Lease Renewals

Question 1

What options are there at lease expiry?

Answer 1

 Qualified tenancy continues under s. 24 after expiry until terminated under the Act
 Continues on the same terms at the same rent
 Holding over / continuation tenancy
 Three options on lease expiry:
* Tenant not want to renew - vacate by lease expiry (Esselte v Pearl Assurance1977). If landlord served s. 25 notice, need to leave by the termination date. If tenant stays and then wants to leave after end date then they must serve s. 27 notice. Gives landlord 3 months’ notice they are leaving.
* To start proceedings landlord serve s. 25 notice 6-12 months before stating whether grant or oppose new lease. Tenant can negotiate terms of new lease, no tenant counter notice needed.
* To start proceedings tenant can serve s. 26 notice 6-12 months before the lease end. Serve on competent landlord and detail new lease. On receipt Landlord can serve counter notice within 2 months specifying grounds of opposition. No counter notice, tenant may apply to court for new lease after 2 months under s. 29.

Question 2

What process do you go through to complete a lease renewal?

Answer 2

 CIT
 Understand client’s objectives
 Obtain all of the required info. Read the documents carefully
 LR – check it isn’t contracted out of the 1954 Act.
 Inspect in accordance with RICS Surveying Safely. Check for any breaches.
 Measure in accordance with Code of Measuring Practice, 6th Ed, 2007.
 Undertake a market rent valuation, having regard to the terms of the lease (BARUS) and comparable evidence.
 Prepare report to client setting out recommendations.
 Agree strategy with client. Confirm who is serving notices. A lawyer should always serve 1954 notices.
 Open negotiations. Check notices received are valid.
 Conclude negotiations. Instruct solicitors to prepare new lease in accordance with the HoTs
 Offer to settle - made in accordance with Part 36 of Civil Procedure Rules 1998 – cannot be referred to in court
 PACT is for lease renewal disputes
 Since Land Registration Act 2002 all leases over 7 years (existing leases with 7 years remaining on assignment) must be registered with Land Registry with compliant lease plan

Question 3

What is a Tenancy at Will?

Answer 3

 Grant temporary occupation of business premises
 Without tenant acquiring SoT (Severance of Tenancy)

Question 4

What is the Land Registration Act 2002?

Answer 4

 Formal documents to be executed electronically
 Leases over 7 years must be registered with Land Registry

Question 5

What determines terms for new lease?

Answer 5

 S. 32-35 refers to terms of new lease:
o S. 32 Demise - same property as before
o S. 33 Term - max 15 years
o S. 34 Rent - consider disregards (goodwill, occupation, improvements, licence)
o S. 35 Any other terms
 O’May v City of London 1983 – tests to be satisfied before amending terms of old lease
o Justifiable reasoning?
o Adequate compensation?
o Affect tenant business or SoT?
 Modernising lease is generally accepted to reflect current market practice as long as conditions are met

Question 6

What sections of Landlord and Tenant Act 1954 are there?

Answer 6

 23 – meaning of business tenancy
 24 – continuation tenancy unless terminated (security of tenure)
 24a – interim rent
 25 – landlord to terminate or renew
 26 – tenant to renew
 27 – tenant notice to quit (3 months)
 28 – freedom to agree new lease
 29 – courts application
 30 – landlord grounds of opposition
 32 – demise
 33 – term
 34 – rent
 35 – any other terms
 37 – disturbance compensation
 38 – contracting out
 40 – request for information
 43 – excluded business tenancies
 44 – competent landlord
 64 – new lease start date

Question 7

What is the valuation date for a lease renewal?

Answer 7

 It is set by when you apply to court, otherwise you’d value on the day after lease end.

Question 8

On what grounds can a 1954 Act protected lease be terminated?

Answer 8

 S. 30, 1954 Act – grounds A-G
o A - Breach of repair covenant
o B - Persistent delay in the payment of rent
o C - Other substantial breach
o D - Suitable alternative accommodation
o E - Uneconomic subdivision
o F - Redevelopment
o G - Owner occupation
 Grounds E-G landlord pays compensation (S. 37 L&T 1954):
o Occupation over 14 year – 2 x rateable value for property
o Occupation less than 14 years – 1 x rateable value for property
o Avoid compensation if provide suitable alternative accommodation
o Compensation payable based on RV at date of s. 25 notice

Question 9

Can a tenant lose their 54 Act rights?

