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SQE1 - Property Practice 🏠 > Leaseholds > Flashcards

Leaseholds Flashcards

- Security of tenure, Termination of Lease, Commercial Tenancy Remedies

1
Q

Security of Tenure

What tenancies cannot be contracted out of security of tenure?

A

Periodic tenancies

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2
Q

Security of Tenure

What rights does a periodic tenant not have in relation to security of tenure?

A

Cannot serve s.26 notice!

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3
Q

Commercial Landlord’s Remedies

What remedy does a Jarvis v Harris clause provide?

A

Allows landlord to enter property, carry out the repairs, and recover the costs from tenant as a debt.

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4
Q

Commercial Landlord’s Remedies

What additional information will a section 146 forfeiture notice need to include, and when is it required?

A

For leases with a term of 7 years of more where there are 3 years or more left.
* Notice needs to inform tenant of their right to serve a counter-notice within 28 days.
* if counter-notice is served, then landlord needs leave from court to proceed.

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5
Q

Commercial Landlord’s Remedies

When will a landlord serve a s.146 notice for forfeiture, and what information must be included?

A

Applies to breaches of all covenants except non-payment of rent.

Notice must - (i) specify the breach, (ii) require remedy of the breach within reasonable time, and (iii) require the tenant to pay compensation for the breach.

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6
Q

When might a tenant apply for relief from forfeiture?

A
  • Before re-entry for court proceedings
  • A reasonable time after re-entry for or in peaceable re-entry
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7
Q

What landlord remedies are available for breaches of repair covenants?

A
  1. Damages
  2. Forfeiture
  3. Self-help
  4. Specific performance
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8
Q

What procedure must be following for Commercial Rent Arrears Recovery?

A

Tenant must owe a minimum of 7 days of unpaid rent.

1) L appoints enforcement officer to serve tenant with notice of re-entry if it fails to pay-up;
2) T has 7 clear days to pay-up and if it fails to E.O can enter 🏠 and seize T’s stock; and
3) Give T additional 7 days notice if it intends of selling any of seized goods.

  • cannot seize goods up to the value of £1350 that are necessary to tenant’s business.
  • must be sold at a public auction.
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9
Q

What outstanding sums can a landlord recover by using the Commercial Rent Arrears Recovery procedure?

A

Annual rent + interest + VAT

❌ cannot recover service charge!

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10
Q

How is rent payable under a commercial FRI lease?

A

expressed annually, but paid quarterly.

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11
Q

Does a landlord have an implied right to increase rent?

A

No, the lease must expressly provide for open market rent review.

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12
Q

How is an open-market rent review conducted?

A

market is ascertained on basis of comparable premises and characteristics

  • tenant’s breaches of covenants, tenant’s voluntary improvements are not considered.
  • Landlord’s breaches are taken into account.
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13
Q

Security of Tenure

What is the earliest and latest date of termination of a lease when a landlord serves a section 25 notice?

A

Latest - 6 months from date notice is service.
Earliest - 12 months from date of service.

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14
Q

For a post-1996 lease, what two documents will the landlord solicitor need to draft to execute an assignment of lease?

A

Licence to assign and AGA

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15
Q

Security of Tenure

How can a landlord oppose a section 26 notice?

A

Serve counter-notice on tenant
within 2 months and set out statutory ground of opposition.

If counter-notice is not served, landlord loses right to oppose the new tenancy.

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16
Q

Security of Tenure

How can a tenant renew their tenancy following service of a s.26 notice?

A

apply to the court before the specified date of commencement for the new tenancy but after counter-notice period has expired.

if tenant fails to apply, then landlord can apply for termination of tenancy.

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17
Q

Security of Tenure

What is the notice period to serve a section 27 notice?

A

Tenant’s notice to terminate.

Give landlord not less than 3 months notice to terminate.

Good practice, but not needed, unless holding over has begun, then must serve with 3 months notice.

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18
Q

Security of Tenure

What two types of section 25 notices can a landlord serve, and what are their practical implications?

A
  • s.25 ‘friendly’ notice - landlord wishes to renew lease.
  • s.25 ‘hostile’ notice - landlord wishes to terminate lease.
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19
Q

Security of Tenure

What are the statutory grounds a landlord can rely on when serving a ‘hostile’ s.25 notice?

