Landlord & Tenant Flashcards
How does a lease renewal differ from a rent review?
- A lease renewal is a statutory process laid down by the landlord and tenant act 1954.
- A rent review is a contractual procedure contained within a lease.
- Note: If a lease is contracted out of the landlord and tenant act 1954 then there is no statutory procedure
To what tenancies does the L&T act 1954 apply?
Business tenancies in occupation
When was the landlord and tenant act last amended?
The l&t act was last amended by regulatory reform order 2003, which came into effect 1st June 2004.
What tenancies does the 1954 act not apply to?
- Agricultural
- Mining
- Residential
- Tenancies granted as a condition of employment
- Tenancies not exceeding 6 months (unless there is a provision for extension or the tenant has been in occupation for more than 12 months).
What is a section 25 notice?
It is a notice served by the landlord on the tenant to terminate the lease.
- Cannot terminate the lease before contractual expiry
- Would either be friendly or hostile
What must a section 25 notice contain?
- The landlord
- The tenant
- The property
- The date of the notice
- The date of termination
- Friendly or hostile notice
When can the landlord serve a section 25 notice?
12- 6 months before contractual expiry or anytime thereafter.
Note- Notice mist be at least 6 months.
Is it better for a landlord to server a section 25, 12 months or 6 months before expiry?
- 6 months- Allows for negotiation as close to the renewal date as possible if the market is booming, however this risks the tenant deciding to vacate as you have less time to market the unit.
- 12 months- maximum amount of time given to both parties. Very useful if the tenant is vacating, however if they are staying means that the new rent is agreed far in advance so there is more uncertainty.
How would you advise a landlord in respect of a lease renewal for a property that it significantly over rented?
- Do nothing and continue to get the high rent if the tenant holds over. However there is the possibility the tenant could serve a section 26 for a new lease or a section 27 and vacate.
- Serve a section 25 and enter into a new lease at lower rent.
Note: If you give 12 months notice with a Section 25 then the tenant could apply to court for interim rent as they would not want to pay high rent for another 12 months, so would argue they will only pay the higher rent for 6 months (shortest possible notice period).
Why would a landlord give 12 months notice with Section 25 rather than 6 months?
If overrented then you get extra 6 months of the tenant paying the higher rent
- If confident the tenant is leaving then there is more time to find a new tenant.
What actions should the landlord take if they want possession at the end of the lease?
Serve a Section 25 notice and object to the tenant having the new tenancy under 1 or more of the section 30 grounds.
What is the difference between a hostile and a friendly section 25 notice?
A friendly notice, ends the lease but confirms that the landlord is willing to enter a new lease and sets out the terms the landlord is prepared to accept.
A hostile notice, ends the existing lease and opposes a new lease on one of the limited grounds avaliable.
What should the landlord do if the tenant is not responding to a friendly section 25 notice?
Write to the tenant and state that they have 14 days to respond or the matter will be taken to court to determine terms and the tenant would be liable for costs.
How would you advise a tenant if a landlord section 25 notice is due to expire and the new lease has not been agreed?
- Approach the landlord to request a time extension.
- If not agreed, the tenant would have to apply to Court for a new tenancy.
Note: If the section 25 notice expires then the tenant loses security of tenure- the landlord can propose new terms and if the tenant does not agree they have to leave.
What are grounds under the section 30 of the LL & T act 1954 under which the landlord can obtain possession?
- Tenant has breached their covenants
- Failing to carry out repairs - Tenant has persistently delayed paying rent.
- Landlord offers suitable alternative accommodation
- The building let as a whole would produce a higher rent than from separate lettings.
- Landlord intends to demolish or reconstruct.
- Landlord intends to occupy for own purposes (the landlord must have owned the property for a minimum of 5 years).
How is tenant compensation assessed under the L&T act 1954?
- If the tenant has been in occupation for 14 years or more then they get x2 the RV.
- If the tenant has been in occupation for less than 14 years then they get x1 RV.
A office lease is expiring in 12 months and the landlord wants you to negotiate a new lease with the tenant, what would you do?
- Review the current lease
- Agree the terms of engagement
- Inspect and measure the unit
- Check for any breaches of covenant or tenant works
- Carry out rental valuation
- Serve a friendly section 25 notice
When is the tenant entitled to compensation when a landlord opposes a new lease under the 1954 Act?
The last three grounds of section 30 are no fault grounds, so if the new lease is opposed due to one of more of these grounds then the tenant gets compensation.
