Landlord and Tenant Flashcards
1
Q
What is the difference between a lease renewal and a rent review?
A
- Lease renewals
o Statutory procedure laid down by the Landlord and Tenant Act 1954 Part II (as amended)
o It sets out the process by which a lease is renewed
o In the event of non-agreement, the matter is settled by court. From July 1997, an unopposed lease renewal can be determined under PACT (Professional Arbitration or Court Terms) – this is a service provided jointly by the law society and the RICS - Rent reviews
o Contractual procedure contained within a lease – it can say anything and it’s between the parties to agree
o In the event of non-agreement, the matter will be settled in accordance with the review clause which usually states that the rent shall be determined by either an independent expert or an arbitrator and the matter can be referred to court on a point of law if appropriate
2
Q
What information do you require from your client at commencement of the instruction?
A
- Receive instruction from client
- Make sure you are competent and that there is no COI or PI
- Agreed ToE
o In writing
o Issue standard Terms of Business alongside
o Confirm fee basis - Understanding of your client’s strategy and objectives
- Request copy of the existing lease and any plans attached to the lease
- Copies for any licences
o License for alterations
o Improvements
o Sub-letting
o Assignment
o Deeds of variation to the lease
o Copy of any rent review memorandum - Contact details for the T/LL/agent to arrange an inspection of the property
- Confirmation of which party will be responsible for service of notices
- A copy of the property management file
o To see if there is any historic rental evidence on the file or relevant background information which could assist your negotiations - Details of any rental comps relating to similar property held by the client
3
Q
What fees can you negotiate for rent reviews or lease renewals?
A
- A fixed fee (stage 1: report and stage 2: negotiations)
- Performance related (a % of uplift achieved or saving made from quote – cannot be used for expert witness work)
- Hourly rate (common for expert witness)
4
Q
How might a conflict of interest arise in a rent review?
A
If you’re acting for either the landlord or the tenant on a nearby property and you’re acting for the opposite party on the subject property
5
Q
Once you have received the legal documents what are you looking out for and what do you do after?
A
- Rent review:
o Understand rent review clause
o Check whether time is of the essence - Lease Renewal:
o Check whether the lease is contracted out of the security of tenure provisions of the LL&T Act 1954 (Sections 24-28) in the case of a lease renewal
o If silent, lease is inside Act - Undertake a site inspection and measurement of the property in accordance with the guidance contained in RICS Surveying Safely (2018) and Property Measurement (2018)
- Undertake a market rent valuation, having regard to the terms of the lease
- Prepare your report to your client setting out recommendations
- Agree your strategy with client and confirm who is serving relevant notices
o Always instruct a lawyer to serve 1954 Act lease renewal notices - Upon receipt of instructions, open negotiations, once correct notices have been served
- Check that notices received are valid
- Conclude negotiations and document the rent review in a rent review memorandum
- Depending on what happens, there will be the opportunity to refer the matter to 3rd party in the event that agreement cannot be reached
- Alternatively a Calderbank offer can be submitted and that should lead to an agreement
- For a lease renewal, instruct solicitors to prepare the new lease in accordance with HOTs prepared for new lease
6
Q
What should you preface all your discussions with?
A
Without prejudice and subject to contract
7
Q
What does without prejudice and subject to contract mean?
A
- Without prejudice: during the negotiations period, the opposing party cannot rely on any document/discussions and cannot be used in court
o If used for RR, correspondence cannot be shown to the arbitrator/independent expert to show how negotiations have been conducted - Subject to contract: document/negotiations are subject to contract
8
Q
What is a licence?
A
- A right to enter a property
- A personal arrangement between the licensor and the licensee
- The licensee acquires no interest in the property
- It is merely a personal right which can be terminated by either party
- E.g. right to park a car or a pop up shop in a shopping centre
9
Q
What are the 4 requirements of a lease?
A
- Exclusive occupation
- Payment of rent
- Duration for a specified term
- If more than for 3 years, terms must be in writing, signed as a deed
10
Q
What is the difference between a lease and a licence?
A
- Lease:
o A lease can be for a fixed term or periodic and the 4 requirements are that you have to have:
exclusive rights of possession
It has to be for a specific duration (minimum term is 6 months)
The rent or periodic payment is made in return for possession
If more than 3 years, it has to be in writing signed and registered
o provides an occupier with an estate in the relevant land
o can be assigned
o cannot be terminated until it expires (unless there is a break clause) - Licence:
o permission to make it lawful for someone to use the land
o normally a personal right that cannot be assigned
o can usually be revoked at any time
11
Q
What case law relates to the differentiation between a lease and a licence?
A
- Street vs Mountford
- If exclusive possession is granted of a defined area for over 6 months, it is likely to be a lease
- The case involved a license to occupy a refurbished room in a house. The agreement conferred exclusive possession of the rent. The owner provided neither attendance nor services and the houses of services ruled that this agreement effectively constituted a tenancy/lease
12
Q
What is a tenancy at will?
