Leasehold Property Practice

Question 1

What is meant by the “full repairing” covenant in a lease?

Answer 1

It is a clause whereby the tenant is obliged to repair the property in full, keeping it in good condition, often to a standard defined by the lease.

Question 2

How does a “limited repairing” covenant differ from a full repairing covenant?

Answer 2

A limited repairing covenant restricts the tenant’s repair obligations to certain parts of the property or to a specific standard, rather than requiring comprehensive repair work.

Question 3

What are the typical insurance obligations in a lease?

Answer 3

The lease will usually require the landlord to insure the building against defined risks, with the tenant often contributing to the premium or being responsible for arranging and paying for insurance on the fixtures and fittings.

Question 4

What is the purpose of an alterations clause in a lease?

Answer 4

It governs the tenant’s ability to make structural or non-structural changes to the property, ensuring that any alterations do not adversely affect the value or structural integrity of the building.

Question 5

What is typically required if a tenant wishes to make significant alterations?

Answer 5

The tenant must seek the landlord’s consent, which may be subject to conditions such as the restoration of the property at the end of the lease.

Question 6

What role do user and planning clauses play in a lease?

Answer 6

These clauses specify the permitted use of the property and confirm that the tenant’s intended use complies with local planning regulations, ensuring no breach of planning control.

Question 7

What are the typical mechanisms for rent review in a lease?

Answer 7

Rent reviews are usually based on open market value assessments at predetermined intervals, using methods such as the open market rent review process.

Question 8

What does the alienation clause in a lease cover?

Answer 8

It governs the tenant’s rights to assign, sublet, or otherwise transfer their interest in the lease, and sets out any conditions or restrictions on such transfers.

Question 9

What are break clauses in a lease?

Answer 9

Break clauses allow either the tenant or landlord to terminate the lease before the end of its full term, subject to specific conditions and notice periods.

Question 10

What is the purpose of the Code for Leasing Business Premises?

Answer 10

The Code sets out industry best practices for leasing commercial property, aiming to ensure fairness, clarity, and transparency in lease negotiations and administration.

Question 11

What are the key elements to include when drafting a lease?

Answer 11

Essential elements include the names of the parties, description of the premises, term of the lease, rent details, repair and insurance obligations, alienation provisions, and any special conditions.

Question 12

What is an agreement for lease?

Answer 12

It is an interim contract in which the parties agree that a formal lease will be granted at a future date, often subject to conditions being met.

Question 13

What does investigating title involve in the context of granting a lease?

Answer 13

It includes verifying that the landlord has good title to the property and that there are no encumbrances or restrictions affecting the lease.

Question 14

What is the purpose of a deed of assignment?

Answer 14

It formally transfers the leasehold interest from the assignor to the assignee and may include covenants to protect title.

Question 15

What is the purpose of a licence to assign or underlet?

Answer 15

It allows the tenant to transfer a part or all of their interest without transferring the full legal lease, often used when the lease prohibits assignment or underletting outright.

Question 16

What characterizes covenants in leases granted before 1 January 1996?

Answer 16

Pre-1996 leases generally impose absolute covenants on the tenant, meaning the tenant is strictly liable regardless of any subsequent changes in circumstances.

Question 17

What does “action in debt” mean in the context of a lease breach?

Answer 17

Remedy for breach of rent covenant (usually)
It is a legal claim where the landlord seeks payment for arrears or losses due to the tenant’s failure to comply with a covenant.

Question 18

What is the purpose of CRAR in lease breaches of rent?

Answer 18

Remedy for breach of rent covenant
CRAR enables landlords to recover unpaid rent efficiently by enforcing a statutory procedure designed for commercial leases.

Question 19

What does termination by effluxion of time mean?

Answer 19

It occurs when the lease expires naturally at the end of its fixed term, with no further action required by either party.

Question 20

What is the significance of the Landlord and Tenant Act 1954 for business leases?

Answer 20

It provides security of tenure for tenants by regulating lease renewals and setting out the procedures for termination by landlords.

Question 21

What is a tenant’s repairing obligation under a lease?

Answer 21

A tenant may be responsible for internal repairs while the landlord handles structural repairs, unless a full repairing and insuring (FRI) lease is agreed.

• An FRI lease places all the responsibility on the tenant, regardless whether they caused the disrepair or if it was preexisting before lease entered into

Question 22

Why do landlords typically arrange insurance in a lease?

Answer 22

To ensure the property is protected against risks such as fire, flooding, and other perils, with costs often passed to the tenant.

