Lease structure and content mcps Flashcards
A tenant occupies under a 3 year legal lease. The lease contains the following covenant:
‘The Tenant shall not make any internal, non-structural alteration to the Premises without the consent of the Landlord, such consent not to be unreasonably withheld.’
The tenant would like to construct an internal partition wall and also carry out some general internal fitting out works to its premises. It has written to the landlord asking for their consent to these works explaining the nature of the works and enclosing detailed plans.
Which of the following statements best explains your advice to the landlord in respect of giving a decision to the tenant?
The landlord has total discretion whether to consent to the works because there is an absolute covenant against alterations.
The landlord cannot unreasonably withhold its consent to the works because s. 19(2) of the Landlord and Tenant Act 1927 applies to this covenant.
The landlord cannot unreasonably withhold its consent to the works because the covenant is fully qualified.
The landlord unreasonably withhold consent provided the proposed works do not constitute tenant’s improvements.
The landlord has total discretion whether to consent to the works because the covenant against alterations is qualified.
The landlord cannot unreasonably withhold its consent to the works because the covenant is fully qualified.
This is correct. The covenant against the internal alterations is fully qualified. This means the landlord cannot unreasonably withhold its consent to the works. S. 19(2) of the Landlord and Tenant Act 1927 does not apply to alterations covenants that are already fully qualified.
Leases will normally allow the tenant to make some alterations to the premises. Unless the lease stipulates otherwise, the tenant is free to carry out any alterations to the premises, subject to the legal doctrine of ‘waste’ which prevents alterations which would devalue the premises. However, the landlord will usually wish to control what alterations the tenant can undertake, especially in shorter leases. You need to be able to distinguish between absolute, qualified and fully qualified covenants in a lease and understand the effect of statute on certain covenants. S.19 (2) Landlord and Tenant Act 1927 applies to certain alterations covenants. It is important you understand when it will / will not apply.
A freeholder (the ‘Landlord’) granted a commercial lease to a tenant. The tenant currently uses the property as a hairdresser but wants to change the use to a clothes shop. The tenant does not plan to undertake any significant alterations to the property. The lease provides the following:
‘The Tenant covenants not to use the Property other than as a hairdresser or a hair salon without the consent of the Landlord.’
Which one of the following best describes the Landlord’s position?
The Landlord will be able to withhold consent to the request to change the use of the property.
The Landlord is entitled to charge a lump sum as a condition of granting consent to the change of use.
The Landlord is required to act reasonably in deciding whether or not to grant consent to the change of use.
The Landlord is entitled to increase the rent as a condition of granting consent to reflect the new use.
The Landlord cannot withhold consent as the tenant’s proposed use is within the same planning use class as the existing use.
The Landlord will be able to withhold consent to the request to change the use of the property.
This is correct. S.19(3) of the Landlord and Tenant Act 1927 does not upgrade the qualified covenant into a fully qualified covenant so the Landlord does not need to act reasonably. This section does prohibit a landlord for charging a lump sum or an increase in the rent unless there are structural alterations taking place. The section also allows a landlord to require the payment of its legal fees as a condition of consent so there is no need for this obligation to be in the lease itself.
A tenant occupies the first floor of a building under a lease. It wishes to make several alterations to the premises which include erecting several non-structural walls to split the first floor into a series of offices. The lease contains a provision prohibiting non-structural alterations without the landlord’s prior consent.
When considering the tenant’s application for consent, which statement best describes the landlord’s position?
The alterations provision in the lease is a qualified covenant, but the landlord cannot unreasonably withhold consent if the tenant can show that the proposed works will enhance the value of the landlord’s reversion.
The alterations provision in the lease is a qualified covenant and, as the tenant’s proposed works are likely to constitute improvements, the landlord cannot unreasonably withhold its consent.
The alterations provision in the lease is a qualified covenant and as the tenant’s proposed works constitute improvements, the landlord cannot unreasonably withhold its consent.
