Lease Renewals Flashcards
1
Q
What tenancies/ business occupations does the LTA 1954 apply to (Section 23)?
A
- It is a tenancy
- Premises must be used for a business
- Tenant must occupy at least part of the premises
- Occupation for at least 6m (I.e not a license)
- Not an exempted or excluded tenancy (e.g. TAW/ service tenancy)
- Competent LL (freeholder/ superior tenant with more than 14 months to run)
2
Q
What do sections 23-28 of LTA 1954 relate to?
A
(23) Tenancies to which Part 2 relates to
(24) Continuation of Tenancies and Grant of New Tenancies
(24A) Interim Rent
(25) Termination of Tenancy by LL
(26) T’s Request for New Tenancy
(27) Termination of Tenancy by T for a Fixed Term
(28) Renewal of Tenancies by Agreement
3
Q
Under section 25 of LTA 54’, what is a ‘friendly’ notice?
A
A notice by the LL to terminate the existing lease, stating new proposed terms and rent (opening negotiation)
4
Q
Under section 25 of LTA 54’, what is a ‘hostile’ notice?
A
A notice by LL terminating existing lease and opposing the grant of a new lease under one or more of the section 30 grounds
5
Q
What is the definition of occupation?
A
Physical occupation
- not necessarily continuous
- not necessarily occupied by the tenant
6
Q
What does Section 24 require regarding continuation of business tenancies to which the Act applies?
A
A business tenancy to which the Act applies does not expire by effluxion of time, but instead only when one party serves a notice
7
Q
Under Section 24, what happens when no notice is served?
A
T enters into a ‘holding over’ period until either LL/T serves notice to terminate the lease in accordance with the provisions of the Act
8
Q
What is an Interim Rent?
A
Rent payable by a business tenant under the Act during the holding over period (during their occupation between the termination of the former tenancy, and the commencement of the new lease)
9
Q
What is the ‘Appropriate Date’?
A
The date from which the interim rent is paid
10
Q
Is there always an Interim Rent payable?
A
LL/T can apply for an interim rent after a Section 25/26 notice has been served. If no notice has been served, there can be no interim rent.
11
Q
Are applications for interim rents mutually exclusive?
A
No. Once one party has applied for an interim rent, the other party cannot.
12
Q
What is the earliest/latest date to apply for an interim rent?
A
Earliest date - date of s.25/26 notice
Latest date - 6m after termination of tenancy
13
Q
Has it always been the case that the tenant can apply for an interim rent?
A
No, previously only LL could apply for an interim rent
14
Q
What is the basis for the interim rent?
A
Assumes an annual tenancy and a market rent (expected to be the new rent).
15
Q
Is the interim rent always just the Market Rent?
A
There can be adjustments to the interim rent payable if market conditions change significantly over the period that the interim rent is paid.
16
Q
How is the interim rent determined?
A
Typically the interim rent is the new agreed rent (usually Market Rent), although in some cases PACT proceedings can be used to determine the rent.
17
Q
What are the timings for serving a Section 25 notice?
A
LL can serve a s.25 only between 6-12 months before the proposed date of termination of the tenancy
18
Q
Does a s.25 notice have to be served on a quarter day?
A
No
19
Q
What must a s.25 notice contain/what are the requirements?
A
- Given by a COMPETENT LL, to T
- Relate to the ENTIRE DEMISE comprised in the tenancy
- Be in the PRESCRIBED FORM, informing T of their rights
TO INCLUDE:
- Name/Address of LL/T
- Property Address
- Proposed Termination Date
- Confirmation of whether new lease is to be granted or opposed
- Date of Response Required
- (Friendly) State Proposed Terms/Rent of New Lease
- (Hostile) State Grounds for Opposition
20
Q
Are there set time limits?
A
These are usually set within the notice but can be extended by agreement between parties (max. extension of 15 years can be granted by the court)
21
Q
Can you undertake a Lease Renewal negotiation past the date specified in s.25/26 notice (i.e. 6-12m)?
A
Yes however T loses their security of tenure, unless:
- There is a new lease in place
- Either party has applied to the court
- The parties have agreed in writing to an extension of their statutory period (“stay”)
22
Q
What are the timings for serving a Section 26 notice?
A
6-12 months before termination of tenancy
23
Q
What are the requirements for a s.26 notice?
A
- Must be in prescribed form
- Must state T’s proposed new lease terms (incl. rent)
24
Q
Can LL oppose T’s request for a new tenancy?
