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SQE 1 (mine) > Property 5: Grant of a Lease and Underlease > Flashcards

Property 5: Grant of a Lease and Underlease Flashcards

1
Q

Leases disadvantages for landlords

A

□ Tenant may be unreliable/not pay rent
□ Tenant might not take care of premises=depreciation of investment
□ Income/capital not guaranteed, dependent on state of property market

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2
Q

Leases disadvantages for tenants

A

□ Depreciating asset
□ No visible return
□ Landlord probs retain control and specify what tenant can do
□ Repairing obligations=expenditure

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3
Q

Leases advantages landlord?

A

□ Positive covs easily enforced against subsequent owners in freehold land
□ Retain interest in freehold (asset)
□ Retain control of management=ensure value preserved
□ Can recover all expenditure (service charge)
□ Steady income

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4
Q

Leases advantages tenant?

A

□ Flexible-short term

□ Can negotiate break clause to terminate before end of fixed term

□ No capital outlay (but may need to pay capital sum (premium) at start)

□ Business capital not tied up in premises

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5
Q

What do the prescribed clauses contain in a typical commercial lease?

A

Summary of important details in lease and info needed by LR to complete registration

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6
Q

What type of leases are the prescribed clauses contain in a typical commercial lease relevant to?

A

□ after 19 June 2006
□ Granted from registered land
□ Compulsorily registrable

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7
Q

What will the commencement of the lease detail in a typical commercial lease?

A

*Starts with ‘this lease’
*Date of grant
*Names/addresses of parties
*Registered: LR heading at top of 1st page

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8
Q

What are the ‘interpretations’ and ‘grant of lease’ for in a typical commercial lease?

A

Interpretation (definitions)
Grant of the Lease (operative part)

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9
Q

What are ancillary rights in a typical commercial lease?

A

Tenants rights over other land enabling them to use property better
eg. Lease of part will contain to use common reception areas

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10
Q

What are ‘Rights excepted and reserved’ in a typical commercial lease?

A

rights in favour of landlord

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11
Q

What will a typical commercial lease contain?

A
  1. Prescribed clauses
  2. Commencement
  3. Interpretation (definitions)
  4. Grant of the Lease (operative part)
  5. Ancillary rights
  6. Rights excepted and reserved
  7. Annual rent
  8. Rent review
  9. Tenants covenants
  10. Landlords right to enter on breach and repair covenant
  11. Re entry and forfeiture
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12
Q

What is a Self help/Jervis v Harris clause?

A

Allows landlord to recover cost of repairs as a debt NOT a damages claim so can avoid statutory limitation on pursuing damages claims:
1. LL can enter property to check compliance with tenants repair covenant
2. If breach, serve notice specifying works needed to remedy
3. If T fails to start work within specified period or is not proceeding diligently with works, landlord may enter, carry out works and recover costs from tenant

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13
Q

What are the options for term of a lease?

A
  1. Fixed term: lease automatically expires at end of fixed term (may have a break clause)
  2. Periodic tenancy: continues indefinatley from period to period until party gives notice
  3. Tenancy at will: Tenant occupies indefinitely with permission of landlord on terms that tenancy may be terminated by either party at any time
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14
Q

Notice length to end a periodic tenancy?

A

length of 1 period of lease EXCEPT yearly=6mo notice

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15
Q

Why are tenancy at wills not good for commercial tenants

A

uncertain

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16
Q

What are the types of leasehold covenant?

A
  1. Absolute: Tenant CANNOT do stated action according to lease
  2. Qualified: Tenant CAN with landlord consent
  3. Fully qualified: Tenant CAN with landlord consent which cannot be unreasonably witheld
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17
Q

What is a full Repairing and insuring lease (FRI)

A

Protect landlord from incurring any expenditure that cant be recovered from tenant =landlord gets clear rental stream

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18
Q

Repair: which parts of the building are tenants and landlords normally responsible for?

A

Tenant: non-structural parts of building

Landlord: structural parts and common areas

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19
Q

How do landlords normally pass the cost of repair to tenants in lease of part?

A

service charge

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20
Q

Must there be disrepair before a tenant has to repair?

A

Yes, physical condition deteriorated from previous physical condition

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21
Q

Repair covs: does the prop need to be kept in perfect repair?

A

No, just render it fit for occupation of a reasonably minded tenant of the class likely to take it

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22
Q

Is repair the same as renewal?

