Lease structure and content Flashcards
Who will usually be responsible for repair in a lease?
Commercial tenant almost always responsible for repair of their demise
What does ‘demise’ mean?
The extent of property let to them
Established by definition of ‘Premises’, ‘Demised Premises’, ‘Property’
What is the definition of ‘premises’ in a lease of whole and what are the consequential repairing obligations?
Lease of whole e.g. office block
The title and postal address of the property
- Tenant responsible for interior, exterior and structural repair
Repairing responsibility solely the tenant’s
What is the definition of ‘premises’ in a lease of part and what are the consequential repairing obligations?
Will specify part of the property (e.g. fifth floor of office block) but not structure/exterior of building
- Tenant responsible only for interior repair
- Other demises are the repsonsibility of respective tenants
Who is responsible for the common areas (‘common parts’)?
The landlord
What happens if there is no repairing covenant in the lease?
Tenant’s implied responsibilities re premises repair would be minimal
What does a full repairing obligation say? What does ‘keep’ mean here?
“keep the premises in good repair”
- Keep = if not in good repair, tenant must put in good repair
- Should obtain survey to be aware of any major terms of repair
What does a qualified repairing obligation?
“keep the premises in good repair but not into any better state than at date of lease as evidenced by Schedule of Condition”
“keep the premises in good repair but not into any better state than at date of lease as evidenced by Schedule of Condition”
Sch of Con contains photos recording state of premises
When is each covenant - full and qualifed - used?
- Full repairing obligation required for FRI lease
- Qualified repairing obligation only likely to be accepted in exceptional circumstances (short letting, difficult market)
Does a tenant have to repair or replace an item of disrepair?
Tenant may choose unless lease states otherwise
If a lease states that damaged items must be replaced, what should a tenant include?
That this obligation should only apply if item is beyond economic repair
What is the difference between repair/replace and renewal?
When premises is damaged beyond repair (e.g. subsidence causes such damage premises must be rebuilt)
Onerous and should be avoided!
Is an obligation to keep premises in good repair and condition okay?
More onerous for tenant (e.g. condition includes condensation but repair doesn’t)
What should a client do re inherent and structural defects for newly constructed property?
Ensure they are excluded from repairing and service charge obligations
Landlord should have warranties from contractors to rely on
Who is usually responsible for insurance of the building and the cost of insuring it?
Commercial landlord almost always responsible (even where a lease of whole). The cost of insuring will be recovered from tenant under the lease
How is the cost of insurance recovered differently between a lease of whole and a lease of part?
- Lease of whole = sole tenant will refund the landlord the whole insurance premium
- Lease of part = each tenant refunds the landlord a proportionate part of the insurance premium
For both, landlord will insure the whole before being refunded
What is insurance rent?
The money that tenant(s) pays to landlord for insurance contribution
What are some examples of insured risks and will they always be excluded from the tenant’s repairing obligation?
Fire, explosion, lightning, flood, bursting of pipes - will be excluded from repairing obligation subject to circumstances eg. tenant’s negligence
These risks covered by insurance policy taken out by landlord
What is an alteration?
A change to the premises e.g. adding a mezzanine floor
What does it mean if a lease is silent on alterations?
Tenant free to carry out alterations
But in practice landlord will want to control alterations to protect appeal
What does the doctrine of ‘waste’ mean for alterations?
The tenant cannot carry out alterations that reduce the value of the premises
What typical provisions on alterations will be included in an FRI lease?
- Type of alteration permitted (external, internal, structural etc.)
- Whether landlord’s consent needed if permitted
- Whether they must be reinstated (returned to original state) at end of lease
What is the difference between an absolute covenant, a qualified covenant, and a fully qualified covenant?
- Absolute covenant: not permitted (can still ask but landlord not obliged to consider request)
- Qualified covenant: only permitted with landlord’s (volunatry) consent
- Fully qualified covenant: same as qualified but landlord must act reasonably if withholding consent
Covenants can apply to alterations, use etc.
Same lease can have a mixture of covenants for different things (e.g. absolute covenant against external alterations, qualified covenant against internal non-structural alterations)
When is a qualified covenant coverted to a fully qualified covenant by law?
When tenant’s proposed alterations are improvements from the POV of tenant
Rare for alterations to not constitute an improvement
In what will the landlord’s consent be documented under a qualified covenant? What will it contain?
Licence for alterations - contains details of work consented to, time limit for carrying out, and tenant’s covenants
What are the tenant’s covenants in a licence for alterations?
- Carry out works in compliance with landlord’s requirements (good quality materials, high standard of worksmanship)
- Pay landlord’s costs in dealing with tenant’s application for alterations (surveyor, lawyer costs)
- Obtain all necessary consents (planning permission, buildings regulations approval)
- Reinstate the premises at end of lease term (back in original state without alterations)
If the lease contains an absolute covenant against alterations, how can a tenant circumvent this?
Provided alteration is an improvement
If landlord objects ot notice of intention to carry out improvements, the tenant can apply for court’s permission to carry out improvements
What will the court consider when giving permission to improvements?
- Contribution to letting value of property
- They are reasonable and suitable to character of property
- They will not diminish the value of any other property belonging to landlord
How long does the landlord have to object to the court if it gives permission?
3 months - tenant can go ahead otherwise
If the landlord offers to carry out works and increases the rent, must a tenant agree to this?
No - but they can then not ask the court for permission
What does ‘user’ refer to and what if the lease is silent on it?
User = what the lease allows tenant to use premises for. If silent, tenant free to use premises for anything they like
Lease therefore controls use with a user clause
How does ‘use’ as a clause differ to use class (in planning permission)?
Use in a clause can be more strict i.e. even if in the same use class, landlord can still request consent be given first
What will the tenant and landlord want in terms of user clause?
- Tenant was a more general use (more flexibility)
- Landlord wants to keep user narrow (but could limit appeal and market rent on review)
User can be very specified (e.g. tailor’s shop) or more general (retail premises) or could refer to approprate use class
Does the law - like improvements through alterations - convert a qualified user clause to a fully qualified user clause?
No! I.e. qualified covenant will not automatically become fully qualified covenant and landlord does not have to act reasonably in withholding consent
If the landlord gives consent to a change of use, what would mean they can they 1. charge a lump sum or increase rent and 2. request a reasonable sum?
- Charge lump sum/increase rent only if the change of use also requires structural alterations
- Request reasonable sum re dimunition in value of premises of his and expenses incurred re licence/consent
Why would a tenant require planning permission?
Alterations may include** building works** or change of use may take property outside the use class for which it has planning permission
Lease thus usually contains clause requiring tenant complies with relevant laws
What does The Code (for Leasing Business Premises) say about the only time when the lease should restrict alterations and change of use?
Insofar as necessary to protect value of premises and any adjoining or neighbouring premises of landlord
What does the Code say about covenants for internal non-structural alterations?
The landlord should at least give the tenant…
- Fully qualified covenant in a lease of part
- The ability to carry out without consent in a lease of whole
If the landlord requires alterations to be reinstated at the end of a lease, how should they make this clear?
Include clearly in heads of terms
Otherwise lease can only require if reasonable
