Landlord & Tenant Flashcards
What does without prejudice mean?
Allows parties to engage in confidential yet candid negotiations, protecting their discussion from being used against them in court
What does ‘save as to costs’ mean?
The offer can be disclosed to the court when determining who should pay the costs
What does ‘subject to contract’ mean?
The party does not intend for the contents to be legally binding
What is a Calderbank offer?
Unconditional genuine offer to settle on specified terms and it is marked as without prejudice save as to costs. It is based on the divorce case of Calderbank v Calderbank. The losing party will have to pay the other side recoverable costs. It must be a genuine offer to settle and not a mechanism to influence costs. An arbitrator is obliged to make an award for costs. Example = You cannot agree a rent review so present a Calderbank Offer (final offer) to the other side saying our final offer is £X. If this is not agreed and it goes to third party this can be made aware to them so costs are awarded correctly.
What is an Independent Expert?
An Independent Expert is someone who has detailed knowledge of the market as a valuer. They are appointed by the RICS but are not bound by judicial rules (i.e., not governed by law). They can make their own investigations and have their own opinion to the market rent and are bound by the terms of the lease. There is no right of appeal but they can be sued for negligence.
What is an arbitrator?
An arbitrator is appointed for 3rd party determination for rent reviews and they can be appointed by RICS president. An arbitrator is bound by the Arbitration Act 1996 and they cannot use their own knowledge/experience and the decision is based purely on the submissions by the parties. The award an arbitrator makes has to be between the two offers made. There is some right of appeal (3 grounds). Unless the arbitrator has acted in bad faith they cannot be sued for negligence.
What is the difference between an Independent Expert and an Arbitrator?
An independent expert will make their own decision based on their opinion of the rent. An arbitrator can only use the evidence submitted by the parties and from an expert witness. An arbitrator is governed by the Arbitration Act 1996 whilst an independent expert is governed by the lease. An independent expert cannot be sued for negligence but an arbitrator can be may be appealed against within 28 days on 3 grounds (tribunal jurisdiction, point of law and serious irregularity).
What is PACT?
Professional Arbitration on Court Terms. The RICS encourages it as an alternative dispute resolution (ADR) for unopposed lease renewals. It is legally binding and the arbitrator is nominated by the RICS of Law Society. It is governed by s.29 (order by court for new tenancy) and s.25-35 (terms of the new tenancy) of the 1954 act.
What are the assumptions and disregards for a rent review?
The standard assumptions are:
* The subject property is fit for immediate occupation and use
* The property is available to let on the open market by a willing Landlord to a willing Tenant at the market rent
* All covenants in the lease have been observed by the Tenant
* The property may be used for any purpose permitted under the terms of the lease
The disregards are:
* Any effect on the rent of the Tenant’s occupation
* Goodwill (i.e., you cannot argue the tenant has been there X years and therefore they should pay a higher rent as everyone knows they are there)
* Increase in value as a result of Tenants improvements
* Any licences which are personal to the Tenant i.e., alcohol licence
What is the case law for assumptions and disregards?
Ponsford v HMS Aerosols – the lease had no provision for excluding tenants improvements therefore they were taken into account at rent review.
Shows that they need to be stated.
What are the assumptions for a lease renewal?
The assumptions are:
* Regard to terms of the lease
* Willing Landlord and Tenant
* Premises are to be let with vacant possession
* Any effect on rent of the operation of L&T Act 1996 must be considered
What is covered by s.30 of the Landlord and Tenant Act 1954?
(a) Repair obligation
(b) Persistent rent delay
(c) Other covenants Tenant has failed to observe
(d) Landlord can provide suitable alternative accommodation
(e) Uneconomic sub division
(f) Landlord wants to redevelop/demolish
(g) Landlord wants to regain occupation (must have been the Landlord for a minimum of 5 years)
What is the difference between a licence and a lease?
The difference between a lease and a licence was set out in Street v Mountford (1985).
A lease cannot be terminated until expiry or a break, whilst a licence can be revoked at any time.
A lease can be assigned, whereas a licence is a personal right and cannot be assigned.
A lease provides exclusive occupation of property, whilst a licence grants legal use of land.
What did the Landlord & Tenant (Covenants) Act 1995 do?
Introduced an AGA and privity of contract abolished (tenant liable for interest in tenancy even after assignment)
What is an AGA?
Agreement which forces outgoing Tenant to guarantee performance by the new Tenant. It falls away when a further sub letting occurs or the lease ends. If the assignee fails to perform Tenant covenants the Landlord can pursue the original Tenant.
What does holding over mean?