A

No, repair is restoration by renewal/replacement of parts/whole not renewal/replacement of whole
Q of fact-nature/age of prop at date of lease

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23
Q

Repair cov: does a tenant have to give back landlord a prop ‘wholly different’ from that leased to them

A

No but can oblige tenant to remedy an inherent defect in design/construction if the only way is repair

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24
Q

Repair covenants: What does ‘keep’ in repair also mean?

A

‘put’ into repair

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25
Q

What does ‘keep in good condition’ mean

A

may have to do work even if no disrepair

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26
Q

When the landlord is ensured, what should the tenant check?

A

that they’re not responsible for repairing damage arising as a result of insured risks

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27
Q

Who is normally responsible for insuring the property?

A

*Letting of whole-tenant could be solely responsibly
*BUT more common to use Multi occupation method -where landlord insures with cost passed to tenant as separate insurance rent

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28
Q

Insurance: what are ‘insured risks’?

A

Inclusive list of risks landlord must insure against

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29
Q

What is it common to end a list of insured risks with?

A

‘such other risks as the landlord may reasonably require’ (as may insure against unlikely/expensive risks and new ones aren’t covered )

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30
Q

What value should a property be insured to?

A

‘full reinstatement value’ (will inc cost of demolition, site clearance, professional fees, allowance for inflation)

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31
Q

What covenants will ususally be in insurance for commercial property?

A

*Covenant by the tenant to pay for the insurance policy (usually as sum reserved as rent for policy and loss of rent if tenant unable to use)
*Covenant by landlord to use insurance proceeds to reinstate the property

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32
Q

What is a rent suspension provision in insurance of commercial property?

A

Suspends rent during period prop cant be occupied following insured risks (or would continue to be payable)

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33
Q

Why will a landlord normally be happy to include a rent suspension clause

A

Because they ensure against loss of rent (however, this is normally limited to 3y so landlord may try to limit rent suspension accordingly)

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34
Q

Insurance: Why may a termination provision be included?

A

Because otherwise, lease will only be frustrated in exceptional circumstances=lease will often give landlord right to terminate lease if reinstatmenet impossible
Tenant should try and insure they have the same right

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35
Q

What is the interplay between the landlord’s insurance covenants and the tenant’s repair covenant?

A

*Landlord should be able to use insurance proceeds to reinstate property, the premium having already been recovered from the tenant as rent.
*Wont receive rent whilst reinstatement taking palce but will get equivelent sum under loss of rent insurance policy also paid for by T

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36
Q

Why will a landlord want an alterations covenant in the lease?

A

Because in the absence of alterations covenant, tenant can make any changes it wants

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37
Q

What are absolute covenants against alterations commonly used for?

A

structural and exterior alterations

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38
Q

Does an absolute covenant against alterations mean the tenant cant do absolutely anything?

A

No, s3 LTA: tenant of business premises can carry out ‘improvements’ even if lease contains absolute prohibition:
1. serve notice on LL w proposals
2. LL has 3mo to object and if they do court can authorise improvements if:
*add to letting value
*reasonable and suitable for character
*dont diminish value of LL other props
OR Landlord can offer to carry out works for reasonable increase in rent

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39
Q

Under s3 LTA if the landlord offers to carry out the work in a reasonable time, is the tenant obliged to accept?

A

No, may withdraw notice BUT then court cant give tenant authority to do the work itself

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40
Q

Why may a landlord include a qualified/fully qualified covenant against alterations?

A

Do they can retain control by imposing conditions about how works are done and if they’ll need to be removed and prop reinstated at end of term

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41
Q

Where are qualified/fully qualified covenant against alterations normally set out and who drafts and pays for it?

A

Seperate doc called a licence to alter (doc setting out consent/conditions to consent)
Normally drafted by landlords solicitors at tenants cost

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42
Q

Will landlord normally allow demountable partitioning without their consent?

A

Yes

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43
Q

What improvements can a tenant usually claim compensation for and how?

A

*Tenant using s3 can claim compensation for improvements at and of term that ‘add to letting value of holding’
*Must claim within statutory time limits

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44
Q

Why are landlords unlikely to restrict user to a single use and what will they do instead?

A

Might put off tenant and depress rent on rent review
SO may use qualified cov to keep use within 1 use category

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45
Q

Are there statutory implication that landlords consent cannot be unreasonably withheld for user covenants

A

No

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46
Q

Can a landlord charge fine or increase rent as condition of giving consent for change of use?

A

No (provided no structural alteration involved)

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47
Q

What is alienation?