Answer 9

If no new lease terms have been agreed by the lease end date, or the T hasn’t applied to the court to agree terms or for an extension, they can lose their rights.

Question 10

What is the process for contracting out of s. 24 – 28 of the 1954 Act?

Answer 10

 Regulatory Reform Order 2003 simplified the process so that it rarely requires a court influence.
 Landlord serves a health warning stating the consequences of contracting out.
 Simple declaration if the tenant waits for longer than 14 days.
 Statutory declaration is sworn in front of an independent solicitor if less than 14 days.

Question 11

You served a section 25 notice – what would you find in this notice?

Answer 11

 Name and address of Landlord and Tenant
 Property address
 Notice of date to end the tenancy
 Confirmation as to whether a new lease is granted (favourable – form 1) or opposed (hostile – form 2)
 Landlord’s proposals for a new tenancy or the grounds of opposition
 A strong recommendation for the tenant to seek professional advice
 Signed by a representative of the Landlord

Question 12

When is the date of receipt of a S. 25 notice?

Answer 12

 S. 23 Landlord and Tenant Act 1927 posted and received on same day for statutory notices.

Question 13

Can landlord serve s. 25 notice after T has served s. 26 notice?

Answer 13

 No, they are mutually exclusive (impossible to serve one if already in receipt of the other)

Question 14

Where might S. 25 Notices go wrong?

Answer 14

 Wrong name, not signed, not dated
 Hexstone v Wetslink 2010 – Westlink was going to merge with Eddie Stobart. Served break-clause notice under ES name but had not yet merged. Judge ruled break notice was invalid

Question 15

What if the tenant objects to the terms in the notice?

Answer 15

 Landlord terms can be challenged through lease renewal, by negotiation or the court.
 S.26 and s.25 are mutually exclusive so the Tenant would serve a counter notice (within 2 months).

Question 16

What if the tenant wants to renew but it gets to date of the new tenancy and the terms have not been agreed?

Answer 16

 Time may be extended by agreement between the parties. Regulatory Reform Order 2003.
 An application is made to the court.

Question 17

If the tenant wanted to leave halfway through negotiations what would they need to do?

Answer 17

 They would have to serve s.27 and give 3 months notice.
 If they’re already in court but change mind they can just withdraw their application and negotiate with LL on notice period and back rent.

Question 18

What is an interim rent?

Answer 18

 Rent the tenant pays while the tenancy is continued under s. 24.
 Application may be made at any time after the landlord has served s. 25 notice or the tenant has made a s. 26 request.

Question 19

How would you calculate interim rent?

Answer 19

 Interim rent is to compensate the landlord (in a rising market) or tenant (in a falling market) for the loss of rent suffered between date of the new tenancy in the notice and the valuation date of the hearing.
 Either the landlord or the tenant can apply under s. 24a after s. 25 or s. 26 notice has been served
 The valuation date is the latter of application date or the date specified in the landlord or tenant’s notice
 The presumption is that the interim rent will be the same as the new rent with no cushioning effect. The court may vary this if there is substantial difference between the market rent at the date of the new tenancy and the date from which the interim rent became payable. Or if the terms of the original tenancy are so different to the new lease that there would be a substantial difference in market rent.

Question 20

Who is the competent landlord?

Answer 20

 S. 44 - Freeholder or superior T with an unexpired term in excess of 14 months.

Question 21

What is a s. 40 notice?

Answer 21

 Requests information from either landlord or tenant
 Can check who is competent landlord or landlord can check if tenant had statutory protection

Question 22

If acting for an external client, how would you have acted differently for a lease renewal?

Answer 22

 Would have checked for conflicts of interest and served formal terms of engagement, agreeing fee etc.

Question 23

What is a s. 40 notice?

Answer 23

A Section 40 notice is a form that can be served by either the landlord or the tenant on the other in order to gather information to be able to make a decision on whether or not to renew or end a business lease.