A

1) breach of repairing obligation (serious)
2) other substantial breaches of tenant obligations
3) persistent delay in paying rent
4) availability of suitable alternative accommodations;
5) landlord intends to occupy premises
5) intention to demolish and reconstruct premises or carry-out sustantial construction

Mnemonic - BOPALI

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20
Q

Security of Tenure

What statutory grounds to oppose renewal of lease are discretionary versus mandatory, and what are there respective implications?

A

Discretionary - if ground is made, court ‘may’ accept landlord’s application.
- breach of repair obligations
- other susbtantial breaches of tenant obligations.
- persistent delay in paying rent

Mandatory - if ground is made out, court ‘must’ find in favour of landlord.
- availability of alternative accomodation.
- landlord intends to occupy premises.
- intention to demolish/carry out substantial works

BOP (Disc) ALI (mandatory)

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21
Q

Security of Tenure

Following termination of a periodic tenancy, how much compensation is payable by the landlord?

A

Only available if mandatory grounds (save for alternative suitable accomodations are made out)

If the tenant occupied:
- less than 14 years - 1x rateable value
- 14 or more years - 2x rateable value

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22
Q

Security of Tenure

Can a lease exclude the right to receive compensation following termination of a protected tenancy?

A

Yes, but will be void if the tenant or their predecessors in the business have been in occupation for 5 years or more at the date of termination.

  • Key difference between date of termination vs. date notice is served.
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23
Q

Security of Tenure

What is the procedure to contract out of security of tenure?

A

1) Landlord must serve a health warning notice on the tenant before completion of the lease.

2) Tenant must provide a declaration before completion.
- signed declaration (at least 14 days before completion)
- statutory declation (if less than 14 days until completion).

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24
Q

Security of Tenure

What is the extent of the court’s powers to renew a lease in a secured tenancy?

A

Grant a term up to 15 years to begin three months after proceedings are disposed of.
* Order for open market rent to be paid
* Any other suitable term with regard to the current tenancy and circumstances.
* New terms - provided these are fair and reasonable, with burden falling on person seeking to impose new clause to prove.

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25
Q

Security of Tenure

How might a court take into account the status of a old lease when exercising its powers to renew a secured tenancy?

A

By renewing tenancy, old lease will become a new lease.
* Loss of privity of contract may still be considered in determining the rent payable (s.34(4)).

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26
Q

Security of Tenure

What information should a section 26 notice contain?

A

Served by tenant to renew lease.

Set out terms of renewed lease in notice to landlord and state the date of commencement of new tenancy.

cannot be served later than 6 months and earlier than 12 months before proposed date of commencement.

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27
Q

Security of Tenure

What is interim rent?

A

Court has the power to fix a new rent based on an open market rent review.

  • Either party can apply.
  • court considers what would be a reasonable amount for tenant to pay.

Effective either from earliest date of termination that could’ve been specified in either a s.25 or s.26 notice (6 months in both cases).

  • Where s.25 is served - rent is calculated at 10-15% reduction less than market value.
  • Where s.26 is served - rent is at market value.
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28
Q

Security of Tenure

How many days does an unhappy tenant have to apply for revocation of a court’s ordered tenancy and what is the effect of doing so?

A

14 days
* By doing so, tenant gives up its right to renew entirely.

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29
Q

Security of Tenure

How does the five-year rule restrict a landlord’s statutory grounds for opposing a renewal of a secured tenancy?

A

a landlord must have owned their superior title for at least 5 years to rely on statutory ground to of intended reoccupation. (s.30(1)(g)).

Designed to prevent landlords from buying property’s subject to existing tenancies, with the aim of eventually vacating the premises.

  • note - exclusion does not apply if landlord bought the property with vacant possession.
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30
Q

Lease Termination

What are the five ways a lease may be terminated?

A

1) effluxion of time
2) break clause in contract
3) notice to quit by tenant
4) surrender
5) merger of leasehold/freehold interest

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31
Q

Lease Termination

How might a sublease be affected by surrender of the headlease?

