Leasing and Letting (general questions)

Question 1

What is the RICS Professional Statement for leasing and letting?

Answer 1

The RICS Professional Statement: Code for Leasing Business Premises, 2020

Question 2

What is the purpose of the Code for Leasing Premises 2020 / why did it replace the old one?

Answer 2

This is to improve the quality and fairness of negotiations on lease terms and promote the use of a new set of comprehensive heads of terms to make the legal drafting process more efficient.

Question 3

What is the Structure of the Code for Leasing Premises 2020?

Answer 3

• Part one: introduction
• Part two: Mandatory requirements
• Part Three: lease negotiation best practice
• Part four: Appendices

Question 4

Can you talk me through some of the Mandatory requirements of the Code?

Answer 4

• Negotiations must be approached in a constructive and collaborative manner
• A party that is not represented by an RICS member or other property professional must be advised by the other party or its agents about the existence of the code
• Provide a minimum in regard to the position the HoT’s which are:

o The identity and extent of the premises
o The length of the term
o Whether 54 act is included or excluded
o Options for renewal or break options
o Any requirements for a rent deposit or guarantor
o Amount of rent and frequency of payment
o Whether the landlord intends to charge VAT on the rent
o Rent free or any other incentive
o Rent reviews including the frequency and the basis
o Rights in relation to alienation
o Repairing obligations
o Initial permitted use
o Rights to alteration

Question 5

what does part 3, state about lease negotiation best practice?

Answer 5

This provides specific advice on lease terms to include rent deposits, rent reviews, service charges, repairs and alienation clauses

Question 6

What is included in the appendices?

Answer 6

• It provides a model heads of terms for members to use as a reference
• A HoT’s checklist
• A guide for landlords and tenants (this is a supplement to the code and is no mandatory)

Question 7

Why is tenant selection important for landlords?

Answer 7

• To ensure that they have a tenant who will be able to meet their lease obligations in relation to paying rent. If there is finance in place at a property, the repayments can be reliant on receiving rent.
• Furthermore if a landlord wanted to sell an asset, the strength of the tenant covenant could significantly impact the sale price. A property with a weak tenant in place creates higher risk and therefore the price paid reflects this due to the increased likelihood of tenant default and void periods etc..

Question 8

what are the requirements for a lease deposit?

Answer 8

• It must be personal to the tenant
• Must be legally documented in a rent deposit deed & money held in a separate bank account
• Interest goes to the tenant
• Agreed terms are included for the release of the monies
• Details of the release mechanism to be stated in the deed
• Rent deposit deed attached to the lease as it is a separate deed, personal to the tenant.

Question 9

Ahead of agreeing a lease on behalf of your client, what financial information do you request from the prospective tenant?

Answer 9

• Bank accountant
• 3 years of audited accounts / Dun and Bradstreet ratings
• Previous L’lords reference
• Also do a profits test

Question 10

What is the profits test and how do you do it?

Answer 10

• Commonly used to test the covenant strength in relation to the amount of rent paid.
• Done by checking that a business’ net profit is three times the rent due for three consecutive years.
• However you must consider whether the market is strong enough for a landlord to be picky r.e. retail market – not a huge wave of retailers after new shops, more small independents.

Question 11

what lease issues affect the value of a property?

Answer 11

• The lease lengths / term certain
• Break clauses
• Alienation
• Repairing obligations
• User clauses (might be restrictive i.e. industrial if it’s not B8)
• Rent review pattern (fixed uplifts, Inflation linked, OMV)
• Security of tenure provisions
• Inside the act or outside of the act.
• If no mention of being inside the act then it is protected

Question 12

are break clauses typically mutual?

Answer 12

• This is dependent on the terms agreed between the landlord and tenant

Question 13

What is the required break date notice period?

Answer 13

• This is usually at least 6 months before the break date

Question 14

Are there any pre-conditions to a break clause or is it open?

Answer 14

• Yes there typically are pre-conditions to include:
  o Full payment of rent and service charge payments
  o Condition of the property (returning in good order)
  o Leaving property with vacant possession

Question 15

what is Alienation?

Answer 15

• This is the process of either sub-letting or assigning the current tenants interest in a lease.

Question 16

What is the difference between a sub-lease and an assignment?

Answer 16

• A sub-lease is a relationship between the existing lessee and a new one. The sub-lessee has no relationship with the landlord and pays rent to the original tenant.
• Assignment creates a direct relationship with the landlord and the new Tenant and payment of rent is directly to the landlord.

Question 17

Are tenants able to assign or sub-let to whoever they want?

Answer 17

• This depends on the individual wording in each lease. Leases can have absolute, open or qualified alienation clauses. Typically is says that consent is not to be unreasonably withheld but may include clauses that the tenant covenant has to have a similar covenant strength to the existing tenant or better etc.

Question 18

what does the Landlord and Tenant Act 1988 say in relation to Alienation?

Answer 18

• The aim of the legislation is that he landlord has a duty to deal with consents diligently and not be unreasonably withheld or delayed. Failure to do so can lead to a claim for damages from the tenant.