 Requests information from either landlord or tenant
 Can check who is competent landlord or landlord can check if tenant had statutory protection

Question 24

When must you respond to a section 40?

Answer 24

Both the tenant and the landlord must respond within a month if an S40 notice is served on them. They have a further obligation to tell the other side of any changes of fact in the information given for a further six months. The notice of change of information must be provided within one month of the party becoming aware of it.

Question 25

What information must a section 40 provide?

Answer 25

An S40 notice served by a landlord on a tenant seeking information will require the tenant to state whether there has been a contracting out of any sub-letting and whether a Section 25 notice or a Section 26 notice has been served.

An S40 notice served by the tenant on the landlord will require the landlord to state: whether there is a superior lease, and whether a Section 25 or Section 26 notice has been served.

Question 26

If a tenant approaches you 18 months before lease expiry of their lease what can you advise them?

Answer 26

 First would establish the needs of the client.
 Then look to see whether their lease is contracted out.
 Contracted in or out - can wait until lease end and hand back keys – Esselte v Pearl
 If contracted in and want to leave:
o Serve a s. 27 notice 3 months in advance of lease expiry.
o Make sure they have vacated the unit on lease expiry.
o If the LL is likely to serve a hostile s. 25 notice to get the T out, they could consider doing nothing. The LL would have to oppose the grounds for renewal and the T would get compensation. Risk of being in the unit a substantial amount of time after lease expiry; i.e. 6 months after s. 25 is served and enough time for the LL to prove grounds.
o In falling market L serve s. 25 notice to end on lease end date, then interim rent application to set rent as early as possible before market falls further
 If contracted in and want to stay.
o Under-rented do nothing, continuation tenancy is created under s. 24.
o Over rented T should serve a s. 26 Notice 6/12 months before lease expiry.

Question 27

How would you use unrepresented evidence?

Answer 27

 Does it fit within the pattern of other evidence?
 If so, no reason to assume unrepresented tenant does not know about property and market
 Consider it but acknowledge that represented evidence is more likely to be ‘true’ market value.
 Perhaps apply a deduction?

Question 28

When can the value of improvements be captured for rent reviews?

Answer 28

Read the rent review clause. It is a usual disregard in leases. May be rentalised if the works were a condition of the Landlord granting the lease. Usually will not be captured. If disregard improvements then disregard regardless of whether works were licensed or not.

Question 29

When can the value of improvements be captured in lease renewals?

Answer 29

o Governed by the Landlord and Tenant Act 1954.
o Can never capture the value of improvements at first lease renewal
o On a subsequent lease renewal the 21 year rule applies – can be captured if the improvements were undertaken more than 21 years ago.
 What would happen if the tenant had done the improvements in 1948? This is before 1954 Act so you could include them.

Question 30

Might a tenant receive compensation for improvements if the tenant’s lease renewal is opposed?

Answer 30

 Yes
 Governed by the s. 1 Landlord and Tenant Act 1927.
 Improvement must be of a nature as to add value to the property at the termination of the tenancy.
 Compensation is lower of cost of improvements or value after as a result of improvements
 Compensation usually offset against dilapidations claims under grounds e and g of s. 30

Question 31

What is LTA 1927?

Answer 31

The Landlord & Tenant Act 1927 (“the
Act”), sections 1, 2 and 3, give a tenant
who has made improvements to a
premises during their tenancy a right to
compensation at the end or earlier
determination of the tenancy. This can
occur even if the landlord did not
consent to the improvements. Although
there are many pre-conditions which
must be satisfied in order that a tenant
may gain compensation, parties cannot
contract out of this statutory right.

Question 32

The requirement to give notice of
improvements under the LTA 1927 Act?

Answer 32

In order to be able to claim
compensation under the Act, the tenant
must have served notice on its landlord
of its intention to carry out improvements
together with a specification and plan
showing the proposed improvements,
before commencing work. The notice
must refer to the tenant’s rights under
the Act and be sufficiently detailed for
the landlord to be able to assess the
proposed works and to decide whether it
wishes to carry them out itself.

Question 33

What are the main issues of L&T Act 1927?