Question 23

How does a rent review clause work in a lease?

Answer 23

It sets out the method and timing for reviewing rent, which may be linked to market rates, inflation indices, or a fixed percentage increase.

Question 24

What restrictions might a lease impose on property alterations?

Answer 24

Leases often prohibit structural changes or require landlord consent before making significant alterations.

Question 25

What does ‘alienation’ refer to in a lease?

Answer 25

Alienation refers to the tenant’s ability to assign, sublet, or otherwise transfer their leasehold interest, often subject to landlord approval.

Question 26

What searches should be conducted before granting a lease?

Answer 26

Searches include local authority, environmental, drainage, and title searches to ensure no restrictions affect the lease.

Question 27

Why might an agreement for lease be necessary?

Answer 27

It is used when certain conditions, such as planning permission or construction work, must be fulfilled before the lease can be completed.

Question 28

What role does the landlord’s consent play in a lease assignment?

Answer 28

Most leases require the landlord’s consent before a lease can be assigned to a new tenant, ensuring they meet financial and operational criteria.

Question 29

What is an Authorised Guarantee Agreement (AGA)?

Answer 29

An AGA requires the outgoing tenant to guarantee the lease obligations of the new tenant, protecting the landlord from default.

Question 30

What is the purpose of a licence to underlet?

Answer 30

It allows a tenant to sublet part or all of the premises, usually with landlord consent, while the tenant retains overall responsibility for the lease.

Question 31

What happens if a tenant breaches a lease covenant?

Answer 31

Depending on the severity, the landlord may seek damages, apply for forfeiture, or enforce performance of the covenant.

Question 32

What is forfeiture in the context of lease breaches?

Answer 32

Forfeiture is the landlord’s right to terminate the lease if the tenant fails to comply with key obligations, such as paying rent.

Question 33

What is a Jervis v Harris clause?

Answer 33

It allows the landlord to carry out repairs at the tenant’s expense if the tenant fails to maintain the premises as required by the lease. - LL will bear costs first but can then claim action in debt from tenant

Question 34

What is the difference between surrender and merger?

Answer 34

Surrender is a mutual agreement to terminate the lease, whereas merger occurs when the tenant acquires the freehold interest, extinguishing the lease.

Question 35

Under what conditions can a landlord oppose lease renewal under the Landlord and Tenant Act 1954?

Answer 35

The landlord can oppose renewal on grounds such as redevelopment plans, tenant breaches, or an intention to occupy the premises personally.

Question 36

Describe an absolute covenant and any statutes affecting its application

Answer 36

An absolute covenant is a covenant against a type of action, typically alterations. Prohibits the action s.3 of LTA 1927 allows business (not individual) to carry out 'improvements' - LL has 3 months to accept or reject - LL can carry out works themselves

Question 37

Describe an qualified covenant and any statutes affecting its application

Answer 37

A covenant that prohibits an action unless the consent of the landlord is obtained. Conditions are usually included for the granting of consent s.19(2) - if making improvements, LL can not withhold rent unreasonably (This becomes a fully qualified)

Question 38

Describe an fully qualified covenant and any statutes affecting its application

Answer 38

Similar to qualified covenant with the exception that LL cannot unreasonably withhold rent

Question 39

Differences between Alteration covenants and User and Planning covenants?

Answer 39

Under alteration covenants which are qualified, s.3 prohibits LL from withholding consent unreasonably For user and planning covenants, no such restrictions apply. Therefore a LL can withhold consent unreasonably

Question 40

List the types of Alienation possible

Answer 40

Assignment Underletting Charging (mortgaging) Sharing occupation (licence) Parting with occupation (catch-all term)

Question 41

Assignment covenant and statutory impacts -> List the Acts that effect a tenants ability to assign

Answer 41

s.19(1)(a) LTA 1927 - Qualified into fully qualified, LL can't withhold consent unreasonably s.19(1A) LTA 1927 - conditions may be agreed between T and LL in advance. If so, these are deemed reasonable even if not. s.1 LTA 1927 - Where an application for consent is sought by T, LL must within a reasonable time, give consent and conditions or refuse with reasons

Question 42

List the main types of Rent Review

Answer 42

Fixed increase - At specified times, rent will increase by set amount Index-linked - Rent is linked to an external index, such as the Retail Prices Index - inline with inflation but not property market Tenant's receipts - Based on a tenant's business such as profit or income - good for tenant, not for LL Open market review - hypothetical situation based on assumptions and disregards