A

subtenant becomes the immediate tenant of the head landlord on the terms of the sublease.

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32
Q

Commercial Landlord’s Remedies

What are the six remedies for breaches for covenant to pay rent?

A
  • damages
  • action in debt or insolvency proceedings
  • look to gurantor/rent deposit (s.17 notice)
  • commercial arrears rent recovery
  • forfeiture
  • equitable remedies
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33
Q

Commercial Landlord’s Remedies

What is the limitation period to enforce a tenant’s debt?

A

6 years

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34
Q

Commercial Landlord’s Remedies

When might a landlord be granted an injunction against a tenant?

A

where a tenant is attempting to unlawfully assign their lease.

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35
Q

Commercial Landlord’s Remedies

Does a landlord have an automatic right to forfeiture?

A

no, lease must expressly provide for it.

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36
Q

Commercial Landlord’s Remedies

When is a landlord at risk of waiving their right to forfeit?

A

when it acknowledges a breach has occured, but fails to take action against it.
- whether a landlord’s intended to do so is immaterial.

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37
Q

Tax

Where a long-lease lease is granted at a premium (ie. base purchase price), how will the SDLT be calculated?

A

against the premium only, and not the ground rent.

cf. short term leases - consider the NPV of total lease.

38
Q

Security of Tenure

Where security of tenure is not expressly contracted out of the lease, what are the four conditions for it to apply?

A

1) Must be a tenancy
2) Occupied by the tenant - will lose right if they underlet or premises is vacant.
3) For purpose of business - requires a form of income stream or supports that purpose;
4) Not be expressly excluded via statute

39
Q

Security of Tenure

What are the four excluded tenancies that cannot benefit from security of tenure?

A

1) Agricultural tenancies
2) Mining leases
3) Service leases (ie. security guard’s apratnemnt rented from employer);
4) Fixed term lease of 6 months or less;
* note - landlord cannot circumvent this by granting successive 6 month tenancies.
* Qualify as protected tenancy if tenant has been in occupation for more than 12 months via successive tenancies, or where tenancy contains a provision allowing renewal beyond 6 months.

40
Q

Alienation

How long after serving notice of assignment to the landlord must completion take place?

A

within a month of notice

41
Q

Alienation

What are the three main provisions expressed in the 2020 Code for Leasing Business Premises regarding alienation?

A
  • Where covenant is qualified for assignments and underletting of the premises are automatically upgraded to FQC
  • Group companies can share occupation without consent.
  • Tenant can obtain a charge over its lease from a bank/reputable lending institution.
42
Q

Alienation

Where the lease is silent regarding the tenant’s right to alienation, what is the default position?

A

tenant is free to do what they want.

43
Q

Alienation

What pre-completion steps must be taken when assigning a lease?

A

Assignee’s solicitor will draft the deed of assignment using a TR1 form, which tenant will then sign.

Landlord’s solicitor will engross the licence to assign and arrange for all parties to execute a copy (3 copies in total) at completion.

  • landlord will likely request an AGA.
  • licence must be by deed if it contains covenants.

Apportionment of rent - unlikely that completion will take place day that annual rent is due, so necessary to work out how much assignee needs to pay assignor.

44
Q

Alienation

Where the lease being assigned is unregistered (7 years or less), which title will the assignee’s solicitor need to deduce?

A

landlord’s
(cf. where lease is registrable the tenant’s title suffices)

45
Q

Alienation

Where a lease is assigned, can any of its pre-existing terms be changed?

A

No unless a deed of variation is entered into.

46
Q

Commercial Landlord’s Remedies

When might a tenant succeed in applying for relief from forfeiture?

A

relief might be granted if tenant succeeds in showing breach is capable of remedy and landlord would not be materially affected.

  • Also rely on s.147 LPA if concerned with internal decorative repairs.
47
Q

Commercial Landlord’s Remedies

Who can apply for relief from forfeiture?

A

sub-tenant or mortgagee also have standing to apply as forfeiture of the headlease will automatically forfeit the under-lease.

(cf. surrender will only end headlease)

48
Q

Commercial Landlord’s Remedies

What are the limitations of relying of an action in damages for breach of repair covenant?

