Leasing and letting Flashcards
What is leasing?
Acting on behalf of the tenant to acquire space.
What is letting?
Acting on behalf of landlord to let out space.
RICS guidance in this area
RICS Professional Statement: Code for Leasing Business Premises 2020
What is the purpose of the Code?
Improve quality and fairness of negotiation of lease terms and promotes use of new set of comprehensive HOTs to made legal drafting of leases more efficient.
Application of Code
- Both landlords and tenants.
- Replaces non-RICS code from 2007.
- Applies to new leases, lease renewals and lease extensions.
How is the Code structured?
4 parts;
Part 1 - Introduction
Part 2 - Mandatory requirements
Part 3 - Lease negotiation best practice
Part 4 - Appendices
What are the mandatory provisions?
- Negotiations must be approached in constructive and collaborative manner.
- Party not represented by RICS member must be informed of the Code and advised to get representation.
- Agreement must be written in HOTs and SUBJECT TO CONTRACT.
- Negotiations must be fair and balanced - have regard to both sides.
Result of the Code
- Assists parties in understanding lease and their commitments.
- Greater transparency of terms and collaboration.
- Draft HOTs template provides consistency.
Process for leasing
- Define approach
- Market research and analysis
- Shortlist options and viewings
- Decision-making
- Negotiation
Process for letting
- Define approach
- Marketing strategy
- Branding and marketing
- Take enquiries and undertake viewings
- Negotiation
What is a lease?
Formal arrangement providing an occupier with an estate in the relevant land i.e. exclusive occupation.
Four requirements that constitutes a lease
- Exclusive occupation.
- Payment of rent.
- Duration of the specified term.
- If more than three years, terms must be in writing, signed and registered as a deed.
L&T act protection.
What is a license?
Passes no interest in land and provides only a right to enter/use the property.
No L&T act protection.
Differences between a lease and license
Lease - exclusive possession
License - personal right to use
Lease - can be assigned
License - can’t as personal right
Lease - cannot be terminated until expiry
License - terminate at any time
Case law setting out differences between a lease and a license
Street v Mountford (1985)
What are Heads of Terms?
Summary of an agreement between two parties, used to instruct lawyers to produce actual lease/ contract.
(Fall away once lease and formal contract signed)
L&T Act
Landlord and Tenant Act 1954 Part II
Security of tenure for all commercial leases.
When do you get protection from Act?
Section 23
Must be a business tenancy satisfying 6 basic principles:
- Must be a tenancy
- Premises must be used for business
- Must occupy at least part by tenant
- Occupancy for more than 6 months
- Must not be an exempt or exclusive tenancy
- Must have competent landlord
Automatically protected if satisfied.
Section 24
Business tenancy under act only ends when party serves a notice.
(Unless leave with full VP on lease expiry)
Section 25
Landlords notice to grant or oppose a new lease.
To be served within 6-12 months from date specified for a new lease.
Section 26
Tenants notice to request a new lease.
To be served within 6-12 months from date specified for new lease.
Section 27
Tenant notice to leave premises.
Only to be served after contractual end date ie if holding over.
3 months notice.
Section 30
Ground for refusal of a new lease.
7 grounds - a to g
Persistent delay in paying rent.
Redevelopment.
Landlord wants to occupy.
Section 38A
Contracting outside the Act.
Reasons to contract out:
1. Landlord may want to reoccupy/ redevelop in the near future.
2. Landlord wants more flexibility.
What are the 2 types of contracting out declarations
Simple declaration -
Served by Landlord/ must have 14 days or more until lease. commencement
Statutory declaration -
Served by solicitor to tenant, outlining what going to lose from contracting out.
Quicker and if less than 14 days to go.
What are the security measures to protect the investment from taking on the tenant?
- Rent deposit
- Rental guarantee (e.g. parent company)
What do you request from a tenant to confirm their covenant/ financial performance before letting?
- Bank, accountant and 2 trade refs
- Pervious landlord reference
- 3 years audited accounts
Lease terms affecting value
- Lease length
- Break clauses
- Alienation
- Repairing obligations
- User clauses
- Rent review pattern
- L&T Act Protection
Items in heads of terms (L&L)
SUBJECT TO CONTRACT
- Landlord details
- Tenant details
- Demise
- Lease term
- Break
- Rent
- Incentives
- Service charge
- VAT
- Business Rates
- Alienation
- Alterations
- Use
- Agreement for lease (sign at earliest opportunity)
- Signage
- Timescale
- AML
- Conditions