A
- Form of licence created by written agreement for an unspecified time in which the LL may evict the tenant at any time
- Not a legal interest in land with no renewal right
- Used for allowing a tenant early entry for fit out works or whilst tenant is agreeing a new contracted out of the 1954 Act lease after the lease expiry
13
Q
What is a wayleave?
A
- Temporary right and receives an annual payment
- E.g. It provides a right for an electricity company to install and retain their apparatus
- It is personal to the company and cannot be automatically transferred to a new owner
- It is not compulsorily registrable
14
Q
What is easement?
A
- Permanent right and receives a capital payment
- It is capable of being registered at the Land Registry
- It allows a right enjoyed by one party over the land of another
- A prescriptive right of way/easement can be obtained because of continuous and uninterrupted use being proven over a period of not less than 20 years
- A permissive right can be granted by a landowner to allow access over the land. They are not public rights of way and the public do not have a right to use them
- There is usually signage in place to confirm that this is a permissive right of way
15
Q
What is adverse possession?
A
- The process by which a person who is not the legal owner of the land can become the legal owner through possession of the land for a specified period of time, without the owner’s permission
- If the land is registered and a squatter has clocked up 12 years of possession before the Land Registration Act came into effect in 2003, claim would be successful
- If after 2003, new rules apply and 10 years of occupation is required
- If the land is not registered, then 12 year rule applies
16
Q
What lease terms affect value in a rent review?
A
- Alienation clause
o This will determine whether the tenant is entitled to assign/sub-let the premises
o Depending on what it says, it could possibly have a negative impact on rental value if its onerous on the tenant
o E.g. if it says that the tenant can’t assign/sub-let, this is harsh as they cannot get out their lease so it’s going to have a negative impact on the value. However, most of the time it will say that the tenant is permitted to assign/sub-let with landlords consent (NTBUWOD) - Rent Review clause
o Type of Rent Review – Open Market, RPI, CPI, Fixed Uplift
o Is time is of the essence? If a lease is silent, it means that time is not of the essence
o Rent review pattern – the longer the review periods, the higher the rent. If you have a 21 year review pattern, the tenant is likely to pay a higher rent on that because it provides greater security that the rent isn’t going to change for a period of time (more valuable to a tenant) - Repairing obligations
o Any unusual repairing obligations on the tenant may impact the value
o It’s up to the parties to negotiate the rental value based on whether or not it is considered to be onerous
17
Q
How does the RR provision affect value?
A
Usually the rent review is upward only so if there were lots of rent reviews, it would be more beneficial for the landlord as they can reassess the value and put it up to Market Rent
18
Q
What is time of the essence?
A
It means that timing is material to the lease and it concerns timeframes to respond to the notices contained within the rent review provision
19
Q
Is there a time where you wouldn’t put ‘without prejudice’?
A
If time was of the essence as you would want to present this to the court/arb/IE
20
Q
What is more valuable in this market, an upwards only rent review or RPI fixed increases?
A
- It depends what kind of property it is
- For example, if it’s industrial, an open market RR is probably better but retail isn’t doing that well so RPI might be better
21
Q
How does the valuation basis for a rent review differ from that for a lease renewal?
A
The basis for a lease renewal is prescribed by the 1954 Act, not the lease
22
Q
What are the contents of a rent review clause / What are the factors that the rent review clause sets out?
A
The rent review clause deals with the machinery for initiating the rent review. The three basic factors are:
- Who the trigger notice is served by (landlord/tenant)
- The basis for valuation (open market/upwards open market/CPI/RPI/stepped increases/fixed uplifts)
- The means for settling a dispute when the parties cannot agree on the revised rent
23
Q
How is a rent review initiated?
A
- Generally by a service of a notice in writing to the landlord/tenant’s registered office
- A rent review trigger notice doesn’t have to be in a prescribed form unlike inside the Act lease renewals (set out by the law society)
- You can say whatever you want as long as it has the salient details; address of the property, date of the rent review, parties involved, proposed rent
24
Q
What case law relates to time of the essence?
A
- United Scientific Holdings vs Burnley Borough Council
- General presumption that time is not of the essence unless there are contra-indications that indicate otherwise
- The exception to this is if there is a break clause which then makes time of the essence
- If RR has not been initiated for 13 years, time is still not of the essence (Bello v Ideal View)
25
What are the usual assumptions of a rent review clause?
- Property available to let on open market by a willing tenant to a willing landlord for a term of … years as stated (hypothetical term)
- Property is fit and available for immediate occupation and use
- All covenants observed by LL&T
- Property may be used for purpose set out in lease
- Vacant possession
26
What are the usual disregards of a rent review clause?
- Any effect on goodwill on tenant’s occupation
- Ignore goodwill attached to property
- Tenant’s improvements if LL has been granted for the works (improvements that were done under the current lease or less than 21 years ago)
- Any licenses (such as alcohol which is personal to the tenant)
27
What is the Case Law that refers to disregards?
