Lease structure and content

Question 1

Who will usually be responsible for repair in a lease?

Answer 1

Commercial tenant almost always responsible for repair of their demise

Question 2

What does ‘demise’ mean?

Answer 2

The extent of property let to them

Established by definition of ‘Premises’, ‘Demised Premises’, ‘Property’

Question 3

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

Answer 3

The title and postal address of the property

• Tenant responsible for interior, exterior and structural repair

Repairing responsibility solely the tenant’s

Question 4

What is the definition of ‘premises’ in a lease of part and what are the consequential repairing obligations?

Answer 4

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

Question 5

Who is responsible for the common areas (‘common parts’)?

Answer 5

The landlord

Question 6

What happens if there is no repairing covenant in the lease?

Answer 6

Tenant’s implied responsibilities re premises repair would be minimal

Question 7

What does a full repairing obligation say? What does ‘keep’ mean here?

Answer 7

“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

Question 8

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”

Answer 8

“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

Question 9

When is each covenant - full and qualifed - used?

Answer 9

• Full repairing obligation required for FRI lease
• Qualified repairing obligation only likely to be accepted in exceptional circumstances (short letting, difficult market)

Question 10

Does a tenant have to repair or replace an item of disrepair?

Answer 10

Tenant may choose unless lease states otherwise

Question 11

If a lease states that damaged items must be replaced, what should a tenant include?

Answer 11

That this obligation should only apply if item is beyond economic repair

Question 12

What is the difference between repair/replace and renewal?

Answer 12

When premises is damaged beyond repair (e.g. subsidence causes such damage premises must be rebuilt)

Onerous and should be avoided!

Question 13

Is an obligation to keep premises in good repair and condition okay?

Answer 13

More onerous for tenant (e.g. condition includes condensation but repair doesn’t)

Question 14

What should a client do re inherent and structural defects for newly constructed property?

Answer 14

Ensure they are excluded from repairing and service charge obligations

Landlord should have warranties from contractors to rely on

Question 15

Who is usually responsible for insurance of the building and the cost of insuring it?

Answer 15

Commercial landlord almost always responsible (even where a lease of whole). The cost of insuring will be recovered from tenant under the lease

Question 16

How is the cost of insurance recovered differently between a lease of whole and a lease of part?

Answer 16

• 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

Question 17

What is insurance rent?

Answer 17

The money that tenant(s) pays to landlord for insurance contribution

Question 18

What are some examples of insured risks and will they always be excluded from the tenant’s repairing obligation?

Answer 18

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

Question 19

What is an alteration?

Answer 19

A change to the premises e.g. adding a mezzanine floor

Question 20

What does it mean if a lease is silent on alterations?

Answer 20

Tenant free to carry out alterations

But in practice landlord will want to control alterations to protect appeal

Question 21

What does the doctrine of ‘waste’ mean for alterations?

Answer 21

The tenant cannot carry out alterations that reduce the value of the premises

Question 22

What typical provisions on alterations will be included in an FRI lease?

Answer 22

• 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

Question 23

What is the difference between an absolute covenant, a qualified covenant, and a fully qualified covenant?

Answer 23

• 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)

Question 24

When is a qualified covenant coverted to a fully qualified covenant by law?

Answer 24

When tenant’s proposed alterations are improvements from the POV of tenant

Rare for alterations to not constitute an improvement

Question 25

In what will the landlord’s consent be documented under a qualified covenant? What will it contain?

Answer 25

Licence for alterations - contains details of work consented to, time limit for carrying out, and tenant’s covenants

Question 26

What are the tenant’s covenants in a licence for alterations?

Answer 26

• 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)

Question 27

If the lease contains an absolute covenant against alterations, how can a tenant circumvent this?

Provided alteration is an improvement

Answer 27

If landlord objects ot notice of intention to carry out improvements, the tenant can apply for court’s permission to carry out improvements

Question 28

What will the court consider when giving permission to improvements?

Answer 28

• 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

Question 29

How long does the landlord have to object to the court if it gives permission?

Answer 29

3 months - tenant can go ahead otherwise

Question 30

If the landlord offers to carry out works and increases the rent, must a tenant agree to this?

Answer 30

No - but they can then not ask the court for permission

Question 31

What does ‘user’ refer to and what if the lease is silent on it?

Answer 31

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

Question 32

How does ‘use’ as a clause differ to use class (in planning permission)?

Answer 32

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

Question 33

What will the tenant and landlord want in terms of user clause?

Answer 33

• 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

Question 34

Does the law - like improvements through alterations - convert a qualified user clause to a fully qualified user clause?

Answer 34

No! I.e. qualified covenant will not automatically become fully qualified covenant and landlord does not have to act reasonably in withholding consent

Question 35

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?

Answer 35

1. Charge lump sum/increase rent only if the change of use also requires structural alterations
2. Request reasonable sum re dimunition in value of premises of his and expenses incurred re licence/consent

Question 36

Why would a tenant require planning permission?

Answer 36

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

Question 37

What does The Code (for Leasing Business Premises) say about the only time when the lease should restrict alterations and change of use?

Answer 37

Insofar as necessary to protect value of premises and any adjoining or neighbouring premises of landlord

Question 38

What does the Code say about covenants for internal non-structural alterations?

Answer 38

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

Question 39

If the landlord requires alterations to be reinstated at the end of a lease, how should they make this clear?

Answer 39

Include clearly in heads of terms

Otherwise lease can only require if reasonable