Property Flashcards
Limited, based on review videos only
What do you need to do before you agree to act on a clients sale or purchase?
ID checks (entitled to deal with property?)
Instructed properly by the client (e.g., a couple, is 1 person speaking for both?)
Check conflicts of interest
What points should the buyers solicitor raise with their clients?
Timescale expectations
Costs
Co-Ownership Advice
Survey
What are the types of survey
Basic Valuation (major obvious defects, minimum for a mortgage)
Homebuyers report (for property in reasonable condition, less than 150 years old)
Full structural survey (listed, extensive renovations done or planned $$)
What checks should you do when being instructed by a company?
If small company with 1 director – fine
Otherwise, check for a board resolution
Should a buyers solicitor read the survey? Why/why not?
Yes
There is a section specifically written for a solicitors attention that require legal investigation
What types of finance are available for residential purchasers?
Cash
Money
Mortgage
What types of finance are available for commercial purchasers?
Syndicated loan (from a number of different lenders)
Equity finance
Development finance (lender can step in to complete development if borrower doesn’t)
What taxes are more relevant to property transactions?
Stamp (Land transaction in Wales)
Capital Gains
VAT
Who pays CGT on properties?
Only individuals
Corporations pay corporation tax
For which type of property, is CGT exempt for individuals?
Main homes
What is caveat emptor and its relevance to property transactions?
The expectation of refunds for defaults
Not allowed in land, you buy it and you’re done
Which solicitor provides the title and draft contract?
Seller
What are the buyers solicitors duties in the pre-exchange phase?
Send enquiries/review standard replies/raise additional
Investigate title
Do searches
Report on title to the buyer
At what point are the parties legally obligated to purchase?
Contract exchange
What is the date of completion?
Date that property and money changes hands
What must a seller obtain before marketing a property?
Energy Performance Certificate
What is a memorandum of sale?
A document which outlines agreement
between the parties (price) and will detail the solicitors who will be acting in
relation to the conveyance
What are the pre-contract steps for the sellers solicitor?
Obtain copies of title/title deeds
- If mortgaged, could be held by the lender… give undertaking that you have docs pending mortgage discharge
Draft and send contract package
What is included in the contract package prepared by the sellers solicitor?
The draft contract in duplicate
The completed Property Information Form (PIF)
and Fittings and Contents Form (F&C)
A copy of the Seller’s title/epitome of title for
unregistered land and title plan
Other relevant documents, if any
Guarantees, if any
AND
Planning permission, if any.
What does the buyer gain after contract exchange?
An equitable interest
What is the name of the process that both solicitors do during title investigation?
Sellers: deduces title
Buyers: investigates title
What 3 things does the BS have to check for when investigating title?
- checking that the seller is able to sell the property;
- identifying the extent of the property; and
- any rights that benefit or burden the property
What does it mean that covenants/easements have been abstracted?
They are added to the official copies at the Land Registry
What is on the property register?
freehold or leasehold
postal address or a description of the property,
refers to the title plan (usually the land edged red)
and sets out any rights benefitting the property.
Exclusions on the property
What rights should you look for in the property register when investigating?
Access (unless its a house from the road)
Public water supplies and drains or private ones that connect to public ones
What 4 issues should be considered after identifying rights on the property register?
Adequacy (wide enough driveway for car?)
Maintenance (might be required if there are private rights)
Burden registered (make sure the burden is properly registered on the servient land VIA index map search)
Adoption (if adopted, frontagers might need to ‘bring it up to adoptable standard)
What type of search shows you access to public water supplies and drains?
water and drainage search
What search shows you whether an owners land is registered?
Index map search
What happens if the servient land hasn’t been registered?
Make a caution against first registration so that the burden will definitely be registered at the time of first registration
What is an ‘exclusion’ on a property
E.G., rights that belong to other people on your property
Mining/minerals, hunting/fishing
What is on the proprietorship register?
class of title
registered proprietor
and if applicable, restrictions and the indemnity covenant.
What identifying info about an owner is on the proprietorship register?
Full name/address
Company number
If there is more than 1 registered proprietor, what do you need to make sure of regarding execution of the transfer?
That they all sign
What has to happen when you buy if there was 2 people on the proprietorship register, and 1 died, and they hold as beneficial tenants in common?
A second trustee need to be appointed on transfer so that you an overreach their beneficial interest which removes the restriction
What is the wording of a restriction on the proprietorship register indicating tenancy in common?
no disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.
What is the wording of a restriction on the proprietorship register indicating a mortgage?
RESTRICTION: Except under an order of the Registrar no disposition by the proprietor of the land is to be registered without the consent of the proprietor of the charge dated 17 June 2005 in favour of Redminster Building Society referred to in the Charges Register.
How do you know if there is an indemnity covenant chain on the property?
There will be a note on the proprietorship register
(1 July 2005) The Transfer to the Proprietors contains a covenant to observe and perform the covenants referred to in the charges register and of indemnity in respect thereof.
What is contained on the charges register?
charges
restrictive and positive covenants that burden the property
registered leases
and easements over the property
What 2 entries are made on the registers for mortgages usually?
1 on the charges
1 on the proprietorship preventing the sale
What is the wording of a typical mortgage charge?
(1 July 2005)REGISTERED CHARGE dated 17 June 2005 registered on 1 July 2005 to secure the monies including the further advances therein mentioned. (1 July 2005) Proprietor: Redminster Building Society of 28 High Street, Redminster RD6 9AR.
What is the important (and basic) point you must make sure of if there is a mortgage?
That the seller is agreeing to release the mortgage on completion
Where do the benefits of covenants appear on the register?
Property
What approach should you take if you find a burden of a restrictive covenant on the charges register to determine if it is binding?
Assume it binds the property
What approach should you take if you find a burden of a POSITIVE covenant on the charges register to determine if it is binding?
Look for the indemnity covenant in the proprietorship register
If NONE
Ignore the positive covenant
IF THERE
It is binding
If a covenant binds a property, what should you check next?