Ponsford vs HMS Aerosols – The lease had no provision for excluding the tenant’s improvements and therefore they had to be taken into account at rent review
28
Why is it important to review the license for alternations (if there are any)?
You need to know whether it’s a tenant’s improvement depending on whether or not there is a license for alterations as that will determine whether it’s rentalised or not. If there is a licence for alterations, it cannot be rentalised and it is disregarded for the purposes of the rent review. However, if the licence for alterations is over 21 years, it can be rentalised.
29
Why do tenant’s improvements get disregarded? – surely they benefit from whatever they’ve done to improve the premises
- If the tenant carried out the works at their own cost, they should not be penalised to do the improvements and then have to pay a higher rent for having done them
- E.g. if an office tenant want to install AC and the provide the plans and landlord granted the license, you can’t then expect the tenant to be paying a rent attribute to air conditioned offices when they paid for them to be installed
30
What else might a modern commercial lease provide for an assumption/disregard?
- ‘Fit out’ rent free period
- E.g. a RR clause might assume that the tenant has either had, or does not need a RF period for fitting out; or a RR clause might disregard the typical period that an incoming tenant might receive in the open market for fitting out
31
What is a headline rent?
- A headline rent ignores all incentives granted on a letting, whether they be for fitting out, pure incentives or dilapidations/works
- Case law proves it’s difficult for LL’s to achieve a Headline Rent at rent review unless explicitly stated
- Headline RR clauses are rare in modern commercial leases
32
What is the hypothetical term?
- The length of term to be assumed for rent review purposes can influence rental values
33
What should you assume for a hypothetical term if the wording is not explicit?
- The unexpired residue term
- British Gas v Dollar Land Holdings
34
What is the impact/relevance on the rental value on the hypothetical term?
The hypothetical term is very important in determining the market rent. If the length of lease in the open market is longer or shorter than the hypothetical term, an adjustment would be made to the rental value. Anything relating to rent reviews is a contractual negotiation, so it’s up to the parties to decide where to settle it at.
E.g. If the hypo term is 25 years but the property is a high street retail unit in Bradford, the market lease length is probably c.5 years so you’d have to reduce the rent significantly.
35
What are deeming provisions?
- some RR clauses in older leases require the LL to specify the rent in the trigger notice
- The clause will state that if the tenant does not serve the appropriate counter notice within a specified time, the tenant will have deemed to accept the new rent
36
Can rent review evidence be taken into account post rent review date?
No
37
What are the dispute resolution options for rent reviews?
- Dispute resolution options will be identified in lease
- Typically the 2 options are:
o Independent expert
o Arbitration
- Leases typically provide for the appointment of the dispute resolver to be made via an application to the RICS Dispute Resolution Service (DRS)
o £425 for application
38
Who can apply for the appointment of a third party?
- Both parties (landlord and tenant)
- Sometimes a lease will provide LL the option to choose between the 2
39
Who appoints the 3rd party?
- The president of the RICS
- It is possible but rare that the parties can choose who is to be appointed
40
Why is that rare to see that the landlord and tenant choose who is appointed in a rent review clause?
The parties would never agree to it as they would appoint an arbitrator/independent expert who they are friendly with
41
If you were to appoint an arbitrator, how might you protect your clients position of costs?
A Calderbank offer
42
What is a Calderbank/without prejudice and save as to costs offer?
- An unconditional offer to settle on specified terms
- Must be marked without prejudice and save as to costs
- To be valid, the offer must:
o be a genuine offer to settle
o be clear
o be capable of unconditional acceptance
o remain open for a sufficient period to allow the recipient to properly consider the proposal
- Offer requires careful drafting and should have clear client approval because the terms are biding if accepted by receiving party
- It has to be a reasonable proposal regarding costs incurred up to the date of the offer
- This is not a negotiating tactic, it is a binding agreement if it is confirmed in writing
43
Why are Calderbank offers used?
- To give a party in dispute some protection against the high costs of dispute resolution
o If you believe that you are negotiating with a party that is deliberately being difficult/dragging matter out and you just want to settle the rent review, you would make a Calderbank offer because it’s not fair for you to bear the costs of arbitration
- They also have another function of focussing attention of disputing parties to achieve an agreement if the tribunal for dispute resolution has the power to award costs
44
Why is the Calderbank generally speaking only applicable with an arbitrator?
- The independent expert is governed by the terms of the lease so the lease sets out who pays the cost (it will say that the costs are either borne by both parties or by the party that brings the independent expert), which is not open to negotiation
- The arbitrator is governed by the Arbitration Act which states that unless otherwise agreed, the arbitrator has the power to award costs. You are able to protect your clients position because the arbitrator has power to award costs
- Therefore, it is usually only used where there is an arbitrator unless the lease says that the independent expert has the power to award costs (but this is rare)
45
Can you withdraw a Calderbank offer?