Note: if another reason is also stated (one of the first 4 grounds) then compensation is not due.
Explain the power of the court in ordering a new lease?
The court can determine
- The property comprised (S32)
- The length of the lease (S33)
- The Rent (S34)
- Other terms (S35)
- Interim rent (S24A)
The landlord is bound to grant a new lease on the terms determined by the court.
If a tenant disagrees they can apply to have the court order revoked within 14 days- the tenancy will then continue for a reasonable period so the landlord can re-let.
How is interim rent assessed?
Market rent at the start of the interim period.
What is section 34 rent?
Market rent excluding disregards.
- Tenant’s previous occupation
- Any goodwill
- Certain improvements
- Any licence to sell intoxicating liquor that belongs to the tenant.
What is interim rent?
The rent payable between the end of the old lease and the start of the new lease.
- Ideally the new lease should start the day after the old lease ends but if negotiations are ongoing then interim rent is agreed (either between parties or by the Court).
Note: usually used if the gap is 12 months or more.
When would you recommend that a tenant serves a S.26 notice?
- If the tenant believes the lease is over rented then serve a section 26 for a new lease at a lower rent.
- The tenant may also serve a section 26 if the rent increases as it means they still have a lease in place (it might be hard to find another elsewhere).
When are tenant improvements disregarded at lease renewal?
If the improvements have been carried out under the old tenancy or anytime during the last 21 years.
Note: Not all alterations are improvements and improvements are not disregarded if they were a lease obligation.
What action should a tenant take if they have 6 months left and they want to vacate and the landlord has not served a section 25 notice?
- Do nothing and hand the keys back on the last day.
- Serve a section 27 with a minimum 3 month notice.
Note: If the tenant is in occupation even one day after expiry then they must give 3 months notice.
What are the key elements of a rent review clause?
- Date
- Mechanism
- Basis of value
- Means of settling disputes
What is a trigger notice?
A notice that triggers a pre-determined sequence of events. For example the first notice served to trigger a rent review (by a tenant or landlord).
What is “time of the essence”?
Time of the essence means that there are timescale within the lease that must be strictly adhered to.
Note: If not stated then time is not of the essence.
What are the two landmark cases in respect of time of the essence?
Burnley and Cheapside cases
- Essence is that rent gets reviewed from that date.
- Despite there being timetables, these do not have to be stuck to as this is not the essence of the contract.
What are deeming provisions?
Where the lease explicitly states that the tenant is “deemed” to have accepted the landlord rent.
For example- Landlord serves notice, the tenant does not serve counter notice in specified time, so the tenant is deemed to have accepted the landlords rent.
For example- Landlord could be deemed to accept the tenant counter notice is the lease states so.
What lease terms affect the rent at review?
- Rent review clause itself (definitions of rent, assumptions and disregards).
- Frequency of the review
- Restrictions on alienation, user, repairing and insuring clauses.
Overall, flexible lease= higher rent
Note: Could state that if protected by 1954 act then demand higher rent.
What are the usual assumptions for determining rent at review?
- Premises is fit for immediate use and occupation.
- Market rent is payable after any rent free period
- No work carried out by the tenant has reduced the rental value
- the tenant has complied with the terms of the existing lease.
- If the premises have been damaged or destroyed they have been reinstated.
What is a hypothetical term?
A term other than the unexpired lease term
Used for rent reviews based on the same terms as the existing lease and assumes the property remains in its current state.
For example assuming the term is the length of time originally granted by the lease (10 years)- even though only 5 years remain (or the unexpired term)
Is the hypothetical term more advantageous to the landlord or the tenant?
If longer- the tenant as they get lower rent
if shorter- the landlord as its a higher rent
What are the usual disregards?
- Tenant is in previous occupation
- Any tenant goodwill
- Certain improvements (under the current lease or within 21 years)
- Any intoxicating liquor licences belonging to the tenant
Where do the usual disregards originate from?
Section 34 of the landlord and tenant act 1954
How is rent review resolved if Landlord and Tenant cannot reach an agreement?
Arbitrator or independent expert
- Depends what the lease says
What is the difference between a independent expert and a arbitrator?
- Arbitrator acts on evidence, independent expert has duty of investigation but can also request evidence.
- Arbitrator makes award, independent expert makes a determination.
- Arbitrator conduct based on the arbitration act 1996, a independent expert is RICS surveyor so governed by the Rules of Conduct.
- Arbitrator cannot be sued for negligence but a independent expert can be.