A
Yes - LL must serve a valid COUNTER NOTICE, within 2 MONTHS of receiving a s.26 notice specifying the GROUNDS FOR OPPOSITION within Section 30
25
What is a Section 27 notice?
Tenant's request to terminate the tenancy. T must serve notice to terminate tenancy no later than 3m before the contractual LEX (to ensure tenancy is not automatically renewed - subject to s.24).
If the lease has already expired and T remains in occupation (holding over), T must serve notice to terminate the tenancy giving at least 3m notice.
26
If T serves a s.27 notice, can they then serve a s.26?
No - once a s.27 is served, T loses their security of tenure and has no right to remain in occupation
27
Under s.24, business tenancies to which the Act applies do not expire by effluxion of time, but on service of notices. If T vacates prior to LEX, must a notice be served to terminate the tenancy?
No - no notice needs to be served if the property is vacant.
28
Under Section 30, what are the 7 grounds for opposition to grant a new tenancy?
(a) Breach of repairing covenant
(b) Persistent delay in paying rent
(c) Other substantial breach
(d) LL can provide suitable alternative accommodation
(e) Uneconomic subdivision
(f) Demolition/re-development
(g) Owner-occupation
29
Under which of the Section 30 grounds for opposition, is compensation payable to the tenant (S.37)?
Grounds e, f, g
Uneconomic subdivision
Demolition/re-development
Owner-occupation
30
Are all of the section 30 grounds mandatory?
Grounds (a) and (e) (breach of repairing covenant / uneconomic sub-division) are discretionary and the Court will determine if they are reasonable
Grounds (f) and (g) (re-development/owner-occupation) are mandatory
31
What must the Landlord do in order for a section 30 (f) ground to be valid?
LL to prove:
- intention
- funding
- planning permission
- substantial work undertaken
- necessity for VP in order to undertake redevelopment
- ability to re-development once VP secured
32
Can a Section 30(g) notice be valid for any LL?
LL must have owned the property for 5 YEARS, and prove their intention to occupy/run a business from the premises upon VP
33
What is Section 37?
Where LL gains possession due to successful hostile s.25, T is due compensation for disturbance.
This applies to any leases granted after 1st April 1990 if T has not breached any covenants.
34
Under Section 37, for those cases where T is owed compensation by LL, how is this compensation calculated?
<14 years occupation: 1x RV
14+ years occupation: 2x RV
** RV as at date of hostile s.25 notice/s.26 counter notice
35
Where T has undertaken improvements to the property, is there any compensation due to them?
Where T has undertaken licensed improvements (either with LL's consent, or permission obtained from Tribunal), they are owed compensation on expiry.
No compensation is owed where Tenants have undertaken improvements that they were contractually obliged to carry out.
36
Is the tenant entitled to undertake improvements to the property?
Yes as long as they are consented by LL. If the lease provides permission for T to carry out certain works (i.e. not structural), or an obligation for works to be done, compensation is typically not owed.
Where T wants to carry out work they must serve a Section 3 notice (LTA 27) on LL
37
Under sections 32-35 of LTA 1954, what are the terms of any new lease granted by the courts?
Post-Regulatory Reform (Business Tenancies) Order 2003, the terms upon which a court can grant a new lease include:
- term of MAX. 15 YEARS
- @ Market Rent
- lease terms to reflect those of previous lease (not to be changed to reflect market practice unless it is deemed fair and reasonable)
- Disregard any previous occupation, goodwill, and any licensed improvements undertaken by T within the last 21 years.
Court must have regard to terms of the current tenancy & all relevant circumstances
38
Do you know any case law regarding section 35 LTA 1954, and the grant of new leases by the courts?
O'May vs. City of London Real Property Co. (1982)
LL wanted to add a service charge to the new lease, so T would pay towards maintenance of the common areas of the building.
It was held that these changes reflecting market practice were not fair and reasonable and so it was refused.
39
What is the principles test regarding the variation of lease terms by the Courts to reflect market practice?
Typically, when granting a new lease, this should be the same as the old lease. If a party wants to change any terms, they must show these to be 'fair and reasonable':
1. LL has valid reason on estate management grounds
2. Proposed change must be capable of being compensated by a change in rent
3. Change must not materially adversely effect T's security of tenure
4. It must be fair and reasonable
40
Where does the concept of modernising the terms of new leases come from?
This concept of modernisation is accepted to reflect current market practice, relating to matters such as AGAs/VAT etc.
41
What is the valuation date in the case of lease renewals?
(Where LR settled by LL/T) Lease start date, as stated on notice.
