. The tenant vacated at the end of the term leaving behind significant dilapidations which the landlord’s surveyor said would cost £2.42 million to remedy. Before re-letting the premises the landlord carried out a significant upgrade and refurbishment to the building. The tenant argued that had it complied with its obligations, the land-lord would still have had to carry out a significant upgrade to attract a new tenant because otherwise the premises would have been in line with 1970s’ standards. The tenant contended that, because this work would “supersede” the work that it should have carried out, the diminution in value to the reversion was only £240,000.

The judge accepted that the standard to which the tenant had to repair was the standard at the date of the demise and that if the plant was beyond economic repair the tenant was only bound to make a like for like (or nearest equivalent) replace-ment and did not have to bring it into line with current stand-ards.

However, on the question of “supersession” the judge did not accept that the fact that the landlord had carried out more ex-tensive work prevented the landlord from recovering the costs of repairs necessary to remedy the breach. The judge said that the starting point was to ask whether, assuming that the tenant had complied with its obligations, the landlord could have let or sold the building without any significant discount on the price to reflect the actual condition of the building.

If the answer to that question was “yes” then “supersession” would not apply and the diminution in value would ordinarily reflect the cost of putting the building back into the condition in which it should have been delivered up.

If the answer was “no” then the court must consider what further work would have been required to put the premises into a condition that would enable it to be let to the appro-priate type of tenant (as to which see Proudfoot v Hart (1890) 25 QBD 42) at a fair market rent. The judge explained that:

“This additional work may make worthless some of the work that would have been necessary to put the building into repair with the result that, if such work has not been done, the landlord has suffered no loss and accordingly cannot recover any damages in respect of that breach. This is known as “supersession”.”

This analysis reflects that what is in issue is a valuation question under the first limb of section 18(1) of the Land-lord and Tenant Act 1927. The issue is an objective one and does not depend on the works the landlord actually did or might carry out but what work a hypothetical pur-chaser would factor into its bid for the reversion.

Importantly, the exercise assumes that the tenant has fully performed its obligations under the lease. “Supersession” can only apply to any further work needed for the premises to be let to an appropriate tenant at a market rent. This limits the scope for a tenant escaping the financial conse-quences of disregarding its obligations and means that the focus of a dispute about “supersession” should be on what further work (if any) is needed to achieve a market letting at the end of the lease.

In the Sunlife case the tenant was unable to challenge the landlord’s valuation evidence that, if the tenant had com-plied with its obligations, in 2009 the building could have been let to an appropriate type of tenant with only fairly minor improvements (including refurbishment of the toi-lets). The landlord was therefore entitled to substantial damages despite the fact that its refurbishment scheme had gone beyond what the tenant had been obliged to do.

The judge awarded £1,353,253 to the landlord, a sum just under the statutory cap as assessed by the judge. And yes, that is almost the exact mid-point between the parties’ starting positions.

Question 63

can a part 36 be used in a dilapidations claim

Answer 63

A Part 36 offer can be used in a dilapidations claim123. A well-pitched Part 36 offer made at an early stage will give the tenant substantial costs protection against the landlord’s dilapidations claim1. However, it is important to carry out a full evaluation of the strength of your case and the quantum of the claim in dispute so that you can make your offer at the correct level2. Part 36 offers were created by the CPR and are similar to Calderbank offers3. If successfully made, the court should have no discretion on whether to make a generous award in relation to legal costs3.

Question 64

Explain the precedent set in WH Smith Retail Holdings v Commerz RI mbH (2021) relating to pandemic rent suspension clauses.

Answer 64

The tenant (WHS) had served on its landlord (L) a notice under section 26 of the Landlord and Tenant Act 1954 seeking a new lease of its unit in the Westfield Shopping Centre at Shepherd’s Bush. By the time the matter came to court (November 2020) the country was in the middle of its second lockdown. However, although non-essential shops were closed, WHS’s store remained open as it contained a post office (making it an essential retailer). However, sales were down by over 90%.

The parties agreed on most of the terms for a new lease, but a few issues remained outstanding (including the rent). In particular, the parties agreed that the new lease should contain a pandemic rent suspension clause which, if triggered, would mean that WHS would have to pay 50% of the rent and the whole of the service charge and would have to account for any sums received from the government by way of subsidy or support in respect of rent. However, the parties could not agree on the trigger for that rent suspension.

Issues
Should the pandemic rent suspension be triggered only when WHS was forced to stop trading from the unit or when non-essential retailers were forced to close?

Should there be an uplift in the rent to reflect the benefit to WHS of having a pandemic rent suspension clause?
Decision
The trigger should be the forced closure of non-essential retailers. Otherwise, the rent suspension clause would be very unlikely to have any effect. As it contained a post office, WHS’s store had not been forced to close in the lockdowns to date and there was no reason to suppose that would change if there were to be further lockdowns. Matters might be different on the high street, but the reality in this shopping centre was that if non-essential retailers surrounding WHS were closed, there was no advantage to WHS in remaining open.

There should be no uplift because of the rent suspension clause. It was not the case (as L had argued) that WHS was, in effect, benefiting twice over from the pandemic. Any discount in rent as a result of the pandemic reflects a consensus about the general fall in the rental market. It is not providing the same thing as a pandemic rent suspension clause, which is an attempt to share the burden of the loss caused by the impact of compulsory closure of non-essential retailers. Pandemic rent suspension clauses have become something that all tenants want and the market has now priced them in.
Points to note/consider
Whilst this is only a County Court decision, the case is of great interest as it shows the long-lasting effects the pandemic is likely to have on non-contested lease renewals. Everyone involved in landlord and tenant negotiations will particularly be interested in the judge’s view that pandemic rent suspension clauses have, in effect, now become ‘market norm’ and that rent should not be increased as a result of them. In fact, the reverse is likely to be true – rent will be depressed if a lease does not contain such a clause.

In addition to the pandemic rent suspension clause (and its impact on rent), there were also other issues that the parties could not agree on. In particular, L wanted to modernise the service charge provisions to include, amongst other things, the costs of energy audits and steps taken to improve energy efficiency and of obtaining energy performance certificates when letting or renewing the lease of any unit in the centre. This wording reflected the latest form of lease precedent used in the centre and was required on leases granted to new tenants.

The judge refused to allow this change. The new clauses were opaque and likely to cause litigation. It was not enough for L to argue that the vagueness of the wording and the uncertainty of what is intended could be compensated by relying on the fact that everything will be conducted in accordance with the principles of good estate management. The judge was not convinced that L had discharged the burden on it to show that the proposed change was fair and reasonable in all the circumstances.