An inside the act tenancy does not expire by effluxion of time – but only when a party serves notice. When no notice is served this is called ‘holding over’ until either party serves notice to terminate.
What is the rental hierarchy of evidence?
Open market lettings lease renewals rent reviews independent experts arbitrator court determination hearsay evidence sale and leasebacks surrenders and renewals intercompany arrangements
What does the L&T 54 Act apply to?
It is defined under s.23 of the act whereby premises must be occupied by tenants for business purposes (i.e., not residential) and business includes trade. professional or employment
What does security of tenure mean?
Tenant will remain in occupation until the lease is brought to an end
What does the rent review clause cover?
Machinery for initiating a rent reviews, basis of valuation, assumptions & disregards, means of settling disputes
Talk me through how you initiated the rent review in ….?
I referred to the lease and I served a rent review trigger notice in writing to the Landlord / Tenant’s registered office. This set out the address of the property, parties involved, date of the rent review, and proposed rent.
Talk me through the rent review procedure.
(1) Read the lease – is time of the essence?
(2) Receive written instructions from the client
(3) Checked for conflicts of interest
(4) Confirmed fee basis in writing
(5) Terms of Engagement signed
(6) Arrange an inspection, inspect and measure the property
(7) Gather comparable evidence
(8) Carry out a market rent valuation
(9) Provide written recommendations to client
(10) Negotiate / refer to third party if an agreement cannot be reached / alternatively a Calderbank offer can be submitted
How might a conflict of interest arise in a rent review?
If I was acting for the Landlord on a unit in an industrial estate and was acting for the Tenant on a different unit a few doors down. It would be a conflict as I am arguing against my own evidence.
Why is it important to review the licence for alterations (if there is one)?
To see how long the tenant fit out has been in situ. If it has been in situ for less than 21 years you cannot rentalise it and it is disregarded for the rent review. If there is no licence for alterations and alterations have been made this is illegal and could be rentalised / L could ask for it to be removed but you should always check the terms of the lease.
What is the relevance on the rental value of the hypothetical term?
You need to step back and think about if you were to let the property on the market today, what would be the length of the lease? If the length of lease is longer than the hypothetical term then an adjustment would be made to the rental value. The longer the term the more security for the landlord but more onerous for the tenant so cheaper rent; the shorter the term the more flexibility for the tenant but less security for the landlord so a higher rent.
What are the disregards for a rent review?
The disregards are:
* Tenants occupation
* Goodwill
* Tenant Improvements (unless older than 21 years)
* Effect on the rent as a result of a personal licence
What is a Tenancy at Will?
A form of licence agreed in writing for a unspecified period of time.
When would you use a Tenancy at Will?
(fitting out) To give a tenant early access to a property during lease agreement for fitting out.
(lease renewal) Whilst a tenant is agreeing a new, contracted out lease terms after expiry.
What is a Wayleave?
Temporary right and receive an annual payment.
e.g., provides a right for an electrical company to install and retain apparatus
What is an Easement?
Permanent right and receives a capital payment, allowing a right to be enjoyed by one party over the land of another. Can be registered with Land Registry.
How can a prescriptive right of way (prescriptive easement) be obtained?
Continuous and uninterrupted use being proven over a period of 20 years or more
Who can grant a prescriptive right?
By a landowner to allow access over the land. They are not public rights of way.
There is usually signage to confirm that this is a permissive right of way.
What is Adverse Possession?
When a non-legal owner of the land has had possession of registered land for 12 years, can become legal owner through possession.
Before 2003 - registered land & 12 years possession = ownership
After 2003 - registered land & 10 years possession = ownership
After 2003 - non-registered land and 12 years possession = ownership
What is a lease?
A lease must grant exclusive occupation of the property for a specified term at a rent and if it is more than 3 years it must be in writing, signed and registered as a deed.
What is a licence?
A licence is a personal right to make it lawful for a licensee to use the land. It is merely a personal right which can be terminated at any time. The licencee acquires no interest in the property.
What must be agreed in writing at the start of the instruction?
Competence
No conflicts of interest
Terms of engagement
What can fees for rent reviews or lease renewals be based on?
Fixed fee
Incentivised fee (e.g., % of uplift achieved or savings made)
Hourly rate (common in expert witness work)
With regards to the L&T Act, what does it mean if a lease is silent in regards to security of tenure?
If there is no mentioned of being contracted inside or outside of the landlord and tenant act 1954, the lease is silent and therefore is INSIDE the security of tenure provisions of the Landlord and Tenant Act 1954 (sections 24-28).
What is time is of the essence?
If time is of the essence then time scales in the lease must be strictly adhered to.