Question 43

Common assumptions when conducting rent review (and who they benefit)

Answer 43

'By a willing landlord to a willing tenant' * necessary 'With vacant possession' * necessary 'On same terms of this lease with exception of payment of rent but including rent review * necessary 'For a term of [x] years' - Good for both as it depends (shorter duration may be good for T) ‘On the assumption that the tenant has fully complied with their obligations in this lease’ - Good for LL ‘On the assumption that if the property has been destroyed or damaged, it has been fully restored’ - Good for LL

Question 44

Common disregards when reviewing rent (and who they benefit)

Answer 44

'Any effect on rent of the fact that the tenant has been in occupation of the property’ - Good for T (LL can't argue higher rent because T would have to relocate if not) ‘Any goodwill attached to the property by reason of any business carried out there by the tenant’ - Good for T, shouldnt pay higher rent because business is doing well ‘Any effect on rent attributable to any physical improvement to the property carried out by the tenant with all necessary consents and not pursuant to an obligation to the landlord’ - Good for T, should not pay more rent because they have made improvements. Double charging essentially

Question 45

Who drafts the lease?

Answer 45

Landlord's solicitor drafts the lease. This is sent to the party wanting to lease who then makes amendments. Back and forth until happy with terms

Question 46

Describes some facts about SDLT for leases

Answer 46

SDLT can be charged on both the Rent and Premium payments for a lease. The rental element is calculated using the Net Present Value method Must be paid to HMRC within 14 days of completion

Question 47

What are the SDLT lease rates?

Answer 47

> £150,000 : 0% £150,000 < x < £5,000,000 : 1% > £5,000,000 : 2%

Question 48

Lease registration requirements post-completion

Answer 48

If the lease is more than 7 years and is legal -> is registrable in its own right regardless of whether freehold title is registered or not. If lease is less than 7 years, can be an overriding interest (even if not in actual occupation) If freehold is unregistered and lease is legal, it will be binding on all subsequent owners, irrespective of notice If freehold is unregistered an lease is equitable, can be binding if notice in lease

Question 49

What is the date that distinguishes between a 'new lease' and an 'old lease'

Answer 49

1st January 1996

Question 50

Is SDLT payable when a lease is assigned?

Answer 50

Yes, but only on the premium, as SDLT was already paid on the rent portion when the lease was first granted.

Question 51

Breaches of covenant for old leases (pre 1996)

Answer 51

Head (original) tenant remains liable. So LL can sue original tenant (privity of contract), current tenant (privity of estate), or both

Question 52

Breaches of covenant for new leases (post 1996)

Answer 52

Unless held liable under an AGA, only the current tenant can be held liable as the original tenant is released on assignment (unless AGA).

Question 53

Remedies available to LL for breach of rent covenant

Answer 53

Action in debt CRAAR Pursue Guarantors / rent deposit Forfeiture

Question 54

Requirements for Action in Debt remedy (Rent)

Answer 54

Remedy sought in either High Court or County Court must comply with any limitation period - 6 years for recovery of rent

Question 55

Requirements for CRAAR remedy (Rent)

Answer 55

Applies only to commercial tenants LL must give 7 days notice to enter property Can only take items owned (not leased) by tenant Items taken cannot exceed value of £1350 Can't take items necessary for the tenant's business

Question 56

Requirements to pursue guarantors as a remedy (Rent)

Answer 56

For a current tenant, can sue the same as the tenant For former tenant, must comply with s.17 - Default notice must be served on former tenant and guarantors - must be made within 6 months of breach (so if breach is longer than 6 months, can only claim 6 months worth)

Question 57

Requirements for forfeiture as a remedy (Rent)

Answer 57

There must be a forfeiture clause included in the lease No s.146 required for rent obligation

Question 58

Remedies available to LL for breach of repair covenant

Answer 58

Specific performance Damages (limited to value of diminution) -> s.18 LTA and Leasehold Property (Repairs) act -> serve s.146 notice if lease is longer than 7 years with at least 3 years left Jervis v Harris clause (self-help) Forfeiture (s.146 required for repair) Surrender (not a typical remedy perse but can be useful)

Question 59

Requirements for specific performance remedy (Repair)

Answer 59

Discretionary court order Granted if no other remedy available or appropriate

Question 60

Requirements for Damages claim remedy (Repair)