A

Generic term inc diff ways of creating an interest in the prop for benefit of a 3rd party

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48
Q

Why will a landlord usually insist on restrictions in lease against tenants dealing with leasehold interest?

A

Because in the absence of restriction in lease, tenant can dispose of interest in anyway they like

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49
Q

What type of covenant regarding alienation is contained within most leases?

A

absolute covenant against all types of alienation but permit certain types of alienation on controlled terms

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50
Q

What does alienation include/types of alienation?

A
  1. Assignment
  2. Underletting
  3. Charging (mortgaging)
  4. Sharing occupation (eg. licence)
  5. Parting with possession
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51
Q

What is assignment?

A

Transferring lease to someone else

52
Q

What will a commercial lease normally allow in terms of assignment?

A

Assignment of whole property

53
Q

What statutory provisions re relevant to assignment of a lease?

A
  1. S19(1)(a) LTA 1927
  2. S19(1A) LTA
  3. S1(3) LTA
54
Q

What does S19(1)(a) LTA 1927 do?

A

Implies consent wont be unreasonably witheld for qualified cov(=converts qualified cov into fully qualified cov)

55
Q

What does S19(1A) LTA 1927 provide?

A

Can pre-agree: 1. conditions required for consent
2. circumstances where consent can be refused
And neither can be held to be unreasonable

56
Q

What does S1(3) Landlord and Tenant Act 1998 provide?

A

Where theres a qualified cov on assignment and the tenant has made a written application for consent, landlord must within a reasonable time:
*Give consent (except where reasonable not to)
*Serve written notice of decision, also specifying: – Any conditions if relevant – Reasons for withholding (if withholding)

57
Q

What are the CoA guidelines on landlords reasonableness under s19(1)(a)?

A

a. purpose of fully qualified cov= protect LL having premises used in undesirable way

b. Cant refuse consent on grounds unrelated to LL/T relationship

c. LL doesnt need to prove conclusions justified if would have been reached by reasonble person

d. can refuse on grounds of intended purpose even if purpose not forbidden in lease

e. unreasonable for LL not to consider detriment to T of refusal if it would be disproportionate to LLs gain

f. Q of fact in each case

58
Q

Examples of when consent to assign has been reasonably withheld

A

*references unsatisfactory
*longstanding and extensive breach of repairing cov
*Assignee could compete with landlords business
*Assignment would reduce value of reversion
*intended use detrimental to premisis/landlords tenant mix policy
*Assignee would (unlike assignor) acquire protection under Part II Landlord and Tenant Act 1954

59
Q

Examples of where consent to assign has been unreasonably withheld

A

*refused in attempt to obtain advantage for itself
*Minor breaches of repairing cov
*Premises on market for 18mo, rent was significant and slight harm to landlord would be outweighed by prejudice to tenant

60
Q

What should be considered when considering if it would be unreasonable to refuse if landlord anticipated breach of user covenant bt an assignee?

A

what reasonable landlord would do (may be reasonable for landlord to withhold consent where assignee proposed to use premises in breach of terms of lease but sometimes refusal on just this ground would be unreasonable)

61
Q

What leases does S19(1A) Landlord and Tenant Act 1927?

A

commercial leases made after 1 Jan 1996
for assignment only

62
Q

What conditions are commonly agreed under S19(1A) Landlord and Tenant Act 1927?

A

*assignor gives authorised guarantee agreement (AGA) *assignee provides guarantors

63
Q

What circumstances can be included in pre agreed circumstances where landlord can refuse consent to assignment under S19(1A)?

A

that assignor up to date with rent and/or that the assignee is of sufficient financial strength to enable it to comply with tenants covenants in lease

64
Q

What is underletting

A

Allowing someone else to occupy

65
Q

What is an underlease and how long can it be?

A

*Lease created by someone whos already a tenant
*Is an estate in land
*Must be at least 1day shorter than headlease (or is assignment of headlease)

66
Q

What happens if an underlease isnt shorter than the headlease

A

It is assignment of the headlease

67
Q

Underletting: where does the risk of new occupier not being able to pay rent rest?

A

with head tenant rather than landlord

68
Q

If an under tenant defaults who is probably liable?

A

Original tenant as will probs have given AGA to landlord on assignment

69
Q

How can the origional tenant control an under tenant?

A

□ If tenant retains headlease, can exercise landlords control over undertenant and may be able to prevent undertenant going into default

70
Q

What may be a landlord concerns re underletting

A

*May end up with undertenant as direct tenant
*Landlord has to go through head tenant to get anything done because Head tenant legally remains liable for tenant covs under lease but undertenant is in occupation and has physical control of prop

71
Q

For underletting, why may the landlord end up with the undertenant as their direct tenant?