A

1) Statutory ceiling for damages
* decrease in reversion’s value
* no damages if on termination of lease, landlord plans to demolish or structurally alter the premises.

2) Leave to sue
* Required if lease is of 7 years with at least 3 years left to run.
* Notify of right to serve counter-notice (as w/ forfeiture).

(cf. Jarvis v Harris clause)

49
Q

Commercial Landlord’s Remedies

Where a tenant is in rent arrears, can a landlord exercise their right to CRAR against their subtenant?

A

yes, but must give subtenant 14 clear days notice.
* 7 days extra.

50
Q

Commercial Landlord’s Remedies

When must a section 17 be served, against whom, and in what context?

A

Served against a former tenant or gurantor when seeking to recover liquidated sum owed by existing tenant.

  • only recover rent arrears from past 6 months.
51
Q

Commercial Landlord’s Remedies

When might a tenant be entitled to relief from forfeiture following breach of covenant to pay rent?

A

Apply up to six months after recovery of possession from landlord.
* Typically granted where tenant agrees to repayment.

52
Q

Commercial Landlord’s Remedies

How does an Avonbridge clause affect a landlord’s liability for tenant’s covenant breaches?

A

limits landlord’s liability for duration reversion is vested in them, as otherwise, they are not automatically released.

  • Post-1996 leases do not have same effect as with original tenants in terms of releasing them from liabiliy.
53
Q

Commercial Landlord’s Remedies

What is the procedure to forfeit a residential lease?

A

First, need to apply for a court order.
* Needed if premises are mixed business/residential.

54
Q

Commercial Landlord’s Remedies

What purpose is a rent deposit deed intended to serve?

A

Deed entered entered into by a tenant, and gives the landlord the right to draw from the rent deposit for arrears of rent.

55
Q

Commercial Landlord’s Remedies

Where the tenant does not dispute rent arreas, what alternative court action can a landlord take or threaten to recover the sum owed?

A

Start insolvency proceedings
* Individual -debt owed must be at least £5000
* Company - debt owed must be at least £750

56
Q

Commercial Landlord’s Remedies

What procedure must a landlord selling their reversion interest subject to a lease do to be released from subsequent liability?

A

Apply for release to tenant by serving notice.
* Tenant has four weeks to respond.
* If no response is given, then landlord is automatically released.
* If tenant objects, the landlord may apply to the Country Court for a declaration that release would be reasonable.

57
Q

Alienation

What forms need to be filed at HMLR following completion of assignment?

A

Registered lease - AP1 (to be submitted within OS1 priority period).
Unregistered lease with more than 7 year left - first registration of lease using form FR1.

58
Q

Alienation

When is an express indemnity granted in the context of assignments?

A

Given by the assignee to the assignor under SC/SCPC for old-leases.

Express indemnity is not strictly required as it is implied in transfers for value or if lease is registered.
* Still set out in SC/SCPC.
* except where lease is unregistered and no value given by assignee for the transaction (express indemnity is always needed as not automatically implied).

59
Q

Alienation

What are two ways a tenant can persuade its landlord to consent to underlet the premises?

A
  • By offering to increase rent deposit - provides additional security for landlord if rent is not paid.
  • Tenant references or personal gurantee from an individual or group company.
60
Q

Alienation

What is the procedure for deducing title in an underlease context?

A

If headlease is registered with absolute leasehold title, do not need to deduce freehold title.

If headlease is registered with good leasehold title, freehold title should be deduced.
* if headlease qualifies for absolute title, the headtenant should be asked to apply to HMLR to upgrade class of title.
* If not possible, indemity insurance will be necessary for undertenant/lender.

61
Q

Alienation

What documents are involved in the granting of an underlease?

A

1) Licence to underlet (to be executed before completion of the underlease)
2) Underlease

62
Q

Alienation

What effect is the licence to underlet intended to have?

A

Undertenant covenants directly with the head landlord to observe and perform the tenant covenants in both the headlease (so far as they relate to the property and other than the covenant to pay rent) and underlease.

Effect of creating privity of contract between the head landlord and undertenant.

63
Q

Alienation

Under what terms will an underlease generally be granted?