- If it has been accepted then you can’t but if it hasn’t you can
- You can’t withdraw it within the 21 day period
46
Generally, how long is Calderbank offer available for acceptance?
No timescales but it is open for acceptance for 21 days
47
At what point do you declare that you have made a Calderbank offer?
Once the third party has determined what they think it is going to be
48
What does without prejudice, save as to costs mean?
The evidence that you have given is not to be relied upon on in court save as to the subject of costs (providing it is a genuine attempt to settle). That bit is disclosed once the arbitrator has made their award
49
What does subject to contract mean?
The parties do not intend to be legally bound until a formal contract is executed
50
Is there ever a scenario where acceptance of a Calderbank offer is not binding?
When it isn’t in writing as you are not bound by it
51
What is the equivalent of a Calderbank offer in a lease renewal?
- A part 36 offer (under Part 36 of the Civil Procedure Rules) which is a “without prejudice and save as to costs” offer
- Should be drafted and served by solicitors because they are more prescriptive and potentially carry greater cost sanctions than a Calderbank offer
52
What is the difference between an arbitrator and an independent expert?
- Arbitration:
o Usually appointed following an application to RICS DRS but some leases allow parties to agree upon the appointee
o An arbitrator is bound by The Arbitration Act 1996, so arbitrator has powers conferred by statue
o Parties have some flexibility to agree procedures but if they cannot agree, the Arbitrator will decide on procedure
o Usually dealt with by way of written representations, but Arbitrator could call a hearing
o Decision must be made based on the evidence submitted
o Arbitrator has the power to order disclosure (making available evidence which either supports or undermines the respective parties’ cases) on application of either party
o Arbitrator can issue a witness summons (requiring a witness to give evidence under oath)
o Arbitrators have the power to award costs, including the costs of the arbitrator and of the parties
- Independent Expert:
o Usually appointed following an application to RICS DRS, but some leases allow the parties to agree upon the appointee
o Procedure governed by contract, not by statue so IE has to agree full terms of appointment (including fees) with the parties
o IE must have detailed knowledge of market/sector/location
o IE under duty to make their own enquiries, but usually invites representations from the parties
o Usually dealt with by way of written representations
o No grounds to appeal determination, but IE potentially liable for negligence
o No power to order, disclose or issue witness summons
o Can only determine costs if lease provides for it, and then only the costs of the IE, not for the expert witness or legal costs
o Advantageous if dealing with a property or lease terms for which comparable evidence is scarce
53
Why is an independent expert better than an arbitrators award?
- The independent expert will make their own decision. It can of course be based on the evidence from both parties’ submissions
- For example, the landlord says the rent is worth £20,000 a year whereas the tenant says it’s £10,000 a year. An independent expert can say you’re both wrong, its actually worth £30,000 a year. Whereas an arbitrator, even if they think it’s worth £30,000 a year, the most they can award is £20,000
54
Is it best to act as an arbitrator or an independent expert for a landlord client in a rising and falling market?
In a falling market, when acting for a landlord an arbitrator would be preferable
In a rising market, when acting for a landlord, an independent expert would be preferable.
55
What is the role of a surveyor in dispute resolution proceedings in front of a tribunal/dispute resolver?
- An expert witness
- Advocate
56
What are the contents of a rent review memorandum?
- Name of LL&T
- Address of property
- Date of lease and rent review
- Confirmation of new rent agreed
- Signed and dated by both parties
- It can also be recorded by an independent expert’s determination or an arbitrators award or written acceptance of the Calderbank offer or an open letter (not marked ‘subject to contract’
57
To what does the 1954 Act apply?
- It applies to business tenancies over 6 months where the tenants are occupying the premises for business purposes
- The tenant must be in occupation of the property in order to benefit from the 1954 Act
- It gives the tenant the security of tenure
- Section 23 is a definition of a business tenancy
o The premises must be occupied by the tenant for business purposes (i.e. not residential) and business includes trade, professional employment
- Section 43 refers to tenancies for which the act does not apply
o Agricultural holdings
o Mining places
o Residential tenancies
o Tenancies granted as a condition of employment
o Tenancies not exceeding 6 months unless there is a provision for extension or the tenant has been in occupation for more than 12 months
58
Is a lease automatically contracted inside or outside the 1954 Act when its originally drafted?
- Inside
- If a tenant wishes to contract outside the 1954 Act, they must state it in the lease
59
What is the purpose of the Landlord and Tenant Act 1954 /What is security of tenure?
- To provide security of tenure to business tenants so they are protected which means that they have the right to renew their tenancy at contractual expiry on a year-to-year basis on the terms of the old tenancy
- In giving tenants security of tenure, the act sets the procedures for terminating the renewing tenancies, the grounds upon which the landlord may oppose the grant of a new tenancy and the power of the court to award a new tenancy
- A tenant that remains in occupation following the end of their tenancy, is known as holding over
60
What is a section 24 notice?
