Leasing and Letting - L2 Flashcards
What is the difference between a lease and a licence
Fundamentally, whether the occupant has exclusive possession or not, as per Street vs Mountford 1985. Mrs Mountford occupied two rooms with exclusive possession under a licence, however the court deemed that she actually had a Rent Act 1977 lease.
What did the Landlord and Tenant (Covenants) Act 1995 change?
The act was introduced following numerous cases were a lease had been assigned and the original tenant was liable for breach of covenant of the new tenant, years later. The act abolished this (privity of contract) and introduced Authorised Guarantee Agreements (AGA’s) instead, where the original tenant acts as the new tenants guarantor. This makes tenants think more carefully about who they are assigning to, as they are liable if they default.
How does the Landlord and Tenant (Covenants) Act 1995 relate to security of tenure?
Where a lease isn’t contracted out of the LTA 1954 Act s24 - s28, the landlord can require the original tenant to continue as guarantor under the statutory continuation of the lease.
What are the requirements of a commercial Landlord when letting premises?
LTA 1985 = obtain an EICR
MEES = obtain EPC of minimum Band E
Gas = ensure it is safe at the commencement of a lease, however then refer to terms of lease during the term for responsibility.
What is a service charge?
A service charge is a means by which a landlord can recover from tenants the cost of maintaining and repairing a building and providing certain services. Service charges in commercial property (September 2018) sets out they must be in accordance with the lease, can be no more than 100% of the actual cost, budgets and accounts should be submitted to the tenants annually and should be appropriate value for money. Examples = WC, kitchen facilities or utilities.
What does the RICS Code for leasing business premises (Feb 2020) enforce?
Heads of Terms are mandatory, and must be marked SUBJECT TO CONTRACT. Sets out what must be included, such as extent of premises, length of term, renewal and break options, amount of rent, payment dates, deposit, service charge, whether the lease will be contracted out.
What tenancies / occupancies are excluded from the Landlord and Tenant Act 1954?
Service occupancies
Short tenancies (6 months or less)
Agricultural Tenancies
Contracted out tenancies
Licences
Tenancies at Will
Residential Tenancies (s43ZA)
What is security of tenure?
Covered under sections 24 - 28 of Part II of the LTA 1954, a commercial tenant has the right of statutory continuation and right to renewal.
How do you contract out of security of tenure provisions?
Under section 38, you can contract a lease out of s24-28 -
If more than 14 days prior to the start of the lease = simple declaration
If less than 14-days prior to the start of the lease = statutory declaration signed in the presence of a solicitor of commissioner of oath (to ensure the tenant understands what they are signing).
The lease must also be explicit that it is contracted out.
What is the difference between assignment and sub-letting?
Assignment is the legal transfer of the lease to a third party, usually used when the tenants has to sell the business. Sub-letting is an arrangement between the tenant and a third party for part or all of the premises to be used by them. Both require consent from the landlord.
If a tenant wants to vacate the premises, what should they do?
They can merely vacate the premises on or just before the term date of the lease.
Serve a s27 notice, giving three months notice to bring the lease to an end on the contractual expiry, or where the lease has continued after that date too.
s27 cannot be served following a s26 request, nor can a s26 request be served after a s27.
If the landlord wants to evict or renew the tenancy on or after the term date, what should they do?
Serve a section 25 notice, giving 6-12 notice to come into affect on or after the term date.
Form 1 = Does not oppose new lease, but wants to negotiate terms
Form 2 = Opposes new lease being granted and must state on what terms
Tenant has until the term date to serve s29 notice, applying to the court to resist.
If the tenant would like a new lease at the end of the contractual term, what should they do?
Serve a section 26 notice, giving 6-12 months notice to come into affect on or after the term date, proposing the terms of a new tenancy.
Prescribed Form 3.
Landlord can serve counter-notice (no prescribed form) within 2 months and state on what s30 grounds they oppose the new lease on. Must also serve s.29 notice to refer to the courts.
If no counter-notice is served, Landlord can then not oppose the new lease, but can still negotiate terms.
What is a section 29 notice?
A notice served by the Landlord or Tenant, referring the matter to court. The notice will lead to a preliminary court hearing.
What are the s30 grounds for opposition?
7 grounds of which the Landlord can oppose the grant of a new lease -
A.) Tenant breach of obligation to repair (Discretionary)
B.) Tenant persistently late paying rent (Discretionary)
C.) Other substantial breaches of covenant (Discretionary)
D.) Landlord provides suitable accommodation (Mandatory)
E.) Property is uneconomically subdivided, were Landlord has inherited sub-tenants which prevent the Landlord selling or letting the whole premises (Discretionary)
F.) Landlord intends to demolish and/ or reconstruct premises (Mandatory)
G.) Landlord needs to occupy the premises (Mandatory)
What happens if the court doesn’t grant Landlord vacant possession?
The court will grant a new lease with -
A term of 14 years maximum
With a market rent
The other terms will be guided by the original lease
The new lease will commence a maximum of 3 months after the court order
What is the difference between Mandatory and Discretionary grounds for possession?
Mandatory - the court must order the tenant to leave if the landlord can prove that the ground applies
Discretionary - the court can only order the tenants to leave your property if the landlord can prove the facts which correspond with the ground and the judge considers it reasonable to make an order
When could a tenant be entitled to compensation?
When a landlord has regained possession under the mandatory grounds (E, F or G). If the tenant has been in occupation for less than 14 years, they are entitled to 1x rateable value. If they have been in occupation for more than 14 years, they are entitled to 2 x rateable value.
Compensation for improvements is only available where it was authorised and there is an absence of a reinstatement clause. The amount payable is the lesser of the cost of the improvement at the end of the lease, or the increase in value to the reversion due to the improvement.
Is there ADR specifically for commercial letting?
Yes, PACT (professional arbitration on court terms), where instead of making a s29 notice, the matter is referred to an independent third party expert who makes a legally binding decision. It is quicker and more flexible than court, also you are guaranteed to get an industry expert.
Set up by Law society and RICS.
How would you review the rent under a commercial lease?
Firstly, refer to the tenancy agreement to ascertain what provisions had been set out, e.g. review dates and basis of review (open MR, linked to RPI, fixed increases).
The lease should set out what notice / procedure you must follow to review the rent, however the final agreed amount should be documented in a memorandum.