Note: if not stated, then time is NOT of the essence
What is time of the essence case law?
United Scientific Holdings v Burnley Borough Council (1997). It established that time is only of the essence if it is explicitly stated.
What is an RPI / CPI linked rent review?
Rent increase is tied to the retail prices index or consumer prices index, which track inflation, rather than a standard open market review.
What is a turnover rent?
Rent is determined by a percentage of the business’s gross turnover rather than a fixed amount
What is a headline rent?
Rent which ignores all lease incentives (e.g., rent free periods)
What is a net effective rent?
Rent which is adjusted for lease incentives (e.g., rent free periods)
What is the hypothetical / assumed term?
Length of the term to be assumed for rent review purposes. Unless wording is explicit (i.e., 10 years from review) the assumed term is the unexpired residue.
What is the purpose of the rent review?
To compensate for increases in property values and for decreases in the value of money over a long term
How do you contract out of the Landlord and Tenant Act 1954?
s.38A sets out procedure.
More than 14 days until grant of lease = simple declaration
Less than 14 days until grant of lease = statutory declaration (signed by solicitor)
What section states the sevens grounds of opposition to a Tenant’s inside the act lease renewal and what are they?
S.30
a. property is in disrepair
b. persistent delay in rent
c. T in substantial breach of terms of lease
d. L able to provide suitable alternative accommodation
e. tenancy was created by a sub-letting and a higher rent can be obtained of the whole
f. L intends to demolish / reconstruct the property which cannot be done without obtaining possession
g. L intends to occupy for their own business / residence
What is a section 25 notice? When should it be served?
Notice served by the L on the T to terminate the lease.
Time is typically of the essence for this clause and it must be served between 12 and 6 months before the contractual expiry of the tenancy (or the date specified in the lease).
What is a section 26 notice? How should it be served and in what notice period?
Notice served by T on the L to request a new lease (can propose the rent and other terms).
Needs to be served in a form prescribed by the court.
Form needs to be submitted between 12 to 6 months of the tenancy coming to an end.
What is a section 27 notice? How should it be served?
Tenant serving a notice of termination. This must be served by the Tenant within the last 3 months of the lease but not later than the end of the tenancy.
Talk me through when you have read a lease to establish the extent of your client’s demise.
Tell me about a Landlord and Tenant negotiation you have been involved with.
What do you look for on a lease plan?
Boundaries, rights of way, communal areas
What happens if a section 25 notice is served 3 months before the contractual expiry of the tenancy?
The new lease will start 3 months after the expiry date of the old lease (there needs to be a minimum of 6 months)
How can a Tenant bring the lease to an end? And can they do this if a section 25 notice has been served?
Section 26 and no they cannot do this if a section 25 notice has been served, rather they can serve a counter notice / accepts the terms.
What is a section 28?
Landlord and Tenant agreeing to a new lease and bringing the old lease to an end.
What needs to be included in a section 25 notice?
Name and address of L and T
Address of property
Date of termination
Date of notice
Date when response is required
Whether a new lease is to be opposed or granted (hostile or friendly)
Proposals for new tenancy (if friendly)
Notice for grounds for opposition (if hostile)
Strong recommendation to seek professional advice
What is the difference between a lease renewal and a rent review?
Lease renewal is a statutory process laid down by L&T Act 1954 (not statutory is lease is contracted out)
Rent review is a contractual procedure contained within a lease
What is your understanding of the ongoing Landlord and Tenant review/consultation?
What tenancies does the Landlord and Tenant Act 1954 not apply to?
Agricultural, mining, residential, tenancies granted as condition of employment, tenancies not exceeding 6 months (unless there is provision for extension or T has been in occupation for more than 12 months)
What do you advise Landlord to do in respect of lease renewal for property that is significantly over rented?
Do nothing and carry on getting high rent if T holds over. However, T could serve S26 for new lease or S27 and vacate
Serve S25 and enter into new lease at lower rent
- Note: if gave 12 months notice with S25 then T could apply to court for interim rent as they wouldn’t want to pay high rent for another 12 months, so would argue they will only pay higher rent for 6 months (shortest possible notice period)
Is it better for Landlord to serve S25 12 months or 6 months before expiry?
6 months = negotiate as close to renewal date as possible but risk if T decides to vacate as have less time
12 months = maximum amount of time given to both parties. Useful if T vacating, but if staying then have to agree new rent far in advance so there is more uncertainty
Why would a Landlord give 12 months notice when they could give 6 months notice with S25?
If over rented then get extra 6 months of T paying higher rent
If confident T leaving then get more time to find a new tenant
What action should Landlord take if they want possession at end of lease?