- Covers continuation tenancies
- At the end of the fixed term of business tenancy to which the Act applies, the tenancy will not come to an end if the tenant remains in occupation for business purposes
- It will automatically continue on the same terms until it is terminated in accordance with the Act
- Known as “continuation tenancy” – the tenant is said to be “holding over”
61
What is a section 25 notice?
- A section 25 notice can be served by the landlord to terminate a business tenancy in accordance with the Act
- If time is of the essence, this must be served not more than 12 months and not less than 6 months before the contractual expiry of the tenancy (in order for the lease to expire on the contractual date) or the date specified in the notice
- If the landlord objects to a new tenancy, then a separate notice must be served stating the reasons
62
What is required of the section 25 notice?
- Be given by a competent landlord and be given to the tenant
- State the date for termination of the tenancy
- Be in the prescribed form and inform the tenant of their rights
- Where the landlord is prepared to grant a new lease (a non-hostile notice), the proposed terms of the new lease must be stated to include the new rent
- Where the landlord opposes a new lease (a hostile notice) the ground for opposition must be stated
- Parties can extend time limits by agreement
- Maximum term of 15 years can be granted by the County Court but parties are free to agree a longer term if they wish
63
What happens if you undertake a lease renewal negotiation and you pass the date for a new lease/termination as specified in a s.25/s.26 notice?
- The tenant loses their security of tenure unless:
o There is a new lease in place
o Either party has applied to court
o The parties have agreed in writing to an extension of the deadline to apply to court for a new tenancy
64
What are the contents of a section 25 notice?
- Name and address of the LL&T
- Address of the property
- Notice of the date to end the tenancy (a “hostile” or “friendly “notice)
- Confirmation whether a new lease is to be opposed or granted
- Confirmation of the date by which the tenant must ask the court for a new tenancy (unless before that date both parties agree in writing to a later date)
- LL’s proposals for a new tenancy to include the proposed rent if a “friendly” notice
- If the LL opposes the new tenancy (a hostile notice) the ground(s) for opposition must be stated, which cannot later be amended
- A strong recommendation to seek professional advice
65
If you are acting for the tenant and you receive a section 25 notice from the landlord, what do you have to do?
You have to ask whether it is a hostile or non-hostile notice
66
What does a non-hostile section 25 notice do?
It terminates the lease and proposes a new lease
67
If it is a friendly notice, does the tenant have a timescale to respond to the section 25 notice?
- Not unless there is a date specified in the notice
- There is only a timescale if a section 26 notice has been served where the landlord has 2 months to respond
68
If the lease is coming to an end in 12 months, why would you advise your client to serve a s.25 now (12 months before) rather than wait 6 months before?
If the market is declining
69
What happens if the landlord misses that deadline and say they serve a section 25 notice 3 months before the lease expiry, when would the new lease start?
3 months after the contractual end of the lease
70
How is a section 25 notice served?
It is a statutory document served by solicitors and drawn up by the law society
71
What happens if the tenant receives the section 25 notice, they accept all the terms but the rent that has been proposed?
- They serve a counter notice
- However, if this dispute can’t be agreed, it could go to:
o Professional Arbitration on Court Terms (PACT)
o Court
o ADR (Alternative Dispute Resolution)
o Mediation (not binding because a mediator is there to help reach agreement but cannot actually make a decision)
o They could serve a Part 36 offer
72
What is a Part 36 Offer?
An unconditional offer a bit like a Calderbank but for lease renewals
73
Say you’ve served a part 36, there’s been no response or they don’t accept the offer, where would it end up?
The Court
74
If a lease renewal goes to court, what does the court take into consideration when determining the terms of the new lease?
The judge makes a decision based on the existing lease
75
What is the max amount of time that a Court can grant a new lease?
15 years because that falls within the standard rent review provision of being 5 years and upward only
76
If a lease renewal goes to court, who does the court appoint to advise on the rental value?
An expert witness
77
Is there any RICS guidance that may be applicable to expert witnesses?
Surveyors Acting as Expert Witnesses Guidance note
78
To whom does the expert witness have the duty in a lease renewal negotiation?
To the Court
79
How is the expert witnesses fees paid?
- Split between the landlord and the tenant
- Hourly rate based on time spent
80
What is a section 26 notice?
- Tenant can serve a s.26 notice requesting a new tenancy beginning with a date not more than 12 months and not less than 6 months after the making of a request, which cannot be before the contractual expiry date specified in the lease
- The notice must be in the prescribed form
- It must state the tenant’s proposals for a new lease to include the proposed rent
- LL cannot served a s.25 notice if they have received a s.26 notice
- If the LL opposes this, a counter notice must be served within 2 months
- If LL misses this 2 month period, they lose their right to object to a new tenancy but not to the right to object on the new terms proposed in the s.26 notice
- The court will tend to follow to the terms of the old lease unless there are grounds not to
- Tenant can only serve this notice if they have not received a s.25 notice
- If the LL serves a s.25 notice, the tenant serves a counter notice or accepts the terms but they don’t serve a s.26 (that is a request for a new lease
81
If the tenant wishes to leave at the end of their lease, what are their options?