- Covenant already breached? = seller should provide an indemnity at their cost
- Affects buyers proposed use? If not = inform them but probably proceed
What should you do if a covenant affects the buyers proposed use?
- Consider insurance
- Approach person with benefit for consent (they may charge)
- Apply to Lands Tribunal Upper Chamber (only restrictive)
Can you approach the person with benefit, before going for insurance?
No, insurance will be refused if you do that
What is the epitome of title?
Schedule of relevant deeds and documents for unregistered land
What is the root of title?
The conveyance that shows good title to the property
What are the requirements for a root of title to have?
Dated 15 years ago
Deals with both legal and beneficial title to property
Adequately describes the land being conveyed
Does not cast doubt on the sellers title
Chain of title
Other documents
Why must root of title be 15 years or older?
Because compulsory registration has existed for that long
Why is it annoying if the last transfer of unregistered land was a gift?
Because on a transfer for value, BS can be assumed to have investigated title a further 15 years back too
What words does the root of title have to have to show that both legal and beneficial titles were transferred?
‘seised in fee simple in possession’ and ‘agreeing to sell the same’ to the buyer ‘as beneficial owners’
When would a root of title ‘cast doubt’ on the sellers title
Executed under power of attorney, not clear if that power of attorney was still in force
What is a chain of title?
When the good root of title is not most recent, there is a gap and you must now establish legal ownership back to the root
What ‘other documents’ should be included in the epitome of title?
Any document under which a seller was empowered to sign a conveyance
- executor – supply the grant of representation,
- survivorship – death certificate
- mortgages (root onwards) + their vacating receipts
What documents do you not need to include (may) in the epitome of title?
· Documents that only affect the beneficial interest (such as declarations of trust)
· Expired leases
· Old land charges searches are not required, but the seller’s solicitor will often provide them as they will be helpful to the buyer’s solicitor.
· There are various documents such as planning permissions, old searches, correspondence, etc that are not needed. These may, however, be relevant to replies to enquiries.
How does the BS investigate the unregistered title?
Checks the epitome and its copy documents
Ensure seller is entitled to sell
Issues that could affect the value of the property
Issues affecting buyers use of the property
Same as for registered**
What is ‘worth checking’ for a BS of unregistered land?
That is actually unregistered
Neighbouring registered titles do not encroach on its boundaries
Reveals cautions against first registration
What does a caution of first registration indicate?
That somebody believes they have an interest in the property
Why is checking that the formalities of deeds in a chain of title for unregistered land more complicated than checking other deed formalities?
Because the deed formalities rules changed and most unregistered deeds were dated before those rules
(if before 1 July 1990)
What are the formalities for deeds of land before 1 July 1990?
· Clear on its face that it is a deed
· Signed as a deed and witnessed
· Sealed
· Delivered as a deed – this usually takes place by inserting the date
In addition to valid execution, what other thing does each deed of unregistered land need to have?
A stamp, indicating that SDLT was paid
What stamp do deeds after 1931 need to have?
One that says ‘particulars delivered’ which means they were properly stamped
What is a Form A restriction?
One that prevents the property from being sold by a single owner (indicates beneficial interests)
What are the Land Charges Register (unregistered land) searchable by?
Individual and company name
Not address
If a sellers solicitor provides you with searches against previous owners, can you rely on those searches?
Yes
If there is no vacating receipt of a mortgage in the bundle for unregistered land, what should you do?
Buyer’s solicitor should elicit from enquiries that the seller intends to repay it, and make sure that this is covered by both the contract and replies to requisitions on title.
Which mortgages are registered for unregistered land?
Only second, third etc
If there is a pre-root document, not mentioned in the root of title, that has easements/covenants etc… does the sellers solicitor have to give it over?
Weirdly, no. WTF
When do restrictive covenants bind unregistered land?
Only if registered Class D land charge
Where do you check for positive covenants for unregistered land?
Deeds
Ignorable if indemnity chain is broken
What happens if you know there are covenants… but you don’t know what they are or where?
Probably get indemnity insurance
Report to buyer, lender
Probably ask the seller
Which solicitor does the pre-contract searches and enquiries?
Buyer
Regarding standard searches is it SHOULD or MUST?
SHOULD carry them out
What are the 2 parts to a local search?
LLC1 – local land charges register
CON29 – local authorities replies to enquiries
Can you order just one part of the local search?
Yes but you probably need both
What types of things are in LLC1 search?
Granted planning permissions (not refusals)
Planning enforcement notices
Article 4 Directions
Conservation areas and listed buildings
Tree preservation orders
Other misc. charges
What is an article 4 direction?
disapplies or modifies the General Permitted Development Order
What is a General Permitted Development Order?
Gives permission to carry out certain items like extensions, dormers, fences, satellite dishes without planning permission
Which is included in CON29 regarding planning?
Planning granted
Pending planning applications
Refused planning
Building regulations approvals
Which is included in CON29 regarding enquiry replies?
· details of adopted roads and pavements and public rights of way;
· land that is required for public purposes – this means that it may be compulsorily acquired by the local authority in future;
· information about contaminated land insofar as the local authority are aware, but this is limited and does not replace an environmental search.
What forms, and information comes from them for a drainage and waterways search?
The drainage and water search checks whether the property is connected to a public sewer and water supply.
Form CON29DW for residential property
Form CommercialDW for commercial property
What does a desktop environmental search do?
if the property is likely or not to be contaminated based on historic maps and records
AND
risk of flooding
Illegal stuff not findable
Does drainage and waterways give you flooding information?
No,
CON29 does
Why is a desktop environmental search important?
Because if land is contaminated, buyer probably has to pay for the remedy
What is a chancel repair search?
historic right of a parish church to claim contributions to the cost to the repair of the church chancel, which is the area near the altar.
Why is smth so meaningless like chancel repair part of the standard?
the low cost of a chancel repair search and the high potential loss if there is chancel repair liability
What should you do if there is a chancel repair liability?