- Arbitrator can award costs, whereas usually an independent expert cant (check lease)
Note- The fee for a independent expert usually stated in the lease, is to be split between the parties or paid by the person who brought in the independent expert.
What is the purpose of a Calderbank offer/ letter?
Protects against cost liability at Arbitration
Note: only binding if in writing but if not been accepted then can be withdrawn
What must a Calderbank offer contain?
- A statement made “without prejudice save as to costs”
- Unconditional written offer to settle the rent review
- Reasonable proposal regarding costs incurred up to the date of the offer (each party pays own costs plus 50 % of arbitrators fee)
- Time in which the party must accept the offer (21 days is the most common)
Note: without prejudice save as to costs, means that it cannot be used as evidence in court, except in the case of awarding of costs.
What is a calderbank offer?
It is a unconditional offer to settle, without prejudice save as to costs.
What is a lease?
A lease gives a tenant exclusive right of possession, which can be a fixed term or period.
What is a licence?
Not exclusive possession. Gives someone permission to do something on a owners land or in a owners property that would otherwise constitute a trespass.
note: licences are often used for a specific purpose.
What is the leading case in lease v licence?
Street v Mount (1985)
- It was a licence to occupy a furnished room in a house.
- Neither attendance nor services were provided (no washing/ cleaning).
- House of Lords ruled it to be a lease
Examples of a licence?
- Car parking licence
- External seating licence
- Pavement licence (drink outside pub)
- Grazing livestock licence
- Telecoms licence
- Food van licence
A property you manage is going to be redeveloped soon. What options do you have to generate some rental income without giving the tenant security of tenure under the 1954 act?
- Shot term- grant tenancy of less than 6 months (excluded under section 43)
- Long term- grant a tenancy of more than 12 months but contract out of the section 24-28.
Tenant entered FRI lease of property in disrepair and Landlord requires Tenant to remedy disrepair. What advice would you give to Tenant?
T who agrees to ‘keep in repair’ must ‘put in repair’
limit repair by Schedule of Condition
T has to do repairs but extent to which repairs need to be carried out can be negotiated if not explicitly stated
EG if all neighbouring units in industrial estate have car parks with pot holes and poor fencing then T has argument for doing very basic repairs
What advice would you give to Tenant who wants to take FRI lease of property in disrepair but suitable for their business?
- negotiate rent free period for doing repairs
- ask LL to do repairs before T moves in
- complete Schedule of Condition to limit repairing liability
What is a Schedule of Condition?
A detailed recording of a property’s condition which is usually retained to use at a future time to establish the previous condition of the premises
What action can Landlord take when Tenant is in breach of repairing covenant?
- serve S146 under Law and Property Act 1925 (state breach, timeline and proposition if breach not rectified)
- exercise right to repair by entering, repairing and recharging tenant debt
- sue T for damages (limited by S18 of LL & T Act 1927)
Note: if lease silent on whether LL can enter (it doesn’t state LL can enter with 48 hours notice) then LL cannot enter as lease gives T exclusive right of possession
What action can a Tenant take when Landlord is in breach of repairing covenant?
- T request LL carries out repairs
- get injunction from Court compelling LL to carry out repairs (can be expensive and take a few weeks)
- T tell LL in writing that they plan to do works themself if LL not done them by certain date, and will then withhold cost of works
What is the Jervis v Harris case
If LL enters property to carry out repairs, can re charge tenant for debt
The case began because T argued they had not been served with S146 but this is a claim for debt rather than damages so avoids legislation (Leasehold Property Repairs Act 1938 and s18 of LL & T Act 1927)
How are damages assessed when a Tenant is in breach of repairing covenant?
S18 of LL & T Act 1927
- damages are limited to the diminution in value (usually the same as the cost of the works)
How are damages assessed when a Landlord is in breach of repairing covenant?
it is the difference in value in repair compared to the value out of repair
T can take LL to court and get order for ‘specific performance’
EG roof is leaking and T cannot use half the premises so pays half rent, half SC etc
EG T cannot use 25% of premises so pays 75% rent, 75% SC etc
What is a Schedule of Condition
Statement describing physical state of building - usually prepared by T surveyor to limit repairing liability
Note: must be agreed with LL surveyor
What is a Schedule of Dilapidations?
Record of alleged breaches of repairing covenant, usually prepared by LL surveyor
What is the Leasehold Property (Repairs) Act 1938?
applies to leases of 7+ years with 3+ years until expiry
if LL serves s146 notice on T, then T can get relief from forfeiture under this Act (must serve counter notice with 28 days)
Note: no point serving Interim Schedule of Dilapidations if 3+ years remaining on 7+ year lease as T can get relief under 1938 Act
What is a Scott Schedule?