- Tenant can vacate at the contractual expiry date of the original lease
- Tenant can serve a s.27(1) notice on the LL giving at least 3 months’ notice, expiring at the lease end that they are indenting to vacate
o Tenant has no obligation to tell LL that they intend to vacate (no requirement to serve a s.27(1) notice
- If tenant wishes to vacate once they are holding over following the expiry of the contractual term, a s.27(2) notice must be served on the LL
o This notice must give at least 3 months’ notice of termination
82
How do you confirm the validity of the notice?
You check that the notice is served:
- In the prescribed form required in accordance with the Act
- Upon the correctly named party
83
Say 25th Dec 2025 is contractual expiry date (so from 25th Dec 2024 you can serve notice). Why would you advise your client (landlord) to serve notice at the earliest opportunity (in this case 25th Dec 2024)?
- If we are in a rising market, and you can see the market is improving you would wait for the last possible opportunity as you may have grounds to get a higher rent
- The tenant might want to serve it 12 months before though so they can lock in the new rent and not wait for the rent to go up
84
What is a section 28 notice?
- The tenancy can also be brought to an end by the LL&T agreeing the terms of a new lease under section 28
- If the landlord and tenant agree to the terms of the new lease, the current tenancy will continue until the commencement of the new tenancy and sections 24-28 will not apply
- At this point, either party can serve a section 40 notice requesting information
- This can be served within the last 2 years of the tenancy and can include:
o the landlord requesting details of the occupation and/or sub-tenancies
o the tenant requesting details of the superior landlord
85
Why is the landlord requesting details of the occupation and/or sub-tenancies (a section 40 notice) relevant in lease renewal negotiations?
Under the 1954 LL&T Act, the tenant has to be in occupation themselves and if they aren’t it won’t apply
86
What is the relevance of the tenant requesting details (under section 40) of the superior landlord?
The competent landlord has to have owned the property for the property for at least 5 years in order to gain possession under the ground of owner occupation
87
What is a competent landlord and where is it defined?
- Section 44 of the 1954 LL&T Act
- The person/body upon whom a notice should be served or who should serve the notice
- Must be a freeholder or superior tenant with unexpired term of over 14 months
88
What is a section 40 notice?
- Requests information from either the LL/T so that the LL/T can check exactly who is the competent LL/T with statutory protection
- Either party can serve s.40 notice
- Other party has to provide the info within 1 month
- Failure to do so: breach of statutory duty
- Not limited to one request
o E.g. LL could serve another s.40 notice prior to serving a s.25 notice to check that the tenant is still the same occupier
89
If client was the landlord and they don’t want to give the tenant a new lease, what would you do?
You’d ask your client why they don’t want to give them a new lease because they have to have to comply with the grounds for opposition in section 30 to successfully oppose a new lease
90
What are the 7 grounds for opposition to grant a new tenancy under section 30 of the LL&T Act 1954?
a. Breach of repairing covenant
b. Persistent delay in paying rent
c. Other substantial breach
d. Provide suitable alternative accommodation
e. Uneconomic subdivision (compensation payable)
f. Demolition or re-development (compensation payable)
g. Owner occupation (compensation payable)
91
What grounds are discretionary and which are mandatory?
- Grounds a to e are discretionary and the court will decide whether it is reasonable
- Grounds f and g are mandatory
92
What are grounds a to c referred to as and why?
- “Fault based grounds” because they involve breaches of the existing lease by the tenant
- The judge/court tends to be more lenient with tenants
- There is no statue that refers to persistent delay in rent or substantial breach – no definition
93
Where would you find the grounds for a hostile notice to be served?
Section 30 – grounds e, f and g are known as “non-fault” grounds
94
What is the relevance of grounds e,f and g in a hostile section 25 notice?
Compensation is payable:
- 1x rateable value if the tenant has been in occupation less than 14 years
- 2x rateable value if the tenant has been occupation 14 years or more
- RV is the RV in force at the date of the hostile s.25 or s.26 counter notice
- Tenant needs to be in occupation to be entitled to compensation
95
What else could the tenant get compensation for?
- Improvements under Part 1 of the LL&T Act 1927
- There are many pre-conditions that must be satisfied in order for a tenant to gain compensation
- Rare for tenant to take the steps required by the Act when carrying out an improvements to enable it to claim compensation under the Act
96
What are the requirements for ground g (owner occupation)?
The landlord must have owned the property for 5 years (which means that you are known as a competent landlord) and prove intention to occupy and/or run business
97
What are the requirements for ground f (re-development)?