(Where LR settled by court) 3 MONTHS 2 WEEKS from hearing date (where court determines new rent and orders new tenancy)
42
When determining the terms of a new lease, what are the 4 assumptions for Market Rent?
1. Regard to terms of new tenancy
2. Willing LL/willing T
3. Premises to be let with VP
4. Any effect on rent of the operation of L&T Covenants Act 1995 to be considered (i.e. the effect of releasing T from liability upon assignment/AGA)
43
Under Section 34, what are the standard disregards in the rental valuation when lease terms are determined by the Court?
1. Any effect on rent of T's occupation
2. Any effect of goodwill resulting from T's occupation & operation at the premises
3. Any effect on rent of T's licensed improvements
(*unless improvements were obligations to LL OR completed over 21 years before the date of application for a new tenancy)
4. (Licences) Any effect on rent of additional value because of a licence belonging to T
44
Under Section 44, what is a 'Competent Landlord'?
The person/body upon whom a notice should be served (or who should serve a notice).
This must be either the Freeholder, or the Superior Tenant with an unexpired term of at least 14 months.
45
When a LR cannot be settled between parties, what are the options?
Third party determinations by either:
- County Court (following Civil Procedure Rules 1998)
- Professional Arbitration on Court Terms (PACT)
46
How are third party determinations by the court initiated?
A Part 36 offer (Part 36 of Civil Procedure Rules 1998)
- genuine attempt to settle dispute
- must be made in writing (can be withdrawn in writing)
- offer open for min. 21 days (Can still be accepted after this, as long as the party has not withdrawn the offer)
47
When was PACT launched and by who?
Launched by RICS and Law Society in 1997
48
What is PACT?
ADR to Court proceedings, for unopposed new tenancies
49
In-court PACT vs. Out-of-Court PACT?
In-Court:
- Used for unopposed new tenancy where 1 party has already made an application to the court to fix the terms of the new tenancy
Out-of-Court:
- Used when no court application has been made by either party, and the parties agree to postpone any application, pending an out-of-court PACT resolution.
50
How is PACT intiated?
Normal service of notices, including necessary applications to Court made
- -> both parties agree on the 'statement of facts', and which matters are to be determined by third party
- -> Court must give consent order binding on both parties
- -> Arbitrator chosen by RICS President/Law Soc
- -> Decision is binding on both parties
51
What are the benefits of third party determination through PACT instead of County Court?
- Faster
- Cheaper
- Full court hearing is avoided
- More flexibility & control
- Decision by surveyor acting as an arbitrator, instead of a judge
52
Which section under LTA 54 relates to contracting out?
Section 38A
53
Why might a lease be contracted outside the security of tenure provisions of the LTA 1954?
1. LL intends to re-occupy
2. LL intends to redevelop upon lease expiry
3. LL wants future flexibility
4. Headlease requires any sublettings to be granted outside the Act
5. Rent may be lower for ex-Act leases
54
What does it mean to be contracted out of the Act?
- On lease expiry, T has no statutory right to remain in occupation, or seek compensation for leaving
- No compensation owed to T on lease expiry
- On LEX, LL must ensure premises are vacant or ensure a new lease is in place.
55
What is a Tenancy at Will?
In the case of an ex-Act lease, on expiry, if terms have not been agreed for a new lease but LL is not opposed to granting one, a Tenancy at Will is required to ensure that T cannot claim statutory protection for the duration of the period btw LEX and start date of new lease
56
In the case of an ex-Act lease, what happens if LL accepts T's payment of rent past LEX?
No rent should be collected until the new lease has been in place otherwise a protected tenancy may be created
57
What is the procedure for contracting a lease out of the Act?
LL must serve a HEALTH WARNING (a notice on prospective tenant warning that the new lease will not be protected).
- T must make a declaration in response, confirming that they have received this notice and accept its terms (Either Simple or Statutory Declaration in front of independent solicitor)
58
What are the different types of declaration a tenant can make, in agreeing to LL's health warning to contract out?
(1) Simple Declaration: when parties have at least 14 days prior to committing to the lease
(2) Statutory Declaration: when parties have less than 14 days prior to committing to the lease. Where this is the case, a statutory declaration must be made before an independent solicitor (i.e. not T's retained solicitor)
59
What are the various ways to terminate a lease?
- Forfeiture
- Surrender and negotiation
- Merger
- Disclaimer (due to insolvency)
- Break option
- LEX and service of notices under LTA 54'
60
What is contained in a Heads of Terms?