The alterations provision in the lease is a qualified covenant and therefore the landlord is entitled to unreasonably withhold its consent.
The alterations provision in the lease is a fully qualified covenant and, as the tenant’s proposed works constitute improvements, the landlord cannot unreasonably withhold its consent.
The alterations provision in the lease is a qualified covenant and, as the tenant’s proposed works are likely to constitute improvements, the landlord cannot unreasonably withhold its consent.
Correct. The requirement for landlord’s consent means that the alterations covenant is a qualified covenant. Section 19(2) of the 1927 Act upgrades this to a fully qualified covenant where the works constitute tenant’s improvements meaning the landlord cannot unreasonably withhold consent. As the tenant is presumably proposing the alterations to make the premises more suitable for its use, they would be likely to qualify as tenant’s improvements.
You act for a tenant with lease of the ground floor in an office block. The premises have recently been damaged by flooding, and the tenant asks for your advice.
The repair clause in the lease states: ‘the Tenant shall keep the Premises in repair save for where any damage has been caused by an Insured Risk’.
The definition of Insured Risks includes the following wording: “fire, explosion, lightning, earthquake, tempest, storm, flood, bursting and overflowing of water tanks, apparatus or pipes, damage to underground water, oil or gas pipes or electricity wires or cables …”
Which of the following best describes the advice you would give to the tenant as to liability for repairing damage to the premises caused by flooding?
You advise the tenant to claim on their buildings insurance policy.
You advise that the insurance company is responsible for repairing damage to the premises caused by flooding.
You would advise the tenant that the landlord will likely be liable for repairing damage to the premises caused by flooding.
You would explain to the tenant that you need to wait for the results of the flood risk search before you will be able to advise.
You advise that the landlord, tenant and insurance company would be jointly and severally liable for repairing damage caused to the premises by flooding.
You would advise the tenant that the landlord will likely be liable for repairing damage to the premises caused by flooding.
Correct. Flooding is an insured risk, and these are excluded from the tenant’s repairing obligation. It is likely (but you should check) that the landlord’s obligations are to apply the money received from the insurers on repairing the damage.
Which of the following best reflects the structure of an FRI lease for a unit in a shopping centre?
The tenant will be responsible for the repair of their unit, but will only be obliged to keep it in the state of repair in which it finds it (ie, at the beginning of the lease). The landlord is responsible for insuring the property, recovering the cost of doing so from the tenants.
The tenant is responsible for repairing the interior of the unit. The landlord is responsible for insuring the shopping centre. The landlord need not covenant to provide the services, provided a managing agent is appointed to carry them out.
The landlord is responsible for repairing the interior of the unit, but will recover the whole cost of doing so from the tenant. The landlord is responsible for insuring the shopping centre, but will recover a proportionate part of the cost of doing so from the tenant.
The tenant is responsible for repairing the interior of the unit. The landlord is responsible for insuring the shopping centre and providing the services, recovering a proportionate part of the cost of doing so from the tenant.
The tenant is responsible for insuring the property, recovering the cost of doing so from the tenants.
The tenant is responsible for repairing the interior of the unit. The landlord is responsible for insuring the shopping centre and providing the services, recovering a proportionate part of the cost of doing so from the tenant.
Correct. Note that the landlord does undertake obligations in an FRI lease, but the cost falls upon the tenants.
Question 2
A solicitor acts for a landlord of a high street retail unit (the ‘Property’). The tenant wants to
remove the existing shop front, enlarge the hole in the front wall and install bi- folding doors
instead. The lease contains tenant covenants not make any external or structural alteration
to the Property and not to make any non- structural alteration to the Property without the
consent of the landlord.
Which of the following statements is the best advice to the landlord in this situation?
A The landlord will have to consent to the alterations as if it does not, the tenant will be
able to use a statutory procedure to carry out the alterations and claim compensation
from the landlord at the end of the term.
B The landlord can prevent the alterations being carried out as the relevant covenant in
the lease is absolute.