- A recommended form for Schedule of Dilapidations to be presented to Court
- recommended by RICS
Note: called this because there was judge called High Justice Scott that invented the format
What is an Alteration?
Making physical changes to a property
What is a improvement?
A improvement is a alteration that adds value.
Tenant client wishes to extend property. Explain factors to be considered?
Read lease to see if alterations permitted
review plans and specifications
request LL consent
consider time left on lease - only worth it on long lease as T may leave at expiry (LL may serve hostile S25)
check RR clause to see if improvements get disregarded (if lease silent on this, T would have to pay rent on their improvements)
register improvements under LL&T Act 1927
How does Tenant register improvements for compensation?
serve notice on LL
submit specification
LL has 3 months to offer to do work himself in exchange for increase in rent
if LL does not object, T can do works
if LL objects, matter can go to court
Improvements get registered under 1927 Act
What advice would you give Landlord if Tenant requests to have improvements registered under 1927 Act?
confirm they add value and are in fact improvement not alteration
LL has option to do work himself and increase rent
might be worth letting T do work as means will have very secure T
How is compensation for Tenant improvements calculated?
lower of either the addition in value or the cost of doing the works
T gets compensation for improvement regardless of reason they leave
Legislation to consider in assignment of a lease?
s19 of LL&T Act 1927
s1 of LL&T Act 1988
LL&T Covenants Act 1995
When could no restrictions on assignment or sub letting be appropriate?
incentive for large, difficult to let property
good to have flexible lease terms (25 year lease with 5 yearly break options)
EG full of asbestos and bad location
Note: easier to let small units rather than large units
What are reasonable grounds for refusing consent to assign?
Lease does not allow it
Poor assignee covenant strength
Current tenant breaching covenant
effect on rental/capital value (weak covenant strength would reduce value)
poor accounts (difficulty paying rent)
What is the usual amount of an assignee business profit that a Landlord will look for before giving consent to assign?
3x annual rent and other payments due other lease (insurance, rates and service charge)
Note: called Profits Test
What is AGA?
Authorised Guarantee Agreement
assignor guarantees performance of assignee
When is it appropriate to have a restrictive user clause in a lease?
protect value of investment
lots of retail units EG reduce competition as don’t want lots of same type of shop (will lead to one going bust and vacant unit will be left)
What is a Conditional break clause?
T can only break if pre conditions met
What conditions are usually attached to a break clause?
minimum 6 months written notice
T has to pay fine/premium (3 month rent)
repairing covenant to have been met
Note: LL may instruct surveyor to find breach of covenant so T cannot break
2 examples where break notice was held ineffective in Court
Osborne Assets v Britannia Life
- T due to have painted x3 coats of paint every 5 years
- only painted x2 coats
Riverside v NHS
- break conditional on vacant possession
- T did not remove demountable office partitions
What factors affect value in a lease?
rent
term
other terms
repairing clause (if T not doing repair, and LL does it then cost goes up)
What is it called if Tenant not responsible for repairs?
Internal Repairing and Insuring
How does Rent Review impact value?
if lots, then can review rent frequently which would increase value
Open Market Rent Review or RPI better in this market?
RPI for retail as not doing that well at the moment
What are the methods of dispute resolution?
mediation
PACT
Court / litigation
What is PACT?
Professional Arbitration on Court Terms
- cheaper
- quicker
- run by property professional rather than judge
What is the procedure for carrying out a rent review?
Receive client instruction
Check competent
Check conflict of interest
Agree fee
Request legal documentation
Check RR clause in lease and see if there is LtA in place (rentalise improvements if not noted in LtA)
Inspect and measure property
Collect comparable and make recommendation to client
If LL served a friendly s25 notice 3 months before expiry, when would new lease start?
3 months after contractual expiry of old lease
What is included in friendly s25 notice?
property
rent
other terms
health warning
What is the name of a Calderbank offer for lease renewals?
Part 36 Offer
How do you settle lease renewal if cannot agree rent?
mediation
PACT
Court
What does Court have regard to when granting new lease?
Old lease
Why can Court only grant lease of 15 years maximum?
Typical term for hypothetical lease as it falls in line with the standard 5 yearly upward only rent reviews
Case Law for Court deciding new lease at renewal
O’May v City of London
How long does a Landlord have to respond to a Tenant s26 request?