Serve S25 notice and object to tenant having new tenancy under 1 or more of the S30 Grounds.
What should Landlord do if Tenant not responding to friendly S25 notice?
Write to tenant and state they have 14 days to respond else will go to court to determine terms and T will be liable for costs.
What advice would you give a Tenant when a Landlord S25 notice is due to expire and new lease is not yet agreed?
Approach Landlord to request time extension in which either party can apply to Court.
If not agreed, T would have to apply to Court for new tenancy.
Note: if S25 notice expires then T loses security of tenure - L can propose new terms and if T does not agree they have to leave
If a shop lease was expiring in 12 months and a Landlord wants you to negotiate new lease with the Tenant. What would you do?
- Get a copy of current lease and read it.
- Agree terms of engagement
- Inspect and measure property
- Check for any breaches of covenant
- Gather comparable evidence & carry out rental valuation
- Serve friendly S25 notice
When is a Tenant entitled to compensation when the Landlord opposes new lease under 1954 Act?
Last three grounds of s30 are no fault grounds, so if new lease opposed due to one or more of these grounds then T gets compensation
Note: if another reason also stated (one of first 4 grounds) then compensation is NOT due
How is Tenant compensation assessed under the 1954 Act?
if T has been in occupation for 14 years or more then get x2 RV
if T has been in occupation for less than 14 years then get x1 RV
What is an interim rent? And how is it assessed?
The rent payable between the end of the old lease and the start of the new lease
Ideally, new lease should start day after old lease ends but if negotiations are ongoing then interim rent is agreed (either between parties or by Court)
It is assessed to be the market rent at the start of the interim period
When would you recommend that a Tenant serves a S26 notice?
If T believes lease is over rented then serve S26 for new lease at lower rent.
T may also serve S26 even if rent increases as means they still have a lease in place (might be hard to find another elsewhere).
What action should Tenant take if 6 months left, they want to vacate and Landlord has not served S25 notice?
Do nothing and hand keys back on last day
Serve S27 with minimum 3 months notice
Note: if T in occupation even one day after expiry then MUST give 3 months notice
What are the key elements of a rent review clause?
Machinery
Basis of Value
Means of settling disputes
What is a trigger notice?
Notice that triggers a pre determined sequence of events
e.g., first notice (served by LL or T) to trigger rent review
What lease terms affect the rent at review?
- Rent review clause itself (definitions of rent, assumptions and disregards)
- Frequency of review
- Restrictions on alienation, user, repairing and insuring clauses
Is the hypothetical term more advantageous to the Landlord or the Tenant?
Depends on length
Long = better for T as get lower rent
Short = better for LL as get higher rent
What must a Calderbank offer contain?
- Statement made ‘without prejudice save as to costs’
- Unconditional written binding offer to settle
- Reasonable proposal regarding costs incurred up to the date of the offer (each party pays own cost plus 50% of arbitrator fees)
- Time in which other party must accept the offer by (21 days most common)
What is a part 36 offer?
A formal statutory offer under Part 36 of the Civil Procedure Rules (CPR) to encourage parties to settle a dispute. It must be a genuine offer to settle and is valid for 21 days.
What is the difference between a Calderbank offer and a Part 36 offer?
A Calderbank offer is a settlement offer made on a ‘without prejudice save as to costs’ basis. A Part 36 offer is an offer made under the rules set out in Part 36 of the Civil Procedure Rules (CPR).
If you could not agree a rent review, what would your next steps be?
Refer back to the lease to determine the third party specified (independent arbitrator or independent expert). Perhaps explain difference between IE & Arbitrator here. I would then give advice to the client regarding costs, likelihood of success etc.
If you were acting for the Landlord and could not agree a lease renewal for an inside the act lease, what would your next steps be?
Consider whether you want to regain possession and whether there are any grounds of opposition to challenge the tenant. Then serve a hostile s.25 notice to evict. If cannot challenge I would recommend a Calderbank offer and if not I would consider third party (PACT or court proceedings).
If you were acting for the Landlord and could not agree a lease renewal for an outside the act lease renewal, what would your next steps be?
If the end date of the tenancy has not passed, collect keys on lease expiry. Advise the client to not collect any rent to ensure they do not create an inside the act tenancy. If the Landlord and Tenant want a lease but they have not negotiated terms, ensure that a tenancy at will is in place following lease expiry.
If you were acting for the Tenant and could not agree a lease renewal for an inside the act lease renewal, what would your next steps be?
Evaluate your options - should you keep negotiating, relocate, submit a Calderbank offer or proceed with third party proceedings.