Explore insurance
What is the complication, with whether or not chancel repair is an overriding interest?
It was, until 13 Oct 2013
NOW
Church has to register the interest
If sale for value happens without registration, claim is extinguished
What 2 searches relate to title?
Index map
Land charges
In what 3 circumstances do you need an index map search?
Unregistered title
Number of titles being acquired
Exception of mineral rights
What does an index map search do?
Check all the registered titles within a specified boundary
Is the local land charges LLC1 the same search as the land charges?
NO
What does the land charges search do?
Identifies burdens on unregistered land
Like class D land charges
What are the standard searches?
LLC1 (charges, planning PERMISSION, conservation etc)
CON29 (all planning, public access, compulsory acquire rights)
Drainage and water
Desktop environmental
Chancel repair
Index map (unregistered or mineral rights)
Land charges (unregistered land)
Companies search
What are the optional searches?
CON90
Highways
Mining Coal
Cheshire salt
Tin/clay/limestone
Phase 1/2 survey
Floods
Utility providers
Railways
Waterway
What 3 things does SS do before exchange?
Deduces title
Answers pre-contract enquiries
Prepare draft contract
EXCHANGE
What 6 things does the BS do before exchange?
Investigate title
Pre-contract searches
Pre-contract enquiries
Report on title
Buyers mortgage
Approve draft contract
EXCHANGE
How does CON290 operate?
Usually along a CON29, you tick extra boxes for stuff you want
What common enquiries are in CON290?
Common land/town/villiage green
Private road proposals
Areas of outstanding natural beauty
Pipelines
Noise abatement zones
What is an environmental phase 1 search?
Site inspection
What is an environmental phase 2 search?
Phase 1 shows risk
Soil/water samples
When can you use flood search/why?
Shows if property flooded in the past
What does a waterways search show?
Liability for maintenance of waterways
Rights of way for banks and tow paths
Drainage/fishing
Owner liability for flooding
When is planning permission needed?
When there is development of the land
What are the planning permission exceptions?
Only interior works
Not materially affect external building
Changes of use within the same class
What is a sui generis?
A general use class
Any change of use in this class requires planning permission
What are the 7 most important use classes?
General industrial
Hotels
Residential institutions
Dwelling houses
Commercial/business and service
Learning/non-residential institutions
Local community
What uses are sui generis?
Theatres
Amusement arcades
Launderettes
Fuel stations
Pubs/nightclubs
Takeaways
Concert halls
What is the GDP0 2015?
General planning permission so you don’t need to apply
What to do if you don’t know if GDPO applies?
Apply for a crtificate of lawfulness
Can you need building regulations but not planning permission?
Yes
What are the 2 steps to the building regs process?
Full plans and specifications must be submitted to the building control department of the local authority for approval.
After completing the works, building control inspect the work and issue a certificate of compliance.
What is the planning permission enforcement deadlines?
4 years for:
· Building works carried out without planning permission; or
· Change of use to a single dwelling house.
10 years for:
· Any other change of use; or
· A breach of a condition to a planning permission.
**The local authority can take enforcement action after these deadlines if the breach has been deliberately concealed.
What are the building regulations deadlines?
· 6 months after discovering a breach to prosecute a person responsible for the works for up to two years from the date of completion of the works
· 12 months to serve an enforcement notice.
There is no time limit on their seeking an injunction through the courts
What should you do if there is risk of enforcement actions for planning issues?
· An indemnity policy to cover the financial losses caused by enforcement – this should be provided at the cost of the seller
· Retrospective planning permission
· Compliance with a condition (if this is the breach)
What should you do if there is risk of enforcement actions for building regs issues?
· An indemnity policy to cover the financial losses by enforcement.
· A regularisation certificate and remedying any non-compliant work.
What do indemnity policies for building regs not cover?
structure collapsing or personal injury or death.
What remedies does the local authority have for breaches of planning permission?
· A planning enforcement notice requires that the land be restored to the condition it was in before the unauthorised development took place.
· A stop notice can only be served with an enforcement notice and prohibits the carrying out of further activities in breach of planning control.
· A breach of condition notice is similar to a planning enforcement notice but requires compliance with conditions imposed by a planning permission.
· The local authority can also seek an injunction from the court if they consider it necessary.
Why is a contract important in residential transactions?
Sets a date for completion so you can have an effective chain, order mortgage funds, leave house etc
What are the key things in the standard condition of sale?
Address (plan of property)
Parties (seller, PR)
10% deposit by default
Deposit held as a stakeholder (default)
What happens if you don’t have a full 10% deposit under the standard conditions of sale?
You can agree 5%
But if you’re late completing, the penalty is paying the full 10%
Who holds the stakeholder deposit?
Sellers solicitor
What is the stakeholder exception, and does it apply to just the SCS or also the SCPC?
You can apply the deposit towards a new purchase e.g., to fulfil the chain
Not available commercially
What is a title guarantee and who confirms it?
Seller confirms have the right to sell the property and that it is free of all encumbrances (rights against the property) other than those disclosed in the contract, or which the seller didn’t and couldn’t have known about.
What is a limited title guarantee?
No such encumbrances have been created during the seller’s period of ownership
What is no title guarantee?
seller does not give any guarantee that the property is free of encumbrances or even that the seller has the right to sell the property.
*insurance is available
Who typically sells with limited guarantee?
Executors/PRs who have limited knowledge of the property
Who typically sells with no title or guarantee?
Administrator/liquidator
How is the title guarantee different from the class of title in the registry?
The title guarantee is a contractual guarantee given by the seller.
The class of title (such as title absolute or possessory title) is the Land Registry’s guarantee as to the quality of title.
On what day, and how far after exchange, does completion usually happen
Friday
2 weeks later
Can agree whatever you want
Why do simultaneous exchange and completion if the contract part isn’t necessary?
