Leases

Question 1

What is a parol lease?

Answer 1

A lease for three years or less;

for market rent;

that takes effect in possession (immediately);

without the payment of a fine or premium.

Question 2

What formalities are required when creating a legal lease?

Answer 2

0-3 years = no formalities;
4-7 years = deed, no registration;
7< years = deed + registration

Question 3

How can an equitable lease be created?

Answer 3

When there is an attempt to create a legal lease but fails due to formalities. To recognise the arrangement, there must be:

• a contract, signed by both parties, with all contract terms included;
• coming to equity with ‘clean hands’

Question 4

What are the three essential requirements for any lease?

Answer 4

(i) There is a certain duration (Ascertainable beginning and end);

(ii) grant gives exclusive possession;

(iii) grant has the correct formalities.

Question 5

What is exclusive possession?

Answer 5

The ability for the tenant to exercise control over the land, i.e. they can exclude all people from the land

Question 6

What is a ‘sham’ clause? (Exclusive possession)

Answer 6

A clause included in a contract to undermine exclusive possession, therefore a lease, that isn’t utilised.

E.g. a cleaning clause, a clause saying others can be moved in without the occupier’s permission, etc.

Question 7

What is the difference between a fixed-term and a periodic lease?

Answer 7

Fixed term lease: gives the tenant the right to occupy the premises for a certain period of time, e.g. 10 years or 99 years.

Periodic lease: runs from period to period (e.g. weekly, quarterly, yearly) until terminated by notice by either party.

One period is often adequate notice.

Question 8

What are the tenant’s key leasehold covenants?

Answer 8

(i) Rent;
(ii) Contribution to insurance;
(iii) Repairs;
(iv) Alterations;
(v) Alienation

Question 9

What are the landlord’s key covenants?

Answer 9

(i) quiet enjoyment (tenant’s possession not interfered with by landlord);

(ii) insurance;

(iii) to keep the property away from a state of disrepair.

Question 10

What are the four stances a lease can contain regarding alienation?

Answer 10

(i) Open contract position - if the contract is silent on alienation, the tenant has freedom to deal with the lease as they wish;

(ii) Absolute covenant - covenant by the tenant not to deal with the lease;

(iii) Qualified covenant - covenant by the tenant not to assign the lease without consent;

(iv) Fully qualified covenant - covenant by the tenant not to assign the lease without consent, which is not to be unreasonably withheld.

Question 11

Who is liable for a leasehold covenant in a lease granted before 1996?

Answer 11

The original tenant remains liable for any breached covenant;

The current tenant is liable for any breached covenant (provided the covenant isn’t a personal obligation).

Question 12

What recourse does an old tenant have if they are sued under privity of contract?

Answer 12

They can sue the current tenant:

at common law; or

on the indemnity covenant on assignment

Question 13

Who is liable for a breach of leasehold covenants in a lease created after 1996?

Answer 13

Position in the law: The current tenant only.

Position if an AGA is used: The current tenant and whoever assigned them the lease.

Question 14

How can a landlord recover losses through an AGA?

Answer 14

They must serve a notice on the former tenant within 6-months of the breach occurring.

Question 15

What are a landlord’s remedies for non-payment of rent?

Answer 15

(i) Debt Action - The landlord sues the tenant for debt;

(ii) Commercial rent arrears recovery - For commercial tenants who failed to pay 7 days of principal rent, landlord gives 7 days notice and takes control of the tenants goods for satisfaction of the debt;

(iii) Forfeiture - Express clause in the lease, allows a landlord to re-enter and cancel the lease.

Question 16

How does forfeiture operate? (Breach of rent covenant)

Answer 16

There is an express clause in the lease granting the operation of forfeiture upon X days rent being overdue;

The landlord makes a formal demand for rent (or the lease can say no formal demand is necessary) ;

The landlord peacefully re-enters the premises (commercial) or sues for and obtains a possession order in the courts (residential).

Question 17

When can a tenant apply for relief from forfeiture (rent)?

Answer 17

(i) tenant pays all arrears of rent and costs before the trial;

(ii) tenant applies to court for relief within 6 months of landlord’s re-entry (court has discretion);

(iii) if the landlord forfeits the residential lease via re-entry w/o court proceedings, relief is generally granted

Question 18

What are the landlord’s remedies for breach of non-rent covenants?

Answer 18

(i) Damages - only to the extent that the freehold sale price has been reduced;

(ii) Specific performance - rarely ordered, makes tenant repair;

(iii) Forfeiture;

(iv) Self-help remedy - jervis and harris clause, landlord enters property, makes repairs, charges the cost of the repairs to the tenant as a debt.

Question 19

How does forfeiture operate in breaches of non-rent covenants?

Answer 19

The landlord can forfeit via peaceable re-entry or a court order for possession. If owned as a dwelling, a court order is required.

Must serve a notice on the tenant:

(a) specifying the breach;
(b) requiring it to be remedied within a reasonable time, if capable of remedy;
(c) requiring compensation if required; and
(d) if not capable of remedy, specifying a reasonable time for the tenant to consider their options.