The landlord must prove firm intention to re-develop, prove funding and planning, substantial work and necessity to gain vacant possession
98
What is some case law surrounding inside the 1954 LL&T Act lease renewals?
- S Frances v The Cavendish Hotel
o Opposition of LL of a business tenancy renewal on re-development grounds 30(1)(f)
o Supreme Court found in favour of tenant, concluding that the acid test is whether the LL would intend to do the same works if the T left voluntarily
- Poundland v Toplain
o T’s request for introduction of a pandemic clause in a renewal lease
o Judgement came out in favour of the LL and no pandemic clause was awarded
99
What is section 29 of the LL&T Act 1954?
The Court can grant a new tenancy under section 29 and will determine the following:
- the property (usually the same as in the old tenancy – unless say you want to surrender some space in the building)
100
Where does it set out the terms of the new lease?
Sections 32-35 of the LL&T Act 1954
101
What does the court have the right to determine?
- Lease length
o Post 1st June 2004, the max term that may be granted by the Court is 15 years but parties are free to a agree a longer term should they wish
o To reflect common rent review patterns
o It will follow the length of lease from the old tenancy so if you had a 5 year lease inside the act, you go to court and the landlord is requesting a 15 year lease, that won’t be granted
- Rent
o Section 34 “Rent under new tenancy”
o The rent that the property would reasonably be expected to let in the open market disregarding:
Tenant’s previous occupation
Any goodwill in the tenant’s business attaching to the premises
Tenant’s improvements (other than as a lease obligation or if carried out within the last 21 years)
Licences
- The Court will seek advice of what the Market Rent is from an Expert witness who has a duty to the judge/court – they are completely independent
102
What is the case law which refers to court proceedings settling lease renewals?
- O’May vs City of London
- This asked if either party wants to change the terms of the lease, they’ll have to satisfy four tests:
o Has the party demanding the change shown good reason?
o Will the party resisting the change be adequately compensated? (If the next tenant only wants to take a 5 year lease as opposed to 15 years previously, the tenant should pay a higher rent to reflect that)
o Will the adjustment materially impair the conduct of the tenant’s business?
o Is the variation fair and reasonable between the parties?
E.g. modernisation to reflect market practice or changes in law
103
What is the valuation date/lease commencement date for a new lease in the County Court?
- Lease commencement date will coincide with the disposition of proceedings, which will be 3 months and 21 days after the hearing/trial
- To the extent that it is not possible to predict rental values at a future date, the valuation date for lease renewal is often agreed, or taken for practical purposes, as the date of the hearing/tribal or the date of expert witness reports
104
If you are in a lease renewal negotiation that has been going on for some time and there is a dispute over the rent. If you’ve gone beyond the contractual lease expiry date, how can you protect your clients position if there is likely to be a significant increase in rent?
Section 24A enables the landlord and the tenant to apply to court for an interim rent (usually the Market Rent)
105
What is interim rent?
- Not a feature of original LL&T Act 1954 but was introduced later by the Law of Property Act 1969
- Interim rent is rent payable after the contractual expiry of a 1954 Act protected lease and before a formal lease renewal has been completed
- Either party may apply for interim rent
- Interim rents are only triggered after the service of a s.25/s.26 notice
- For lease renewals of the same demise where the terms of the lease have not changed materially, interim rent is usually the same rent as agreed for the new tenancy
- Where the demise has changed, or where the lease terms have changed, or where there have been significant changes in the market between the effective date for interim rent and the start date of the new lease (as occurred during the Covid pandemic), interim rent could be different to the rent under the new lease
- The basis of calculating interim rent is different if the tenant does not take up a new tenancy
106
What is the interim rent calculated/based on?
The Market Rent
107
What is a summary of key sections of the 1954 Act?
23 Application of the Act
24 Security of tenure provisions and continuation of tenancy – Holding over under the Act
24a Interim Rent
25 LL’s notice to terminate the lease or seek a new lease
26 T’s notice to seek a new lease
27 T’s notice to end the lease
28 Renewal of tenancy by agreement
29 Order by Court for a new tenancy
30 LL’s grounds for opposition of a new lease
32-35 Terms of the new lease
34 Basis of valuation for the new rent
37 Compensation provisions
38a Contracting outside the Act
40 A notice requesting information about either party
44 Definition of a competent landlord
108
What are the dispute resolution options for lease renewals protected by the LL&T Act 1954?