A

same or similar terms as headlease.
* head landlord will generally want to see a copy of the underletting agreement beforehand.

64
Q

What purpose does a licence to assign serve?

A

Sets out the landlord’s formal written consent to the proposed assignment.
* new leases - contain AGA
* old leases - direct covenant between landlord and assignee (party in whose favour lease is being assigned).

65
Q

Alienation

What undertaking will an assignor’s solicitors typically be required to give?

A

To pay the landlord’s legal fees and other professional costs arising from the propsoed assignment, whether or not the matter proceeds to completion.

  • note as a professional conduct point - only do this once client consents [assignor].
66
Q

Alienation

What key provisions will be contained in the licence to assign?

A
  • Time window for landlord’s consent
  • New lease - AGA/Old Lease - direct covenant with assignee to observe tenant covenant for the remainder of the term (upgrades privity of estate to privity of contract).
  • Agreement that assignor pay the landlord’s costs.
  • Obligation to serve notice of the assignment on the landlord (notice of assignment)
67
Q

Grant of commercial leases

What provisions will generally be contained in a commercial lease regarding insured risks?

A
  • Landlord’s covenant to (i) insure for the full reinstatement value against insured risk and (ii) apply insurance proceeds/repair/reinstate
  • Tenant’s covenant to pay insurance rent.
  • Rent suspension where premises are unsuitable or unfit for occupration or use.
  • Termination of lease if repair/reinstatmeent has become impossible or impractical.
68
Q

What is commoly included in the list of insured risks?

A

Damge/destruction caused by:
* fire
* explosion
* lightning
* flood
* storm
* tempest
* overflowing or burst pipes
* impact by vehicles or aircraft articles dropped therefrom.

Note - terrorism is not an insured risk but Code for Leasing Premises includes required as “good practice”

69
Q

When will a tenant typically not benefit from rent supension where damage from an insured risk arises?

A

if the insurance policy has been vitiated by tenant or anyone else at the property with their authority.

70
Q

Alienation

In what case will a qualified covenant not be upgraded to a fully qualified covenant by the LTA?

A

Change of use
* only restriction is that landlord cannot agree to give consent in return for higher rent or fine where no structural alteration is involved.

71
Q

What is the difference between how improvements are assessed under a qualified covenant and absolute covenant for alterations?

A

1) Qualifed covenant - favours the tenant.
* Whether the alternations would increase the value or usefulness of the property from the tenant’s point of view.

2) Absolute covenant - favours the landlord.
* Test is relevant if tenant applies to court for an order authorising the works (s.3 of LTA)
* Need to add to the letting value of the property, be reasonable/suitable to the property’s character, and not diminish value of any other property owned by their landlord.
* tenant can be compensated for improvements made via s.3 LTA where they add to reversion’s value.

72
Q

Alienation

For a FQC relating to alterations, does a landlord need to give consent within reasonable time?

A

No, unlike FCQ for assignments, this is not implied by statute so parties need to expressly provide for this in their agreement.

73
Q

Alienation

What are reasonable reasons for a landlord to refusal for assignment in context of a FCQ?

A
  • Tenant’s proposed use and potential conflict with landlord’s own business or tenant-mix polict.
  • Significant breaches of the lease
  • Concerns regarding assignee’s covenant strength.
74
Q

Alienation

Will a commercial lease allow charging of the whole of the property?

A

No - generally only by way of a floating charge, but in any case, lenders are unlikely to find it to be attractive security due to forfeiture clause.
* insolvency - specified as forfeiture grounds.
* Lack of capital value

75
Q

Alienation

What pre-completion searches must be carried out when granting an underlease?

A

If underlease is registrable
* OS1 search - if underlease of all of headlease
* OS2 - if underlease in part

If underlease is not registerable.
* OS3 search - gives no priority period but ensures no adverse entries against headlease.

76
Q

What is the effect of an absolute covenant against alterations?

A

Section 3 of the Landlord and Tenant Act 1927, allows a tenant of business premises to make improvements even if the lease includes an absolute prohibition against such improvements.