Because you can get other contractual benefits you wouldn’t otherwise
If completion date is left blank, what is the default?
20 working days
What is the default completion time?
2pm
What does it mean that risk passes to the buyer at exchange?
After signing, even if there is a tornado, you still have to buy the property
Otherwise everything in the chain is gone
What are the pre-made special conditions for residential?
Tie contract to SCS
Amend title guarantee to limited
Included/excluded contents with property
Vacant possession
Completion time
Misrep protection (entire agreement unless fraud etc)
Occupiers consent (all 18+ consent to sale
What special conditions are for commercial?
Deposit won’t come from BS account
Terms of transfer, annexation of covs and eases
VAT: capital allowances, rights of residential tenants, service agreements
Which residential properties is their VAT?
Only newly constructed
What are the standard rated supplies for VAT and what is the standard rate?
20%
Less than 3y old commercial property
Older commercial property opted to tax
Which properties are VAT exempt?
Old residential
Old commercial, opted not to tax (3y)
What properties are 0 rated?
New residential
**buyer doesn’t pay VAT, but the seller can use the output to cover the input
Which buyers won’t wanna buy opted-in VAT properties?
Those who can’t recover their output from input
Itll be a 20% increase in price
What conditions are in the SCPC related to VAT?
Condition 2: DEFAULT is standard rated at 20%
- Special cond 9 = “I AM MAKING AMENDMENTS”
- Tickbox A1 = I am not paying standard rated, and am exempt from VAT
-Tickbox a2 = I AM NOT STANDARD, I AM A TOGC?
What is a TOGC?
Transfer of going concern
Seller lets for income, buyer also will
**not taxable supply for VAT
In commercial, what does standard cond 2 declare?
Property is standard rated
Buyer will pay 20% VAT in exchange for VAT invoice from seller
What agreement is made from A1 tickbox?
Seller: property is NOT subject to VAT
Buyer: I will NOT opt to tax
What happens under tickbox A2 for TOGC?
seller = promise i am letting for business
Parties: agree on matters necessary to this business exchange
What happens during law society formula B?
Identify contract blanks and fill
Agree hand amendments/special conditions
Agree/write completion date in space
Agree to exchange using formula B
Agree date/time of exchange
Give each others names to write in the contract
What undertakings does law society formula B impose?
- Hold signed contract to the other solicitors order
- Post signed contract to other solicitor that day first class or DX or hand
- BS to send deposit form of payment specified by the contract
When do you use formula A?
Same solicitor holds both contracts (e.g., one solicitor is abroad)
What is the difference between formula B and A?
SS does an undertaking to send their clients signed contract to the other solicitor
What is Formula C?
for chains
never used, too complicated
Even in chains they use b
What issues are there in pre-completion to address?
· The transfer deed
· Pre-completion searches
· Replies to requisitions
Which solicitor drafts the transfer deed?
BS
sOMETIMES SELLER if they want
Who executes the transfer deed?
Seller
When does the buyer also need to execute?
· There is an indemnity covenant to observe positive covenants
· The buyer is giving covenants or easements over the property
· The buyer is agreeing to any other obligations
What are the pre-completion searches for registered?
OS1
What does OS1 do?
confirms that there are no changes to those official copies that the SS provided
How long a period of priority does OS1 give?
30 working days
What is the benefit offered by the period of priority? OS1 search
Provided that the buyer’s application for registration is made within that window, it will take priority over any other application, even if it dates before the buyer’s application.
Can you extend an OS1 if you run out of time?
NO
What pre-completion searches should you do for unregistered land?
Land charges search (K15)
Bankruptcy search (K16)
Company search
What advantage does a clear Land charges search (K15) provide?
it offers priority to the buyer against any applications FOR REGISTRATION (COMPULSORY) made within the priority window.
15 working days.
What does a Land charges search (K15) do?
Against the full name or names of the seller. This identifies any adverse matters against the seller that affect the property.
Why do a bankruptcy search?
If the buyer’s solicitor also acts for the buyer’s mortgage lender:
Protects the mortgage lender against the mortgage advance being claimed by a trustee in bankruptcy.
Like the land charges search, this confers priority of 15 working days.
Why do a company search?
If buying from a company (checked against seller):
This will check for any pending insolvency or charges against the company.
As there is no priority period for a company search, it should be carried out just before completion
Besides pre-completion searches, what else should you get before completion?
Requisitions on title
they now contain procedural matters regarding completion, such as the location of keys and meter readings. Importantly, however, they contain the seller’s solicitor’s confirmation that they will adopt the Law Society Code for Completion by Post and undertake to discharge mortgages affecting the property.
What is TR1, TP1 and TR5 forms?
TR1: standard transfer
TP1: transfer part of land
TR5: transfer a portfolio of titles
How can a company execute a deed?
Company seal
2 directors OR 1 director + company secretary
1 director, independent witness
Senior employee, authorised under a POA
What formula is used for completion?
Law society completion by post
How does the law society completion by post operate?
The buyer’s solicitor is given guidance on what is required from them, and only the seller’s solicitor gives undertakings that are enforceable by the Solicitors Regulation Authority, and if necessary, by the courts.
The seller’s solicitor’s undertakings allow the buyer’s solicitor to know that it is safe to send the money to them.
What exactly happens with completion by post?
BS sends money to SS
SS confirms completion, dates/signs transfer deed
SS releases keys to seller (calls agent)
SS sends money to clear mortgage
SS forwards money for chain
SS deducts fees etc
Forwards surplus to seller
What happens if completion is delayed?
Interest accrues under standard conditions
How much interest for being late completion but on the same day?
Treated as next working day
How much interest if time was 2pm Friday, but paid 3.30pm Friday?
CALENDAR DAY
3 days interest to Monday
What rights does the non-defaulting completion party have?
Claim reasonable expenses e.g., hotel
If completion was delayed can you walk away from the contract?
No
*unless time is of the essence is written into the contract
What should the non-defaulting party do if completion is delayed?