Answer 33

 S. 19 Alienation, assignment clauses – turns qualified covenants into fully qualified
 Fully qualified – allowed with landlord consent, not to be unreasonably withheld

Question 34

How would you know if the lease was contracted in?

Answer 34

 BOPET
 Business – occupied for the purpose of business
 Occupation – Part of premises must be occupied for more than 6 months
 Premises – Must be defined premises.
 Excluded business under s.43 1954 e.g. farming, mining
 Tenancy – Must be lease – exclusive possession/term certain/rent – Street vs Mountford

Question 35

If T has contracted in lease but you find out they aren’t in occupation for business purposes what do you do?

Answer 35

 They have no security of tenure so no renewal rights

Question 36

What type of break-clauses are there?

Answer 36

T-only, L-only, mutual, rolling, fixed, linked to other clauses

Question 37

f you want to insert a landlord break for redevelopment can you contract inside 1954 Act?

Answer 37

Yes you can but you have to serve s. 30 and break on grounds f.

Question 38

What are landlord remedies for breach of lease for non payment of rent?

Answer 38

 Initially – contact tenant, agree payment plan
 Recover sums from:
* Guarantor/AGA – no limit to number of times landlord can approach guarantor
* Former tenant - Landlord & Tenant Covenants Act 1995 – after 1 January 1996 assignment, original tenant is released from its liability under the tenants covenants contained unless it enters into an AGA
* Before 1 January 1996 – original tenant remains liable throughout term, through ‘Privity of Contract’. Landlord serve notice under s. 17 Landlord and Tenant Covenants Act 1995 on former tenant within six months of charge falling due. Any tenant or guarantor which settles the arrears in full is entitled to call for an overriding lease to be granted to it.
 Rent Deposit:
* withdrawal means there is less money available to safeguard arrears in the future
 Levying distress on tenant goods to sell and re-coup losses:
* Appropriate goods on the premises to make it worthwhile
* Attendance by a bailiff at certain times will cause maximum commercial embarrassment
* Goods can be removed and sold or bailiff can impound them on premises until the debt has been paid
* Only able to remove stock not fixtures and fittings or tools tenant needs to conduct their business
 Recovery from sub-tenants:
 S. 6 Law of Distress 1908 – Landlord can request any sub-tenant pay rent directly to the superior landlord
 Can then levy distress on sub-tenants goods
 Debt recovery in County Court:
* Debt recovery proceedings – puts pressure on tenant, but no intention to evict
* Statutory demand - payment within 21 days of the date of service or landlord can initiate bankruptcy / winding-up proceedings
* Usually facilitates payment of rent – if not it may not be worth costs of proceeding with bankruptcy as do not have any money anyway
* Presentation of a winding-up petition
 Terminate lease:
 Court proceedings to get a possession order unless arrears paid – costly, time consuming
 Peaceable re-entry – quicker, cheaper, effective. Change locks, post notice of re-entry on premises, notifying the tenant
 Tenant has right of relief from forfeiture within 6 months.
 Will depend on whether landlord actually wants unit back – ability to re-let
 Some remedies for recovering arrears of rent will waive the right to forfeit until rent is next due

Question 39

What is ‘administration’?

Answer 39

 An administrator is appointed by court under the Enterprise Act 2002 to rescue an insolvent company protecting it from any legal action.
 Creates a ‘moratorium’ (period of protection) for the administrator to deal with the assets of the company to achieve best returns for creditors before going into liquidation.
 Common scenarios:
o Pre-pack business sale
o Administration trading
o Close down and wind up

Question 40

What is ‘pre-pack administration’?

Answer 40

 Allows the directors of a company to buy out and retain elements of the business which are trading well and placing the remainder in administration. Popular route.
 E.g. Habitat sold London stores to Homebase

Question 41

What is ‘receivership’?

Answer 41

 A Law of Property Act 1925 receiver is appointed by creditors to realise assets and to repay debt whilst administrators are being appointed by court.
 Occurs when a company defaults on payment to a lender who has a charge over all or most of the assets of a company – receiver to act in their interests.

Question 42

What is a ‘Company Voluntary Arrangement’?