Question 20

What notice must be served when forfeiting a lease:

(i) for repair;

(ii) initially granted for 7 years+; and

(iii) when there are three years remaining?

Answer 20

A s146 notice that specifies a 28-day right to counter the forfeiture; thereafter, court proceedings likely commence.

Question 21

What is the 3-step procedure you should consider with forfeiture?

Answer 21

(1) Has there been a breach?
(2) Is there a forfeiture clause?
(3) Has there been a waiver?

Question 22

How can a landlord waive their right to forfeit the lease?

Answer 22

If they:
(i) Are aware of the acts or omissions giving rise to the right to forfeit; and
(ii) do an unequivocal act recognising the continued existence of the lease.

Question 23

How can forfeiture be waived in a rent breach?

Answer 23

Demanding, accepting or suing for rent due after breach.

Effectively, recognising that the lease is active waives the right to forfeiture for that specific breach.

Question 24

Must a formal demand of rent be made for forfeiture regarding a rent covenant?

Answer 24

Only if there is no requirement for this in the lease.

E.g. the landlord can re-enter or commence court proceedings upon breach of X ‘whether formally demanded or not’

Question 25

How can a lease end?

Answer 25

(i) effluxion of time;
(ii) notice to quit (periodic tenancy) (a period’s notice, unless it’s a yearly tenancy where it is half, is needed);
(iii) break clause;
(iv) surrender, mutual agreement;
(v) disclaimer, bankruptcy/liquidation of the tenant;
(vi) frustration;
(vii) repudiatory breach - breach goes to the root of the contract;
(viii) merger - tenant purchases freehold reversion

Question 26

What is security of tenure?

Answer 26

For commercial leases, it allows a tenant to ‘hold over’ the lease after its contractual expiry date.

Question 27

What types of business tenancy do not benefit from security of tenure protection?

Answer 27

• Tenancies at will;
• Fixed term under 6 months;
• Fixed term that is contracted out.

Question 28

How can a tenancy be terminated under security of tenure provisions?

Answer 28

(i) Service of landlord notice (s25);
(ii) tenant’s request for a new tenancy (s26);
(iii) forfeiture;
(iv) surrender;
(v) tenant serving 3 months’ notice under s27 after the contractual expiry date;
(vi) tenant no longer occupying for business purposes

Question 29

When must a landlord serve a s25 notice on a tenant?

Answer 29

No earlier than 12 no later than 6 months before the proposed date of termination.

Date of termination must not be before the contractual expiry date.

Question 30

What must a s25 notice contain?

Answer 30

The proposed termination date. Can be friendly, if the landlord wants the tenant to have a new lease, or hostile, if the landlord wants the tenant gone. If hostile, must complain the statutory ground of termination.

Question 31

What happens if a tenant does not apply to court before expiry of a s25 notice?

Answer 31

They lose their rights under security of tenure protections.

Question 32

How can the tenant remain in a property after their lease expiry?

Answer 32

• Holding over; or
• Applying to the landlord under s26 to renew the lease.

Question 33

When must a s26 notice be served?

Answer 33

No later than 6 months and no earlier than 12 months before the proposed commencement of the new lease.

Question 34

How long does a landlord have to oppose a tenants s26 application?

Answer 34

2 months, stating one of the 6 grounds specified in the 1954 act.

Question 35

What are the six grounds of opposition a landlord has under the 1954 act?

Answer 35

(a) breach of repair covenant

(b) ‘persistent’ delay in paying rent

(c) Tenant’s substantial breach of other covenants

(d) Landlord has offered alternative accommodation (which is suitable to the tenant’s
needs and on reasonable terms)

(e) Landlord intends to demolish or reconstruct and could not reasonably do so without
obtaining possession

(f) Landlord intends to occupy the holding for its own business or as a residence (owned for 5 years previously)

Question 36

Which are the discretionary grounds of a landlords opposition? (court will decide whether or not to grant a new lease)

Answer 36

(a) Tenant’s failure to repair
(b) Tenant’s persistent delay in paying rent
(c) Tenant’s substantial breach of other obligations

Question 37

Which are the mandatory grounds of opposition? (landlord just has to prove a ground for the lease to not be granted)

Answer 37

(d) Landlord has offered alternative accommodation (which must be suitable to the tenant’s
needs and on reasonable terms)

(f) Landlord intends to demolish or reconstruct and could not reasonably do so without
obtaining possession

(g) Landlord intends to occupy the holding for its own business or as a residence

Tenant is entitled to compensation.

Question 38

What are the limitations on the court when they grant a lease?

Answer 38

(1) They cannot grant a lease of more than 15 years;
(2) Must disregard: tenant’s occupation, any goodwill attached to the holding, any effect of improvements from the tenant

Question 39

How can security of tenure provisions be contracted out of?

Answer 39

If more than 14 days before signing, by a simple declaration from the landlord stating the impact of contracting out in a prescribed form, advising the tenant to seek independent advice;

If less than 14 days before signing, a statutory declaration, declared before an independent solicitor.

Lease must contain reference to the notice and declaration of contracting out.