2 months
Note: if LL fails to serve counter notice then loses right to object new tenancy but can still negotiate proposed terms
If been doing lease renewal for some time and gone beyond contractual expiry, how do you protect your clients position?
apply for interim rent under S24A of LL&T Act 1954
What does the LL&T Act 1954 set?
procedures for termination and renewal of tenancies
grounds for LL to oppose new tenancy
power of Courts to award new tenancy
How can tenancy under 1954 Act come to end?
T vacates on last day
LL serves S25
T serves S26
T serves S27
LL and T agree new terms S28
Note: T who remains in occupation = holding over (S24)
When can Tenant serve S26?
must have been T for at least 1 year
must not have received S25 from LL
When would Landlord or Tenant apply to Court to determine terms of new tenancy?
If tenancy come to end in accordance with Act
- T must make Court application before expiry of S25 / S26 or else lose security of tenure
- agreement can be made under s29 to extend time in which either party can apply to court (2-3 month extension)
- date of expiry of last agreement becomes expiry of tenancy
What happens to current tenancy if Landlord and Tenant agree new tenancy under S28?
current tenancy runs until commencement of new tenancy but is no longer protected under the Act (S24 to S28 no longer applicable)
no need to issue S25 / S26 (can just reach agreement under S28)
When can Landlord / Tenant request information from the other party?
S40 of LL&T Act 1954 states either party can request information from other party within last 2 years of term
LL may request sub tenancy details
T may request superior LL details
information must be provided within one month and if anything changes, must notify other party within 1 month of becoming aware of changes
LL & T Act 1730?
If T should vacate, but doesn’t (EG after hostile S25 notice) then LL can double the rent from the date the notice was given
Note: usually just used as bargaining tactic!
When can Court / PACT not be used to determine new lease terms?
If outside the 1954 Act
What are the 4 tests of the O’May case?
Has party demanding change shown good reason?
Will party resisting change be adequately compensated?
Will adjustments materially impact conduct of T business?
Is variation fair and reasonable between parties?
How does Tenant contract out of 1954 Act?
gives up security of tenure
LL must serve notice on T under Regulatory Reform Order 2003
if notice served 14 days (or more) before lease start, then T signs simple declaration
if lease due to commence within 14 days of notice, then T signs statutory declaration before solicitor or independent expert
How can a Landlord / Tenant agree to surrender?
LL break is only an option if contracted out of 1954 Act
if LL and T agree lease will be surrendered on set date, then either simple declaration (T received 14 days notice) or statutory declaration (T received less than 14 days notice) signed
What is within the machinery of a rent review?
LL proposes rent by certain date (trigger notice)
T given certain period to object/negotiate
negotiations to complete by set date
Generally time is not of the essence
Definition of rent at review
usually Open Market rent
on review date (or other date specified)
assume property vacant and to let
include usual assumptions and disregards
What is Repair?
Restoration or replacement of subsidiary parts of the premises
What is privity of Contract?
the relation between the parties in a contract which entitles them to sue each other but prevents a third party from doing so.
Two types of user clause
General Planning EG Class E
Conducted Use EG hours
User Clause Case Law
Martin Retail Group v Crawley Council
- T wanted to sell alcohol
- LL said no
- had to establish closest place to buy alcohol and if far away then allowed
L&T Act 1927- Section 18
Supersession- claim for damages limited to cost of works or diminution of value to the landlords revesion.
L&T Act 1927- Section 19
Restricts LL’s ability to unreasonably withold consent of alienation application
L&T 1954 - S23
Defines the tenancies
Section 24
Provides Security of tenure
S24 (A)
Interim rent
S25
LL request to terminate or request for new
S26
Tenants request for new tenancy
S27
Tenants note to vacate
S28
Agreement for new tenancy results in the tenant losing protection under 1954 act
S29
Timescales on application to court
S30
LL’s grounds to object to a new tenancy
S31
Court to dismiss tenants application where LL has sucessfully opposed under S30
S32
S33
15 YEAR MAX TERM GRANTED BY THE COURT
S34
Assumptions and disregards for assessing new rent
S35
Other terms of new tenancy
S36
Carrying out the order of new tenancy
S37
Compensation where new tenancy not granted on certain grounds
S38
Contracting out S24-28
S39
Saving for complusory purchase
S40
Duty to provide information
S43
Defines tenancies which do not apply
Law of Property Act 1925- Section 146
Notice of breach of covenant leading to forfeiture
L&T Act 1988
Duty on landlords to give consent in a reasonable timeframe
L& t