A

*head tenants lease forfeited and undertenant, whos lease would also normally be forfeited at same time, applies to court for relief from forfeiture

*Head tenants lease surrendered or disclaimed by head tenants liquidator

*Both leases expire and undertenant exercises statutory right to stay on in property and apply for a new lease under Landlord and Tenant Act 1954 but head tenant doesn’t

72
Q

Where underletting’s of whole/part permitted and landlords consent is required, what statutory ptovisions apply?

A

S19(1)(a) LTA 1927: turns qualified to fully qualified cov

S1 Landlord and Tenant Act 1988 :
Where theres a fully qualified cov on underletting and the tenant has made a written application for consent, landlord must within a reasonable time:
*Give consent (except where reasonable not to)
*Serve written notice of decision, also specifying:
- Any conditions if relevant
-Reasons for withholding (if withholding)

73
Q

What happens if conditions for underletting imposed in the alienation covenant arent complied with?

A

lease is at risk of forfeiture (and underlease could be at risk too)

74
Q

What conditions for underletting are commonly imposed in the alienation covenant?

A

*Terms of underlease mirror terms of headlease
* Annual rent reserved by underlease is at least as high as headlease and must be reviewed at same time/ terms
*must exclude s24-28 in part 11 LTAt 1954 ( gives business tenants right to stay on prop and renew leases at expiry of contractual term)
*Undertenant enters into direct cov with landlord to perform tenants covs in underlease and headlease
*No further underletting of prop permitted

75
Q

What do most leases say about charging?

A

Mostly prohibited as if borrower defaults on mortgage, lender may take possession of prop or exercise its power of sale

76
Q

Is sharing occupation usually permitted in a lease?

A

Sometimes permitted but only with companies in the same group as the tenant and on terms such that no tenancy is created

77
Q

Is Parting with possession usually permitted in a lease?

A

Normally prohibited other than assignment or underletting

78
Q

What is included in ‘Parting with possession’?

A

catch all inc assignment, underletting and informal arrangements

79
Q

What is the RICS Code for Leasing Business Premises?

A

Is a professional statement=all RICS (Royal Institute of Chartered Surveyors) members must observe mandatory parts and need a justifiable good reason to depart from its other best practice statements
Failure to observe=negligence claim/disciplinary action

80
Q

Who is not bound by the RICS Code for Leasing Business Premises

A

*Landlords
*Landlords solicitors
*Non-RICS surveyors and agents

81
Q

What are the mandatory requirements in RICS code for leasing business premises?

A

*Lease negotiation must be approached in constructive and collaborative manner
*Any party not represented by RICS member/other prop professional must be advised of codes existence and recommended to obtain professional advice
*Transaction terms must be recorded in writing, subject to contract and as a minimum, specify:
□ Identity and extent of premises and special rights granted
□ Length of term, inc renewal/break rights
□ Rent amount , frequency and frequency and basis of rent review
□ Liability for payment of insurance premiums
□ Ability to assign, underlet, charge or share premises
□ Repairing, permitted use and alterations obligations

82
Q

Who is responsible for ensuring that heads of terms containing specified provisions are agreed before draft lease sent to tenants sol for approval?

A

Landlord

83
Q

What are the best practice parts of the RICS Code for Leasing Business Premises?

A

*Prop clearly defined, lease plan provided and tenant granted all necessary rights for use
*State length of term and break provisions
*Allow either party to start rent review and tenant made aware of method where appropriate to allow time to take professional advice
*contain standard provisions for assignment of whole, underletting of whole/part, charging, sharing with group companies
*Repairing obligations appropriate to length of lease and condition of premises
*Controls on alterations/use no more restrictive than necessary to protect the value of the property and any adjoining or neighbouring premises of the landlord

84
Q

What will a landlord accept a tenant on the basis of?

A

‘strength of covenant’ (ie ability to pay rent and perform covenants),

85
Q

What will a landlord consider when assessing a tenants ‘strength of covenant’

A

*References from prev landlord
§ Guarantee from parent company/bank financing transaction/one or more directors
*Rent deposit

86
Q

What is a rent deposit?

A

sum from which landlord can withdraw sums if rent due under lease is unpaid

87
Q

Who drafts the lease?