Serve notice to complete
What does the notice to complete do?
Makes time of essence
Gives 10 working days to complete counting from first day after notice was given
Binding on both parties for that new date
What happens if buyer fails to comply with notice to complete?
Seller can rescind
Forfeit and keep deposit + interest
Resell
Claim damages
What happens if seller fails to comply with notice to complete?
Buyer rescind
Get back deposit + interest
Damages from breach of contract
What is the post-completion admin?
SDLT/LTT
Companies house
Land registration
Closing the file
Who pays the SDLT?
BS submits form and pays
sdlt payment deadline?
14 days of completion for SDLT and 30 days LTT to avoid penalty
What is the companies house post-completion steps?
Buyer is a company
Company taking loan by legal charge
Charge must be registered with CH in 21 calendar days
What happens if you miss the CH registration?
Charge can only be registered by court order
If you need to amend a CH charge registration, is the 21 days extended?
No
Whats the deal with timings regarding registering land post-completion?
You can do it whenever for registered
2 MONTH DEADLINE UNREGISTERED
At your peril for the OS1 search 30 day priority window
Or unregistered 15 day land charge window
What happens if you don’t register unregistered land within 2mo?
Transaction is void
Can land registrar extend deadline for registering unregistered land?
Yes
What is an FRI lease?
Tenant pays to keep full repair of property (NOT common parts)
Landlord pays insurance, tenant pays them back
Tenant pays service charges
All costs during lease lifetime are for tenant
Tight alienation control
Only upwards rent reviews
What marks the end of the transaction?
Sending official copies from land registry to client
What is an anchor tenant?
A commercial tenant that is a big draw for other commercial tenants
They have strong negotiating power
What is convenant strength in an FRI lease?
Ability of the tenant to pay rent and comply with obligations
What additional safeguards will a LL want if a tenant has bad covenant strength?
Rent deposit (3-6MO)
Guarantor (from directors or parent comp)
Who agrees the terms of the lease usually?
Property agents
Who sends heads of terms for lease?
Property agents to the solicitors
Who does the first draft lease?
LL sol
What is used to make lease drafting easier?
Precedent leases previously used on the property
Do commercial transactions for leases have agreements for lease (contracts to lease)?
No usually unless theres a special reason
E.G., renting in 2y time when the building is built
What does the tenants solicitor do?
- Help get lease in favour of tenant
- Make obligations under lease known e,g, covenants
- Searches/enquiries
- SDLT
What is the smallest piece a commercial tenants rent is likely to be apportioned to?
The latest quarter
What is the original and counterpart leases?
OG = executed by LL
Counter = executed by tenant
How is completion of leases effected?
LL Sol acknowledges they have the completion money
Sols agree to date and swap the OG and counterpart leases
What are the post-completion steps with leases FOR THE LL SOL?
LL sol sends money to the LL or agents
Institutional investors want summary/report
Raise bill
What are the post-completion steps with leases for the tenants SOL?
SDLT
Register the lease
What is the demise in a lease?
The demise is the extent of the property that is being let
What are the standard lease terms for commercial?
5 years, 10 years, 15 years
Multiples of 5
What obligations does the tenant usually have to exercise a break clause?
6mo notice
Up to date on rent
Should you allow a LL to say no break clause can be exercised if in breach of covenants?
No
Cause trivial breaches can then prevent break
How often is rent usually payable for a commercial lease?
Quarterly
Does a commercial tenant usually pay a premium before moving in?
No
Actually sometimes there is a 3 month rent free period for time to fit out premises
What is a premium in a long residential lease?
Usually the price of the house/flat
And then small ground rent each year
What is an upwards only rent review?
This means that the rent will be increased if open market rents have increased, but will stay the same if open market rents have decreased.
When is the typical rent review for commercial?
5y
multiples of 5
How do the tenant and LL come to agree new rent after a review?
Try and agree
IF NOT
Refer to a valuer they agree on
IF NOT
Will be appointed by the president of the Royal Institute of Chartered Surveyors
What is the basis on which the valuation will be made?
The hypothetical lease
What BASIC assumptions go into the hypothetical lease?
Premises are vacant and available
There is a willing landlord and tenant
What COMMON disregards go into the hypothetical lease?
- Tenant upgrades, anything else the tenant did voluntarily
- Effect of tenant occupation on rent
- Goodwill attached to tenant business
What COMMON assumptions go into the hypothetical lease?
Tenant complied with all covenants
Landlord complied with all covenants
Terms of hypothetical lease are same as terms of actual lease other than rent payable
Term of the hypothetical lease is the same as the term remaining on the actual lease
Premises have been repaired and rebuilt (if they had been damaged)
In a full repairing obligation, if the tenant moves into a broken place, do they have to repair it?
Yes
What should a tenant considering taking on a full repairing obligation do?
Get a survey
What should the tenant sol try and negotiate if the landlord tries to say ‘good and substantial repair’
argue down to just ‘in repair’
If the repairing obligation is qualified, e.g., no greater repair than start of lease.. is it an FRI?
No
What is a latent/inherent defect?
problems that emerge from a newly built building and are due to errors of design or workmanship
Does an FRI tenant have to fix latent/inherent defects?
No
+ LL can claim from contractor, warranties etc
For FRI, who bears brunt of insurance shortfalls (excess, exclusions, conditions)
Tenant
Who pays for the valuation for insurance purposes?
Tenant
What is the minimum amount of money and FRI should be insured for?
The insurance should provide for the full costs of reinstatement (ie, rebuilding) of the premises
What things are standard for insurance in an FRI?
fire, explosion, lightning, earthquake etc.
What extra insurance risk should the tenants sol negotiate coverage for in FRI lease?
Terrorism
What types of things does the lease provide for if damaged or destroyed by an insured risk?
· Tenant doesn’t pay damage or destruction by an insured risk (unless the insurance is not payable because tenant fucked up)
· If the tenant is unable to occupy the premises, then the rent is suspended for a period (usually up to three years) until the damage has been repaired.