Answer 60

Limited to value of diminution of property (might not recover full amount) (s.18 LTA) If lease is for more than 7 years and has at least 3 years left to run, must serve s.146 notice on T (Leasehold Property (repairs) Act)

Question 61

Requirements for Jervis-Harris (self help) remedy (Repair)

Answer 61

Must have clause included in lease Allows LL to enter and check if breach of repair covenant. If so, must then serve notice on T. If not action taken by T in reasonable time, LL can enter, repair and then make a debt claim Essentially converts a damages claim into a debt claim (can recover full amount)

Question 62

Requirements for forfeiture remedy (Repair)

Answer 62

Must have forfeiture clause included in lease Must comply with s.146 notice - If lease is for more than 7 years and at least 3 years left, s.146 must also include notification of tenants rights to serve counter notice (28 days)

Question 63

What protection is afforded by the Landlord and Tenant Act 1954?

Answer 63

This provides a form of protection to business tenants that meet the criteria It allows the tenant to stay in the property even if lease ends Lease can only be terminated in limited and prescribed ways

Question 64

Who is afforded protection under the LTA 1954?

Answer 64

Tenants (with the right type of lease) who are acting in the course of business and whose lease is for a term of six months or more. If the lease is for more than six months but contains a break clause of six months or less, this section does not apply. similarly, if a tendency does not exceed six months but contains a provision allowing renewal or extension of the term beyond the six months, then the tenancy will be protected by the act

Question 65

What types of tenancy are not afforded protection under LTA 1954?

Answer 65

Licences Tenancies at will Tenancies of 6 months or less Certain types of tenancy such as agricultural holdings, farming tenancies etc If the 1954 Act is contracted out of the lease meaning it does not apply

Question 66

What is the effect of the 1954 Act

Answer 66

If none of the exclusions apply then the business will be afforded protection This means that at the end of the tenancy, the tenant can stay in the property until the lease is terminated in accordance with the 1954 act Under the 1954, the LL can only terminate the tenancy under 7 grounds

Question 67

What are the 7 methods through which the lease can be terminated under the 1954 Act?

Answer 67

1. Landlord serves s.25 notice on tenant 2. Tenant serves s.26 notice on LL (to renew) 3. Forfeiture 4. Surrender 5. If periodic tenancy, LL can give notice to quit 6. If fixed term lease, T can serve 3 months written notice under s.27 7. If fixed term lease, T can cease to be in occupation for business purposes (s.27(1A))

Question 68

Requirements for termination of business lease - LL s.25 notice

Answer 68

Must serve s.25 regardless if they want to renew lease or get property back If refusing, must state ground (1-7) Must state end of lease but can't be earlier than original lease end date s.25 notice must be served between 12-6 months before contractual end of lease If LL opposes new lease, T can then apply to court within the time of the notice (before its expiry) to secure its position

Question 69

Requirements for termination of business lease - T s.26 notice

Answer 69

s.26 request serves to bring the current tenancy to an end and constitutes a request for a new tenancy Same timelimits as s.25 -> between 6 and 12 months before contractual end date of lease LL has 2 months to serve counternotice and must include grounds 1-7

Question 70

What are the 7 grounds on which a LL must rely in certain situations to oppose the granting of a new lease under the 1954 Act?

Answer 70

Grounds for refusal a. Tenant’s failure to repair (discretionary) b. Tenant’s persistent delay in paying rent (discretionary) c. Tenant’s substantial breach of other obligations (discretionary) d. Landlord has offered alternative accommodation (which must be suitable to the tenant’s needs and on reasonable terms) (mandatory) e. Tenancy is an underletting of part (rarely used) (discretionary) f. Landlord intends to demolish or reconstruct and could not reasonably do so without obtaining possession - subject to evidence from LL (mandatory) (most relied on) g. Landlord intends to occupy the holding for its own business or as a residence - must have owned property for at least 5 years (mandatory)

Question 71

What are the ground f requirements for refusal of renewed lease? (LL intends to demolish or reconstruct and needs T to vacate)

Answer 71

LL must be able to show planning permissions - must have actual intention, not just fanciful LL intends to demolish or reconstruct a substantial part of the property LL can't carry out the works unless T vacates

Question 72

Can compensation be given to the Tenant if the LL refuses the renewal of the lease under the 1954 Act?

Answer 72

Yes but only for some grounds (e, f, g) These are called the no-fault grounds. No lease will be granted but Tenant given compensation e - underletting of part f - LL intends to demolish or reconstruct g - LL intends to occupy for themselves (if owned for more than 5 years)