- Default option – a determination by the County Court
o After the service or a valid s.25/26 notice, the process requires one party (usually the T) to apply to court for a new tenancy (“issue proceedings”) and subsequently to serve proceedings on the opposing party
o Court process starts with a pre-trial review
o A date for hearing is fixed and matter goes to Court
o Lawyers and witnesses present a case and the Courts orders the new tenancy
o Compliance with procedural steps and deadlines is vital
o Judge has direction over the costs of proceedings
o After the Order is made, tenant has option of deciding whether or not to take up the lease on the terms Ordered – there is a cooling off period
- Subject to both parties agreeing – Professional Arbitration on Court Terms (PACT)
o Joint initiative by RICS and the Law Society
o Encouraged by courts and RICS as an ADR mechanism for unopposed business tenancy renewals
o Non-rent issues can be decided by a solicitor and rent issues can be decided by a chartered surveyor
o Parties decide procedural matters
E.g. whether dispute resolver acts as an arbitrator/independent expert
o Slightly different procedures apply for Pre-issue PACT or Post-issue PACT
o Dispute resolver can be appointed by application to the RICS Dispute Resolution Service or Law Society
o Decision is binding
109
What are the advantages of PACT?
- Faster
- Cost savings – an expensive County Court hearing is avoided
- Greater flexibility and control over procedure for the parties
- Decision by a surveyor on rent-related terms rather than a County Court judge
110
How do you contract a lease outside the 1954 LL&T Act?
- Section 38A of the Act sets out the procedure which must be followed to contract outside the Act whereby the tenant gives up security of tenure
- LL must ensure the premises is vacant or ensure a new lease is in place at the lease expiry date
- If they accept rent, then a protected tenancy may be created
- If terms for a new lease have not been finalised but the LL is happy to grant the T a new lease, then a tenancy at will might ensure that the tenant cannot claim statutory protection for the duration of the period between the expiry of the old lease and the commencement of the new lease
- No rent should be collected until the new lease has been completed as the acceptance of rent could lead to a protected tenancy
- To contract outside the Act, a strict procedure must be undertaken
- The LL is required to serve a notice on the prospective tenant, warning that the proposed lease will not be protected – known as a ‘health warning’
- Proposed tenant must then make a declaration in response, confirming that they have received the notice and accepts its terms
- This procedure must be completed before the lease is signed
111
What are the two types of declaration?
- Simple declaration – given when the parties have at least 14 days or more prior to committing to the lease
- Statutory declaration – given when the parties have less than 14 days prior to committing to the lease. Must be made before an independent solicitor (not the proposed tenant’s retained solicitor)
o there to confirm that they are aware of the implications of this notice that they are contracting out
112
Why might a lease be contracted outside the 1954 LL&T Act?
- A requirement of the head lease to grant subletting outside the Act
- The LL will want to reoccupy the property in due course
- The LL wishes to re-develop the property at the lease end
- The rent may be lower
- The LL wants future flexibility
- So that the LL avoids paying compensation at contractual expiry to the T
- When the lease comes to an end, the tenant has no statutory right to remain in occupation
113
What other methods of terminating a lease are there?
- Forfeiture
- Surrender and negotiation
- Merger
- Disclaimer (due to insolvency)
- Break clauses
- Lease expiry and service of notices under the LL&T Act 1954
114
When can a tenant serve a section 26/ when can a landlord serve a Section 25?
Not more than 12 months and not less than 6 months before the DATE SPECIFIED IN THE NOTICE. That date cannot fall any earlier before the actual lease expiry date.
115
Did you make an application for the appointment of a Third Party? What is that?
DRS1 Form
116
Where is West Wickham?
South London, between Croydon and Beckenham. The subject property is located on the high street just off the roundabout and is a 15 minute walk from West Wickham station which is on the southeastern railway.
117
You client received a s.26 notice, how long before the lease expiry did they receive a s.26 notice?
6 months before the lease expiry
118
Was there any reason why the LL hadn’t instigated the lease renewal any earlier than that?
The tenant served the s.26 notice on the LL a year before we were instructed so I wasn't involved at that stage but I understand that the client was reviewing their strategy but my client could have served a 12 month notice which would have brought the lease to an end at the contractual expiry.
119
How long did your client have to respond to that s.26 request? How did they respond?
The tenant served a deadline in their s.26 request with 6m notice. If between the LL&T they hadn't agreed to extend the timeline the LL/T would have to make an application to court. If the T were to miss this then they would loose their 1954 Protection so it's critical that the tenant makes a court application unless both parties agree to extend the deadline.
120
Were there any applications made in respect of the rent?
Yes, either party could have made an application for interim rent under section 24a of the LL&T Act 1954. It should have been payable from the date specified in the notice but it was all part of negotiations with the tenant and in the end I managed to negotiate a higher rent and longer term so as part of that condition, the tenant would have only agreed to those new terms if we didn't apply for interim rent.
121
Where about was your office lease renewal in Victoria?
Victoria is an area of Central London in the City of Westminster. The Property is located on Romney Street.
122
What terms did the LL propose in the s.25 notice and what terms did the tenant propose in their counter notice?
10 year term at £45 psf
8 year term with a break at year 5 at £42 psf
123
Why was 49 Romney Street in a bad condition?
The general condition of the property looked tired and would not be appealing to a modern occupier. No raised floor, only perimeter trunking, fluorescent strip lighting and central heating.