1. Address and Extent of Demise
2. Any special rights granted (parking/telecom access)
3. Lease Term
4. Inside/Outside the Act
5. Renewal/Break options
6. Guarantor/Rent Deposit requirements
7. Rent (frequency of payment and basis of review)
8. Rent Incentives
9. LL to charge VAT on rent ?
10. Alienation Rights (Assignment/subletting/group sharing)
11. Repairing obligations
12. Alteration rights/reinstatement obligations
13. Permitted Use (and whether any change of use is allowed)
14. Initial alterations/fit-out
15. Conditions of letting (e.g. subj. to surveys/board approvals/PP)
16. Liability to pay service charge/ insurance premiums
61
What are the earliest and latest dates a s. 24(a) notice can be served?
earliest: Date of service of s.25/26 notice
latest: 6m after termination of tenancy (LEX)
62
What is a s.24(a) notice?
A notice that can be served by the LL or T for an interim rent to be payable by a business tenant for the period of occupation btw termination of former lease, and commencement of new lease (the holding over period)
63
What is the date from which the interim rent is payable, known as?
the Appropriate date
64
Can T be obliged to pay an interim rent where no s.24(a) has been served?
No. There can be no interim rent without a s.24(a) being served
65
What is the level of the interim rent?
Interim rent assumes an annual tenancy at a market rent, typically the new rent.
If market conditions significantly change over the duration of time that the interim rent is being paid, this interim rent can be adjust.
66
Who determines the interim rent?
LL and T
| Where there is a dispute, PACT proceedings can determine the rent.
67
What is meant by a 'valid' notice?
- Notice given by a competent LL/T
- Relates to whole of property comprised in tenancy
- States the date for termination
- In the prescribed form, informing T of his rights, stating new proposed terms /rent and timescale for response
68
In the case of an ex-Act lease, what happens if LL accepts rental payment after the contractual lease expiry?
A protected tenancy may be created
69
Under Section 44, what is the definition of a competent Landlord?
The person/body upon whom a notice should be served/who should serve a notice.
Must be a Freeholder, or superior leaseholder (i.e. head tenant) with an unexpired term of at least 14m
70
How long does LL have to oppose T's application for renewal?
within 2m of receiving the valid s.26, and must state one of the s.30 grounds for opposition
71
What happens if LL and T cannot agree on terms for new lease?
Either party must apply to court by the date stated in the relevant notice (i.e. by the required response time) and the court will determine the terms (this date can be extended by agreement btw both parties)
72
What happens at the end of an inside-the-Act tenancy where LL/T cannot agree on terms of new lease and no application to the Court is made on time?
The tenancy will terminate (unless LL/T agree to extend the date in writing)
73
Can T appeal LL's s.30 ground for opposition of a new tenancy?
YEs - within 21 days from date of Court's order
74
What does the 6-12m timescale mean in practice?
If the LL/T wish to terminate/ propose a new tenancy upon expiry of the existing tenancy, they must serve a s.25/26 notice at least 6m before the contractual LEX (and max. 12m before LEX), either terminating the existing tenancy in 6-12m time, or proposing a new tenancy to begin in 6-12m time. (i.e. from date of contractual LEX)
75
What happens if LL/T were to serve notice 4m before LEX?
If both parties are in agreement, the new tenancy must begin at least 6m from the date of service of notice (i.e. the parties need at least 6m notice before contractual LEX - where they are not given this, their rights will roll over past the LEX allowing them at least 6m)
76
What is a s.40 notice?
Notice served by either LL/T in the last 2 years of the lease, to ascertain info required for serving effective s.25/26 notice,
i.e. determine who LL/occupiers/subtenants are
Response required within 1 month
Parties obliged to inform of any changes during 6m after s.40 notice
77
What are the benefits of PACT?
- cheaper
- quicker
- more flexible
- more accurate result that court (dealt with by specialists)
78
When is it ideal to use PACT?
- always but especially where rent is the main issue in the dispute
79
If T applies to the court, and then abandons this application, what happens?
Tenancy to terminate 3 months later
80
In the case of a court hearing where court determines new lease terms, when does the existing tenancy terminate?
3m after end of court hearing or any appeal
81
Why might you want to contract a lease out of the Act?
- Requirement of headlease
- LL wants to redevelop/ reoccupy
- LL want future flexibility
- T may be able to secure a lower rent
82
Can T serve a s.27 after LL has served a s.25?
Yes
83
To what extent can lease terms be modified when determining the new lease?
- LL must have valid reason on estate management grounds
- Changes capable of being compensated by change in rent
- Changes must not materially affect security of tenure
- Must be reasonable
84
If lease is within the Act, does LL need to serve a hostile s.25 notice to accompany a LL break notice?
Yes