Answer 42

 Contract between a company and its creditors for when a company is insolvent but the directors believe it has a viable future – creates moratorium, allowing some/all debts to be paid over period of time
 An insolvency practitioner oversees the implementation of the proposed strategy.
 Actions must be approved by at least 75% of the creditors having regard to their value of debt.
 Miss Sixty case, Prudential v PRG Powerhouse 2007

Question 43

What is ‘liquidation’?

Answer 43

 Company is brought to an end, and the assets and property of the company redistributed
 Aka winding up of company
 Compulsory – creditors liquidation
 Voluntary – tenant liquidation
 Companies in administration cannot be forced into liquidation

Question 44

What is ‘bankruptcy’?

Answer 44

Court procedure for an individual

Question 45

What does Landlord and Tenant Covenants Act 1995 say?

Answer 45

 Leases granted after 1 January 1996
 Act abolished privity of contract for new leases automatically ending the liability of the tenant (as original tenant or assignee) once the lease is assigned
 Introduced Authorised Guarantee Agreements (AGAs) – most recent former tenant to guarantee lease obligations of immediate assignee.
 AGAs generally only used when assignee is of lower financial standing than the assignor

Question 46

What does Landlord and Tenant Act 1988 say?

Answer 46

 Must demonstrate refusal of consent or consent with conditions is reasonable
 Burden of proof is on landlord to justify refusal for consent (Eugena Ltd v Gelande Corporation Ltd 2004)

Question 47

Can you use a drop in capital value as a reason to refuse an assignment?

Answer 47

 No
 L&T Act 1988 you have to respond in reasonable time for applications to assign/sublet.
 Blockbuster v Barnsdale Properties and Dong Bang Minerva v Davina

Question 48

What are the implied landlord’s covenants under a lease?

Answer 48

Quiet enjoyment for the Tenant

Question 49

What is a modern form of lease?

Answer 49

 A lease that reflects new legislation, eg EPCs needed for marketing so L has to be able to gain access to carry out EPC (EU Energy Performance of Buildings Directive (2006))

Question 50

Does the current lease of a property impact a lease renewal?

Answer 50

Yes, the terms of a current lease can significantly influence a lease renewal. Key aspects of the existing lease, such as rent, break clauses, permitted use and repair obligations, often serve as a STARTING POINT for NEGOTIATIONS.

Landlords and tenants typically review the EXISTING LEASE to decide whether to extend, modify or renegotiate terms. For example.

1. RENT REVIEWS: If the current lease includes a rent review clause, the updated the rent might influence the terms of renewal.
2. OPTIONS TO RENEW: If the lease includes an option to renew, the renewal terms may already be partially predefined.
3. LEGAL COMPLIANCE: Any changed in legislation since the original lease was signed may required amendments during renewal.

Understanding the current lease is essential to identify potential issues and negotiate effectively.

Question 51

In the absence of agreement of lease length between parties, what is the MAXIMUM LEASE LENGTH that can be set by court?

Answer 51

15 years

Question 52

Why would you place more weight on a lease renewal compared to a rent review?

Answer 52

A Lease Renewal is set to the open market rent and therefore it can go UP or DOWN.

A Rent Review is upwards only.

Question 53

When agreeing a lease renewal, what is disregarded?

Answer 53

The tenant’s OCCUPATION, ANY GOODWILL and the VALUE of ANY IMPROVEMENTS made by the TENANT within the LAST 21 YEARS are DISREGARDED for the purpose of fixing a new rent.

Question 54

In a lease renewal, in the absence of agreement on a fixed date, what is the valuation date?

Answer 54

In the absence of agreement on a fixed term date, the VALUATION DATE for the rent is the date of COMMENCEMENT of the NEW LEASE.

Question 55

What does ‘WITHOUT PREJUDICE’ mean?

Answer 55

Negotiations carried out by surveyors are usually carried out ‘WITHOUT PREJUDICE’ - used orally and in written communication. These words enable parties to NEGOTIATE FREELY with each other knowing that any CONCESSIONS or PROPOSAL put forward in negotiates will only be know ONLY to the OTHER PARTY and must NOT be DISCLOSED to the court if an agreement cannot be reached.