Question 19

What does the Landlord and Tenant (Covenants) Act 1995 cover?

Answer 19

• This relates to the assignment of leases and introduced AGA’s for the most recent former tenant to a guarantee the lease obligations.
• Only one AGA in place at a time
• Code for Leasing Business premises states that if a new tenant coming in is of strong financial status, a rent deposit is paid or a guarantor is provided, an AGA should not be sought by a landlord.

Question 20

what does the code for leasing business premises 2020 say in relation to Alienation?

Answer 20

• Assignment: it says landlords should allow tenants to assign the whole of the premises with landlord consent, not to be unreasonably withheld or delayed. Landlords may set out ground for refusal but these must be reasonable.
• Sub-letting: leases should allow tenants to sub-let the whole of premises and may allow sub-let of part with consent from the Landlord, not to be unreasonably withheld. Sub-leases should be on terms that are consistent with the tenants own lease.

Question 21

what are the remedies for landlords in relation to illegal alienation?

Answer 21

• Forfeiture
• Damages
• An injunction

Question 22

can a tenant make alterations to a property that they have leased?

Answer 22

• I would read the lease and look at what the alteration clause says in relation to landlords consent and the types of alteration that can be carried out.
• Typically alterations are subject to reinstatement at the end of the lease.
• A licence for alterations is to be completed before the works commence

Question 23

what does the Landlord and Tenant Act say in relation to alterations?

Answer 23

• It states that if a lease prohibits improvements being made to a property without L’lords consent, section 19 imposes a proviso that such consent cannot be unreasonably withheld.

Question 24

what are dilapidations?

Answer 24

• These are negotiations that take place at the end of a lease in respect of bringing the property back to its original condition as it was at the start of the lease.
• Should check the lease terms and check for a schedule of condition

Question 25

At the end of a lease, what are the two options for a tenant in respect of dilapidations?

Answer 25

A. Tenant can undertake the works or
B. Tenant can pay a sum to a landlord to undertake the works

Question 26

How is insurance dealt with when you have completed a letting?

Answer 26

• Typically the landlord arranges the insurance for the property and recharges this to the tenants

Question 27

if you have agreed a lease on behalf of a client, and rent is paid quarterly in advance, what dates is rent due?

Answer 27

• The English quarter dates which are: 25th March, 24th June, 29th September and 25th December

Question 28

What are the four main options for a landlord when a tenant is in breach of repairs?

Answer 28

• Serve a repair notice
• Forfeit the lease
• Serve an interim schedule of dilapidations
• Do the works and charge the tenant

Question 29

what is the a licence?

Answer 29

• A right to enter a property / a personal arrangement between the licensor and licensee / a licensee acquires no interest in the property / it is merely a personal right which can be terminated by any party. No legal interest exists.

Question 30

what is a lease?

Answer 30

• A legal contract between two parties, whereby the occupier is provided with an estate in the relevant land.

Question 31

what are the four requirements of a lease?

Answer 31

• Exclusive occupation
• Payment of rent
• Duration for a specified time
• If more than 3 years must be signed and registered as a deed

Question 32

what are the main differences between a lease and a licence?

Answer 32

• A lease provides an occupier with an interest in the land, a licence is a permission to use the land
• A lease can be assigned, a licence is a personal right that normally can’t be assigned
• A lease cannot be terminated before its expiry (unless a break clause is there) whereas a licence can be revoked at any time.

Question 33

what is a tenancy at will?

Answer 33

• Form of licence where a landlord may evict a tenant at anytime. The tenant has no legal interest in the land. Typically used after a lease expiry of a lease signed outside the 54 act when agreeing a new lease.

Question 34

What is a wayleave?

Answer 34

• A temporary right and receives an annual payment. E.g. used for telecoms companies installing satelites on top of buildings or electricity substations etc.

Question 35

What is an easement?

Answer 35

• It is a right enjoyed by one party over the land of another

Question 36

what are the usual assumptions made in relation to a rent review?

Answer 36

A. The property is available to let on the open market by a willing…
B. Property is fit and available for immediate occupation and use
C. All covenants observed by a landlord and tenant
D. Property may be used for purpose set out in lease

Question 37

what does it mean if a lease is signed inside the 1954 act?

Answer 37

• The tenant has the right to renew the lease at lease expiry. Unless stated otherwise and expressely agreed with the tenant then a lease is inside the act.

Question 38

Why would a landlord want to contract outside of the act?

Answer 38

• Landlord wants to re-occupy
• Landlord wants to re-develop
• Landlord wants future flexibility
• Could be a requirement of a headlease.

Question 39

Are the any laws around the display of signage?

Answer 39

• Yes this is covered by the town and country planning regulations 2007.
• It states that planning consent is required for signage of 2 sq m
• 2.3m V board
• It must not protect more than 1m or above 4.6m from the ground
• Must be removed 14 days after the completion of the transaction

Question 40

what are the fines for non-compliance under the regulations? (signage - planning regulations 2007)

Answer 40

• The fine can be up to £1000 or £100 for each day which the offence continues.