· The landlord covenants to use the insurance monies to repair the premises.
· If the landlord reasonably considers that it is impossible or impractical to reinstate the premises, then the landlord may give notice to end the lease.
· If the premises have not been repaired by the end of the rent suspension period, then the tenant may give notice to end the lease.
If lease is silent, what alterations and change of use are allowed?
Free to alter
Can’t reduce value of premises
What is an absolute covenant?
tenant cannot carry out those alterations at all.
What is a qualified covenant?
tenant can carry out alterations with consent. On the face of it, this means that alterations are at the complete discretion of the landlord.
When are qualified covenants (sorta) downgraded to have the effect of fully qualified covenants?
if the tenant’s proposed alterations amount to improvements, then it is implied ((under section 19(2) of the Landlord and Tenant Act 1927) that the landlord cannot unreasonably withhold consent.
What is the definition of an ‘improvement’
the premises become more useful or valuable to the tenant, even if the landlord’s interest is diminished in value.
What is a fully qualified covenant?
the landlord’s consent cannot be unreasonably withheld. Therefore the tenant does not have to prove the alteration is an improvement.
What should the tenant try and include regarding getting consent for things from the LL?
not to be unreasonably delayed (AFTER ASKED PERMISSION)
What types of property changes are usually covenanted against commercially?
that affect the exterior or the structure of the premises
What covenants to landlords typically want regarding changes of use in a commercial lease?
Absolute or qualified covenant
Can LL increase rent if they agree to change use of property?
NO
Does LL have to be reasonable when considering a change of use request?
No
What is the Code for Leasing Business Premises?
it is aimed at the negotiation process rather than the legal process
Who does Code for Leasing Business Premises apply to?
Surveyors from RICS institute
*usually the property agents are members
What are MANDATORY requirements under Code for Leasing Business Premises?
· Lease negotiations must be constructive and collaborative manner.
· A party not represented by an RICS member or other property professional must be advised about the existence of the code AND must be recommended to obtain professional advice
· terms of the lease agreement must be recorded in written heads of terms
What are GOOD PRACTICE requirements under Code for Leasing Business Premises?
· Unless agreed stricter conditions in the heads of terms, a tenant’s break should be conditional only upon the tenant paying all basic rent (ie, not insurance or service charge), giving up occupation, giving up occupation and leaving no-one in occupation.
· Repairing obligations should be appropriate to the length of the term, the condition of the premises and the financial terms.
· If the tenant’s repairing obligations are limited to the initial condition of the premises, a schedule of condition should be prepared.
· The tenant’s repairing obligation should exclude inherent construction defects for newly built property.
· In a lease of a whole building, the landlord should not normally prohibit or require consent for internal non-structural alterations.
· The lease should provide that terrorism will be covered in the landlord’s insurance policy provided that it is available at reasonable rates.
What is alienation?
the ability of the tenant to pass any interest in its lease to a third party
What is assignment?
find someone who is interested in taking over the lease.
What is underletting?
tenant granting a lease to a subtenant.
Why in FRI leases do they not like alienation?
Because they like to maintain covenant strengths of their tenants
What do FRI leases usually allow in terms of assignment?
Of whole premises not part
What do FRI leases usually allow in terms of UNDERLETTING?
underletting of the whole, and may allow underletting of part
(particularly if, as in our office example, the tenant has taken two or more floors or units which are capable of being let separately).
What type of covenants are alienation usually in FRI leases?
absolute, qualified or fully qualified.
What types of qualified covenants in leases will be converted to fully qualified covenants?
Assignment
Underletting
NOT alienation
Regarding qualified covenants for assignment and underletting, is it automatic that the LL can’t delay unreasonably in giving consent?
Yes
How is consent for assignment/underletting usually sought? Whats the procedure?
Formal written application from solicitors
LL sol requests undertaking for LL legal and surveyors costs
Surveyor assesses covenant strength of proposed assignee or undertenant
What are reasonable grounds for refusing an assignee or under tenant?
· Assignee or undertenant is of unsatisfactory covenant strength.
· The assignee or undertenant’s proposed use of the premises would be a breach of the lease.
· The assignee or undertenant are in a business that competes with the landlord’s and would affect nearby business of the landlord.
· Where the landlord has a policy on the different uses of different units (eg in a shopping centre) and the proposed assignee’s or undertenant’s use would conflict with that policy.
What are not reasonable grounds for withholding consent for a new assignee or undertenant?
· The landlord has a personal grievance against the proposed assignee or undertenant.
· The landlord is withholding consent as leverage for trying to get something out of the tenant.
· The tenant has minor breaches of the repairing covenant.
How is consent/license to assign or underlet formally given?
Formal license deed
Why get a formal license deed for consent/license to assign or underlet?
It formalises the landlord’s consent.
It creates privity of contract between the landlord and the assignee or undertenant.
What is the privity of contract note for licenses to assign and underlet?
Not necessary for assignments of leases after 1 January 1996
Act automatically binds incoming tenants to the terms of the lease
After 1 Jan 1996, who is bound under the terms of the lease automatically?
Only assignees
Not underletters
What features do both a license to assign AND underlet have to have?
· The landlord gives formal consent to the proposed dealing
· The assignment or underletting must take place within a prescribed time (usually 3 months)
· The consent is specific to that particular dealing – it does not allow the tenant to assign or underlet to another party other than that mentioned, or in any terms other than those specified
· The tenant covenants to pay the landlord’s professional costs (although this is not usually strictly necessary as there will be an undertaking to pay them anyway)
What features are specific to the license to assign?
· Unless the assignment is of an old lease (before 1 January 1996), it will usually require an authorised guarantee agreement from the outgoing tenant. This means that the outgoing tenant guarantees the obligations of the incoming tenant. This guarantee only lasts as long as the incoming tenant is the tenant.
· The outgoing tenant is not released from any existing obligations, such as arrears of rent, breach of repairing obligations, etc.
