Leases

Question 1

What type of lease will trigger first registration at HMLR?

Answer 1

A lease for 7 years +

Question 2

What are the formalities for the creation of a lease?

Answer 2

A lease must be created by deed and registered with HMLR:

It is a legal short lease for three years or less (can be created orally or in writing) and the tenant takes possession of the property at the best rent which can be reasonably obtained

If the lease is not created by deed but is created by signed writing, it can take effect as an equitable mortgage

Question 3

Where do leases appear on the register?

Answer 3

Registered land: As a notice on the charges register

Unregistered land: As a C(iv) land charge (estate contract)

If not protected in this way, a purchaser of the freehold will not be bound by the equitable tenancy, unless they are a person in actual occupation (in which case this will be an overriding interest)

Question 4

When will an equitable lease come into being?

Answer 4

When it is in signed writing but has not been created by deed (subject to the short three year lease rules)

Question 5

What are the formalities for an assignment?

Answer 5

An assignment can only be effected by deed

Question 6

What are the different types of lease?

Answer 6

• Fixed term tenancies: a lease for a fixed period of years
• Reversionary lease: a lease providing that the tenant will take possession at some date in the future (unless the period before possession exceeds 21 years)
• Periodic lease: defined by a period of time such as ‘yearly’ or ‘year to year’/ ‘month to month’

Question 7

What is an implied periodic tenancy?

Answer 7

Where the parties have not entered into a written agreement but the tenant has gone into possession and started to pay rent. The period will be implied based on how often the rent is paid

= pays rent every 2 months - will be an implied periodic lease

Question 8

In a long-term lease, may rent be increased by the landlord?

Answer 8

No, not unless a rent review clause has been included

Question 9

What is a tenancy at will?

Answer 9

When the landowner allows a buyer to take possession of the land before entering into any written agreement to sell. This is a personal agreement.

Question 10

When will a lease be void for uncertainty?

Answer 10

Where termination of the lease depends on external circumstances over which the parties have no control

e.g. a lease for the life of a particular tenant

Question 11

What are the three key characteristics of a lease?

Answer 11

Exclusive possession, for a term, at a rent

Question 12

What are the main convenants contained in a lease?

Answer 12

• A term
• The payment of rent
• Quiet enjoyment (the landlord must not interfere physically or in any other way with the tenant’s enjoyment of the property)
• Repair (may either be for the tenant or the landlord to.repair - more likely to be the tenant if it is a commercial lease)
• What the premises can be used for
• Alteration of the premises (landord’s consent = qualified alterations covenant, prohibition = absolute bar to alteration)
• Insurance (if lease is for the whole building then it will normally fall on the tenant to insure it)
• Service charge (if there are shared services in the building then the landlord or management company will normally covenant to provide the services and the tenant will pay the cost of these by paying a service charge)
• Forfeiture clause (must be included to be effective)

Question 13

Landlord remedies:

What is Commercial Rent Arrears Recovery and when does it apply from?

Answer 13

A statutory procedure that allows landlords of COMMERCIAL premises to recover rent arrears by taking control of the tenant’s goods and selling them.

It automatically applies to all commercial leases from 6 April 2014, it DOES NOT have to be referred to in the lease

Tenant must be given 7 days notice of the seizure

Question 14

Landlord remedies:

What is forfeiture?

Answer 14

The right of the landlord to re-enter the premises and bring the lease to an end due to rent arrears by the tenant or failure to comply with repairing covenant

The lease must contain express provision for this, it cannot be implied.

A landlord may waive their right to forfeit e,g. if they accept the breach or demand payment

The landlord must serve a notice on the tenant which specifies the breach, requires the breach to be remedied within a reasonable time, and requires the tenant to pay compensation for the breach

If it is a residential property, a prior court order will be required before forfeiture can be exercised

Question 15

What are the landlord remedies for breach of a repairing covenant?

Answer 15

• Damages
• Specific Performance
• Self-help (or Jervis v Harris clause) (i.e. carrying out the repairs themselves and then claiming the cost from the defaulting party)
• Forfeiture

Question 16

What other remedies may a landlord have against a tenant in default?

Answer 16

• A simple debt action
• Retention of rent deposit
• Pursue the tenant’s guarantor

Question 17

What are the rules regarding leases before 1 January 1996?

Answer 17

The landlord may still sue the original tenant even once the lease has been assigned

Question 18

What are the rules regarding leases dated after 1 January 1996?

Answer 18

The landlord may only pursue the current tenant for rent arrears, not the original one (it is the date of the grant of the lease, not the assignment, which determines this)

Question 19

What is an authorised guarantee agreement?

Answer 19

For new leases, as a condition of assignment, a landlord can require the outgoing tenant to sign an AGA which means they will act as a guarantor to their immediate successor in title (and would therefore have to pay in the event of rent arrears)

If there has been three assignments, and the AGA is only between the 2nd and third tenant, then the first tenant can no loner be sued

Question 20

May a landlord include a requirement that the tenant signs an Authorised Guarantee Agreement in a residential lease?

Answer 20

No, but this may be included in a commercial lease

Question 21

Is there privity of estate or privity of contract between the landlord and a subtenant

Answer 21

No - there is no privity of estate or privity of contract between the landlord and subtenant

Question 22

Are the covenants in the head-lease enforceable against the subtenant?

Answer 22

No (unless a restrictive covenant in equity), but the original tenant will still be liable for the covenants, so they will seek to include the same covenants in their contract with the subtenant.

Question 23

What is the difference between subletting and assigning in terms of the liabilities of the tenants?

Answer 23

Assignment - new tenant takes on the responsibility for the covenants in the lease because there is privity of estate between the landlord and the new tenant

Subletting - original tenant (not subtenant) remains responsible for performing the covenants in the lease. This is because there is no privity of estate or contract between the landlord and the subtenant.

Question 24

What is an absolute covenant against assignment?

Answer 24

An absolute bar to assignment.

Any waiver of this bar would have to be formalised in a deed of variation.

Question 25

What is a qualified covenant against assignment?

Answer 25

A covenant prohibiting the assignment of a lease unless the landlord has given his consent to the assignment. This consent most not be unreasonably withheld and consent must be given with a reasonable time.

E.g. Consent might reasonably be withheld if the landlord things that the incoming tenant will not be able to pay rent

Question 26

What happens to the rights and obligations under a lease when it is assigned?

Answer 26

The incoming tenant takes responsibility for performance of the tenant covenants in the lease

Question 27

What happens if there has been an effective assignment made, but the landlord has refused consent?

Answer 27

The assignment will be effective but there will be a breach of covenant

Question 28

Does a sublease remain valid if a headlease is assigned?

Answer 28

Yes. The incoming tenant will acquire the premises subject to the sublease.

Question 29

What are the ways in which a lease can be terminated?

Answer 29

• On expiry of the lease term
• Termination by notice (for a period tenancy)
• By mutual agreement (surrender) or merger (when the tenant buys the freehold)
• By forfeiture (landlord claiming possession of the property if the tenant is in default).
• Frustration (events beyond either party’s control rendering the lease impossible)

Question 30

Will a sublease come to an end if the headlease is terminated?

Answer 30

Yes, unless it is by surrender. If it is brought to an end by surrender, the subtenant will become the tenant of the landlord on the terms of the sublease.