  • notice on landlord - giving it 3 months to respond.
  • if landlord objects - court permission can be sought.
  • court considers whether alterations are beneficial from POV of landlord (i.e. value of property) rather than tenant - as is the case for FQC.
  • if tenant makes alterations using s.3, then at end of lease can claim compensation for improvements in so far as ‘added to the letting value of the holding’ under section 1 of LTA.
  • if landlord is silent - then can proceed with works notwithstanding qualified covenant.
77
Q

Alienation

What is the effect of Section 19 of the Landlord and Tenant Act 1927?

A

upgrades qualified covenant on assignment into a fully qualified covenant.
* Consent not be unreasonably withheld.

78
Q

What is the effect of Section 19(1A) of the Landlord and Tenant Act 1927?

A

Allows for the landlord and the
tenant to agree in advance conditions and circumstances in which it would not be
unreasonable for the landlord to refuse consent
* often to give AGA, be up to date on rent etc.
* Effect is that such pre-agreed conditions and circumstances are deemed reasonable

79
Q

How can a tenant apply for consent to assign its lease?

A
  • Tenant - make written application to landlord.
  • Landlord - respond within reasonable time, and specify in written notice its decision to give consent or not. If subject to conditions, specify these. If consent is withheld, reasons for witholding it.
80
Q

What option does a landlord have it is unhappy with the new lease ordered by the court?

A

Appeal (Cf. tenant cannot apply for order to be revoked)

81
Q

How should a tenant proceed once they have served a section 26 request?

A

Should apply to the court for a new lease to be granted, even if landlord appears willing to negotiate a new lease.
* If tenant does not apply to court to renew its tenancy (and landlord does not respond by proposed renewal date specified in notice), lose right to renew and will need to vacate.
* landlord can also apply to court to oppose notice, unless tenant has already done so.

82
Q

What must be done for a lease to be legally surrendered?

A

Surrender must be by deed.

83
Q

When can a tenancy protected by security of tenure come to an end other than by serving relevant notices?

A
  • surrender
  • forfeiture
84
Q

How might surrender be useful in cases of tenant breaches?

A

Not strictly a landlord’s remedy, but entering a deed of surrender can enable parties to work out difference.
* quicker and cheaper than forfeiture.
* requires willingness to compromise form tenant’s perspective.

85
Q

What is a key distinction between forfeiture in the context of breaches of repairing covenant and all other breaches?

A

Notification of a tenant’s right to serve a counter-notice if lease is of 7 years or more with at least 3 years remaining is only relevant for breaches of repair covenants.

86
Q

What are the limitations to exercising the right to self-help under a Jarvis v Harris clause?

A

Tenant could refuse to reimburse landlord, which means to recover sums court action will be necessary.
* result in time and added costs.

If tenant is in financial difficult, may be unable to reimburse landlord.

87
Q

When is specific performance generally granted as a remedy for breach of repair covenant?

A

case law shows that, court is willing to exercise its discretion where:
* the lease does not contain a forfeiture or landlord’s self- help clause;
* Damages are not an adequate remedy, particularly where the condition of the property
is deteriorating;
* application is made in good faith by landlord, not simply to harass or pressure the tenant.

88
Q

What are the limitations of recovering unpaid rent via section 17 notice on former tenant?

A
  • only recover rent arrears from past 6 months.
89
Q

What are the limitations of exercising CRAR?

A

need to consider type of business carried out by tenant as tools of trade cannot be seized unless valued at more than £1350.

  • also cannot seize property where someone else has an interest (i.e. tenant is loaning the property).
90
Q

What post-completion steps must be taken in respect of an assignment unregistered lease with over 7 years remaining?

A

Need to be registered at the Land Registry within two months of the assignment or will be void in respect of the legal estate.
* same principle as unregistered freehold.

91
Q

What do the standard conditions provide whether the landlord has not consented to the assignment?

A

SC – either party can rescind the contract by notice if landlord consent has not been given three working days before the completion date.

SPCS - if landlord consent is not obtained by the completion date, the completion is postponed until five working days after the assignor (seller) notifies the buyer that consent has been granted.
* Rescission is possible if six months pass without obtaining the landlord’s consent.

SQE1 - Property Practice 🏠 (4 decks)

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