What does an AGA do?
Even though after Jan 1 1996, incoming assignees are bound by terms and OG tenant is released from liability
LL’s will want the authorised guarantee agreement to make the tenant liable for the assignees breaches
How is an AGA still more forgiving to the outgoing tenant than the law before Jan 1 1996?
They are only bound to the assignee they chose, if they assign again, they are released
Before they were liable all the way down the chain
When can you use an AGA?
When included in the terms of contract
Otherwise only if reasonable (e.g., reason to believe assignee can’t pay rent)
What features are specific to a licence to underlet?
· The underlease must be in the form of the agreed form (a draft is annexed to the licence)
· The undertenant covenants directly with the landlord to observe and perform the covenants in the underlease and the headlease (except the covenant to pay the rent in the headlease as otherwise the undertenant would have to pay the rent twice!)
What is a tenancy at will?
between a licence and a lease
tenancy lasts only as long as landlord and tenant wish, and either can bring it to an end at any time
Does tenancy at will bind 3rd parties?
NO
Does tenancy at will grant exclusive possession?
Yes
What circumstances suggest there is a tenancy at will?
when landlord and tenant are still in the process of negotiating a formal lease, but it is in their mutual interests for the tenant to take occupation
What can obtain security of tenure?
Only a lease
What does security of tenure give you?
· continue in occupation past the contractual term of the lease
· apply to the court for a new tenancy to be granted.
Why is security of tenure important to some tenants?
· They can invest in the property and their business knowing that the premises are likely a long term prospect.
· They know that they will be able to continue to pay a market rent. Otherwise, a landlord might take advantage of their investment in the premises to demand a higher than market rent.
· It gives tenants the confidence that they can reap the benefit of any goodwill they build up at their location.
What conditions are there to acquire security of tenure?
· It must be a lease, not a licence or tenancy at will.
· The tenant must occupy at least part of the premises. If the premises are left permanently empty, then they cannot acquire security of tenure. Note also that if the tenant has underlet the whole of the premises, then the tenant does not have security of tenure.
· It must be used for the purposes of a business (a trade, profession or employment).
Purposes of a business is interpreted quite widely. Sports clubs and charities can qualify.
What tenancies, meeting other conditions, are still disqualified from security of tenure?
· Tenancies of 6 months or under
· Service tenancies
· Mining tenancies
Can you contract out security of tenure?
Yes
What is the procedure to contract out security of tenure?
A notice must given to the tenant in prescribed form, and then the tenant must give a declaration to the effect that they understand the implications of excluding the security of tenure provisions.
How does the procedure for contracting out change if the notice is given more and less than 14 days in advance?
14+ days: tenant signs an ordinary declaration
less than 14: tenant must make a statutory declaration before a solicitor
What must the lease include, if contracting out security of tenure?
state that the security of tenure provisions have been excluded
and refer to the notice and declaration or statutory declaration (as appropriate).
How can protected tenancies come to an end?
Tenant leaves
Tenant breaches, falls behind on rent, is insolvent – landlord can now forfeit the lease regardless of protections
Whats it called when tenant stays in property and exercises their security of tenure?
Holding over
Other than forfeiture, what 3 notices can bring a protected tenancy to an end?
LL s25 notice
Tenant s26 or 27 notice
What does a friendly s25 notice do?
Indicates LL wants to renew the lease to start the day after termination?
What is the difference between the date of termination and end date of tenancy?
end date of tenancy = IN CONTRACT
date of termination = DATE LL CHOOSES IN S25 (must be on or after date of end tenancy)
What is the deadline to serve a s25?
No less than 6 mo and no more than 12mo before the date of termination
What is a hostile s25 notice?
LL opposes lease renewal
When can a LL do a hostile s25 notice?
Only on statutory grounds
Must specify the grounds
Why do friendly s25 notice?
Peace of mind want confirm tenant to stay
Rising market, get market rent
Are leases with market review on last day of lease upheld?
Term isn’t
Can’t try and raise rent in holding over period
What are the 3 mandatory grounds for a hostile s25 notice?
· The landlord is making suitable alternative accommodation available to the tenant. This must be reasonable, having regard to the tenant’s business and goodwill.
· The landlord intends to demolish or reconstruct the premises or a substantial part of it, and cannot do this without obtaining possession.
· The landlord intends to occupy the premises for its own business or residence. They must show a firm and settled intention. This is subject to a five year rule, meaning that the landlord must have owned the reversion (usually the freehold) for more than five years before the date of termination.
What are the 4 discretionary grounds for hostile s25?
· A serious breach by the tenant of a repairing obligation
· Persistent delay by the tenant in paying the rent – this must be serious and persistent
· Other substantial breaches by the tenant of their obligations under the lease – again, they must be serious and persistent
· In the case of an underlease of part, possession is required to let or dispose of the property as a whole
Whats the material difference between a mandatory ground and discretionary ground in a s25 notice?
Mandatory ground = court MUST grant if this is proven
discretionary = court MAY grant if proven
What is payable if LL is granted a hostile s25?
Compensation to the tenant unless
- ground is tenants fault
- tenant got suitable alternative accommodation
How much compensation could the tenant get if there is a successful hostile s25?
= to the rateable value of the property
if occupied for 14+ years = twice the rateable value
rateable value = yearly market rent
When can the compensation award be reduced?
Tenant in occupation for less than 5 y
What happens if LL was successful in hostile s25 for misrep/concealed facts?
More compensation to tenant
What is a s26 notice?
The tenant specifies date for proposed start of new tenancy
On what does does the existing lease terminate if there was a s26 notice?
the day before the start of the new tenancy
Can s25 and s26 lease negotiation deadlines be extended beyond the DOT?
Yes. by agreement
What responses does LL have to s26 notice?
Negotiate new tenancy
Serve counter notice and set out grounds for opposition of new tenancy
What is a s27 notice?
used by the tenant when they just want to bring their lease to an end, and do not want a new tenancy.