C The landlord can insist that the alterations are carried out by the landlord in return for
an increase in the annual rent.
D The landlord cannot refuse consent for the alterations as statute implies into the
relevant covenant in the lease a term that the landlord cannot unreasonably withhold
its consent.
E The landlord can refuse consent to the alterations, but the tenant may be able to carry
them out using a statutory procedure.
Answer
Option E is correct. The proposed works are external and structural alterations and thus fall
within the scope of the absolute covenant. However, they are not necessarily ‘improvements’
for the purposes of s 3 Landlord and Tenant Act 1927 so even though the tenant has a right to
serve notice and apply for authorisation to carry out the alterations, it will be up to the court
to decide if they add to the letting value of the property, are reasonable and suitable to the
character of the property and do not diminish the value of any other property of the landlord.
Option A therefore overstates the position. It also overstates the position on compensation;
even if the alterations do add to the letting value of the holding, the lease is likely to contain
a tenant’s covenant to remove all tenant’s alterations at the end of the term so there will be
nothing left in respect of which to claim compensation.
Option B is not the best advice as the tenant may use the statutory procedure in s 3 Landlord
and Tenant Act 1927 even where the relevant covenant in the lease is an absolute prohibition.
Option C also overstates the position; the landlord cannot insist on being able to do the
alterations itself in return for an increase in the annual rent. This will only become possible if
the tenant serves a notice under s 3 and even if it does, the tenant is under no obligation to
accept an offer by the landlord to carry out the alterations and may withdraw its notice.
Option D is wrong as the relevant covenant in the lease is absolute, so there is no term
implied by statute that consent will not be unreasonably withheld.
Question 3
A landlord is proposing to let some retail premises to a clothes shop which has only just
begun trading. The prospective tenant is concerned that it might not be able to afford the
rent, should it increase on review, as its business is not yet established and it cannot predict
the performance of its business over the 15- year term with any certainty at this stage. The
landlord insists that there must be some form of rent review provision in the lease.
Which of the following types of rent review provision is the most appropriate to address
the tenant’s concerns?
A A fixed increase rent review.
B An index linked rent review.
C A rent review based on the tenant’s turnover.
D An open market rent review.
E An upwards- only open market rent review.
A man owns the freehold of a commercial building and intends to grant a lease of the building to an insurance company.
The man is registered for Value Added Tax (VAT) and, prior to granting the lease, exercises an option to tax the building.
The insurance company makes only exempt supplies for the purposes of VAT in the course of its business.
What effect does the man’s option to tax the building have on the rent payable to the man by the insurance company?
A. The rent payable will not be subject to VAT.
B. The rent payable will be subject to VAT at 0%.
C. The rent payable will be subject to VAT at 20%, which will be recoverable by the insurance company.
D. The rent payable will be subject to VAT at 20%, which will be irrecoverable by the insurance company.
E. The rent payable will be discounted in the hands of the insurance company by 20%.
D - The rent payable will be subject to VAT at 20%, which will be irrecoverable by the insurance company.
The freeholder of a commercial building (‘the Landlord’) granted a lease of the whole building to a tenant.
The tenant is concerned that the building does not benefit from enough natural light and now wishes to create two new apertures in an external wall of the building to accommodate windows.
The tenant is seeking the consent of the Landlord to make these alterations.
The alterations covenant in the lease is as follows:
“The Tenant may not make alterations to the Building save for non-structural alterations.”
Can the Landlord withhold consent to the tenant’s proposed alterations without giving reasons?
A. Yes, because the Landlord retains ownership of the external walls.
B. Yes, because there is an absolute prohibition against structural alterations.
C. No, because a proviso that Landlord’s consent is not to be unreasonably withheld is implied into all absolute prohibitions on all alterations.
D. No, because a proviso that Landlord’s consent is not to be unreasonably withheld is implied into absolute prohibitions on structural alterations.
E. No, because the proposed alterations are non-structural.
B - Yes, because there is an absolute prohibition against structural alterations.