Is there a prescribed form for s26 notice?
Yes
Is there a prescribed form for s27 notice?
No, can be just a letter
Why do you need s27 notice? Can’t you just leave?
Because you were holding over, and now you want to leave
Deadline to serve s26 notice?
no less than 6 months and no more than 12 months before the proposed commencement date of the new tenancy that the tenant is request
What is the difference between the reference dates for the time deadlines for a s25 vs s26 notice?
S25 = Before the date of termination
S26 = Before the date of commencement of the new tenancy (existing tenancy ends a day earlier than with s25)
Deadline to serve a s27 notice?
at least three months before the tenant’s CHOSEN/STATED date for the termination of the current tenancy.
If a tenant can hold over, why would they want to renew?
· If it is a falling market, then it is an opportunity to get a lower rent.
· The tenant may want the certainty of a new lease term for business reasons, such as carrying out improvements
· Intending to sell a business, may want new lease to make it more attractive to buyers
What happens if you’re still negotiating a new lease but term date has already ended?
Try and negotiate interim rent
OR either party apply for court order
What does a court order for interim rent prevent?
Parties delaying negotiations to take advantage of their currently more advantageous rental position
What will the court set rent at when LL is willing to grant new lease?
Market rent
What will the court set rent at when LL is UNwilling to grant new lease?
10% - 15% lower than market rent
What rules are there around terms for a new lease?
Same premises
New term cannot exceed 15 years
Rent at open market price
Other terms determined by court
**Starting point is current tenancy, but court can take all factors into account
In what 6 ways can you terminate a lease?
· Effluxion of time
· Notice to quite
· Break clause
· Surrender
· Merger
· Forfeiture
How does an implied periodic tenancy arise?
Tenancy effluxes
Tenant pays periodically and remains in occupancy
What is notice to quit, when used?
For a periodic tenancy, the landlord may serve notice to quit on the tenant.
What is the notice period for notice to quit?
Yearly tenancy – six months’ notice
Quarterly tenancy – a quarter’s notice
Monthly tenancy – a month’s notice
Weekly tenancy – a week’s notice, but for a residential tenancy, it is four weeks’ notice
Who serves notice to quit?
Ten or LL
What is a lease surrender?
The landlord and tenant can bring the lease to an end if they both agree.
What is often a condition to agree to a surrender?
LL pays a premium to tenant
Tenant pays a premium to LL
Party who wants to leave early gets stuck with the premium
What can accidentally happen in a surrender agreement?
Agreement to release liability for previous AND ongoing obligations
e.g., past unpaid rent – oops
What is a merger?
If the leasehold and freehold interests are held by the same party (eg, if the tenant buys the freehold), then the interests are merged into the superior interest, and the lease is extinguished.
This can also happen if a third party buys both the freehold and leasehold.
What are the remedies for non-payment of rent?
· Debt action in courts – can claim up to six years’ arrears
· Claim debt from former tenant (either by privity of contract with an old lease or AGA for new lease)
· Take money from the rent deposit
· Commercial Rent Arrears Recovery
How much rent arrears can LL claim in debt action?
6y rent arrears
What can CRAR recover?
Rent + VAT/Interest
No service charge
No insurance
What conditions need to be met to claim CRAR?
· Must be a minimum of 7 days’ rent owing
· Maximum of 6 years’ arrears
· Must serve 7 days’ clear notice of intention – can then seize goods up to value of rent
· Cannot be used after the lease has been forfeited. Using CRAR waives the right to forfeit the lease.
What are the remedies for breach of repairing obligation?
· Normal damages are limited by a statutory cap to amount by which landlord’s reversion has been reduced in value.
Therefore, if it costs £10,000 to repair the damage, but the landlord’s interest has only been reduced in value by £1,000, then the landlord can only recover £1,000
What is a Jervis v Harris clause?
Self-help clause for repair breaches
· If the tenant breaches repairing obligation, then the landlord can serve notice requiring the tenant to repair, and if the tenant fails to do so by specified time, the landlord can enter the premises and make the repairs and recover the cost from the tenant as a debt
· As it is a debt, not damages, the landlord can recover the full amount from the tenant (it is not restricted by the statutory cap)
Why is Jervis v Harris clause more advantageous to the LL than normal damages?
Damages have statutory cap to reduction in value of LL reversion interest
Jervis/Harris can recover full cost of repair, even if exceeds value added to interest
What else is available for other breaches?
Common law damages
RARELY
specific performance/injunctions
Can the LL forfeit if it isn’t provided for in the lease?
No
How are forfeiture provisions usually triggered?
Payment of rent delay 21 days
Breach of repairs
Insolvency of tenant
Does LL need to serve a formal written demand before forfeit?
Should
Unless contracted out in the lease
What does the LL do when exercising forfeiture?
Literally re-enter
What other rights does forfeiture also extinguish?
Anyone else deriving interest from lease
Mortgagee
Undertenant
What recourse to other people with interests deriving from the lease have if there has been a forfeiture?
Apply to the court to bring lease back to life
What 2 ways can LL exercise forfeit?
peaceable re-entry or court order
When can you NOT use peaceable re-entry to forfeit?
Residential
How can right to forfeit be waived?
If the landlord continues to accept rent or otherwise behaves in a way that acknowledges the existence of a continuing tenancy, then they are taken to have waived the right to forfeit the lease.
Is forfeiture waived for accepting rent arrears?
No, only continuing rent
Difference between a once and for all breach and continuing breach in terms of waiving forfeiture?
Once and for all = once waived, its waived
Continuing = renews every day
What are common once and for all waives?
Non-pay rent
Unlawful assignment/underlet
Insolvency
What are common continuing breaches?
Repair
User covenant
Failure to comply with insurance obligation
What type of remedy is relief from forfeiture?
Equity
What must the tenant (or interest holder) show to get relief from forfeiture?
Court why it is equitable to be granted a relief