A

Landlords solicitor who’ll submit to tenants sol for approval/amendments

88
Q

Why is the scope for negotiating an underlease more restricted than a lease?

A

Because:
*it must be at least 1d shorter
*AND it is likely the headlease requires terms of underlease mirrors the terms of headlease

89
Q

What is an agreement for lease and when it is useful

A

*Contract
*Common to by pass straight to completion
*Useful where there will be a delay between agreeing the lease/underlease and actually granting it and a party required the other to be bound by the transaction

90
Q

Who drafts the agreement for lease

A

landlords solicitor (in same way sellers sol drafts contract)

91
Q

In an agreement for lease, what must the particulars of sale state?

A

That the prop is leasehold and detail term to be vested in tenant

92
Q

What should be attached to the agreement for lease?

A

Final agreed form of lease/underlease

93
Q

What do the SC/SCPC provide about an agreement for lease

A

□ lease/underlease to be in form annexed to draft contract
□ Landlord should engross lease/underlease and supply tenant with the engrossment at least five working days before completion date

94
Q

Who deducts title

A

Landlords solicitor to check their client is entitled to grant it

95
Q

Why might a landlords mortgage cause problems for deduction of title?

A

will probs contain prohibition or restriction on borrower/landlords ability to grant lease of prop so lender permission must be obtained

96
Q

In the case of a lease, why will a tenant want the landlord to deducde title to the freehold interest?

A

Because unless freehold already registered, absence of freehold title will prevent tenant from obtaining absolute leasehold title
( If landlords title registered, tenant can check under open register)

97
Q

When is the only time a tenant is entitled to call for deduction of freehold title?

A

transaction is grant of a lease for more than 7y

98
Q

What do the SC/SCPC provide about deduction of title?

A

landlord must deduce such title as would enable tenant to obtain registration with absolute title

99
Q

When is there no need to see title to freehold in the case of an underlease?

A

If headlease is registered with absolute title (but check headlease)

100
Q

For an unregistered headlease, what can the undertenant call for in terms of deduction of freehold title?

A

*headlease and all subsequent assignments under which headlease has been held for last 15y

101
Q

When is an undertenant only entitled to call for deduction of freehold title?

A

transaction is a grant of lease for more than 7y

102
Q

What will need to be done if the head tenant is unable to comply with a request to provide head lease and all subsequent assignments within last 15y?

A

need to exclude this requirement by special condition

103
Q

How is title investigated?

A

same as freehold

104
Q

Pre contract searches and enquiries: what should landlords sol should provide tenants sol with:

A

(a) draft agreement for lease (if applicable)
(b) draft lease/ underlease;
(c) evidence of the freehold/ headlease title
(d) copies of relevant planning consents
(e) evidence of the lender’s consent to the grant of the lease/ underlease (where relevant).

105
Q

What pre contract searches and enquiries should the tenant/undertenants solicitor do?

A

same searches as freehold PLUS landlords insurance

106
Q

When reporting to the client, what should the tenants solicitor explain?

A

tenant’s obligations under the lease/ underlease and the danger of losing the lease through forfeiture for breach of covenant

107
Q

For completion of a lease, what additional things will the landlord recieve?

A

*counterpart lease/ underlease executed by tenant/ undertenant;
*premium payable for the grant (less deposit paid on exchange)
*an apportioned sum representing rent payable in advance under the lease/ underlease.

108
Q

For completion of a lease, what additional things should the landlord give the tenant?

A

· lease/ underlease executed by the landlord;
· if not already done, properly marked or certified copies of the freehold title deeds(unregistered land only);
· where relevant, a certified copy of the consent of the landlord’s lender to the transaction.

109
Q

What is a licence to underlet?

A

formal consent to underletting in form of tripartite doc entered into by head-landlord, head tenant and undertenant

110
Q

What is a normal condition of consent to underlet?

A

Undertenant must enter direct cov with head landlord to perform covs in both headlease and underlease (EXCEPT to pay rent and only applies as far as headlease covs relate to underlet prop)
Likely to also contain obligation on part of head tenant to pay head landlords costs for approving underletting and granting the licence

111
Q

How is a direct covenant enforceable by the landlord?

A

Direct covenant creates contractual relationship enabling head landlord to sue undertenant for any breaches of headlease or underlease

112
Q

What is SDLT potentially chargable on?

A

Capital sum and amount of rent (on VAT inclusive amount)

113
Q

How is SDLT calculated for non residential property?

A

on same basis as for consideration on sale of freehold

114
Q

How is VAT calculated on the rental element?

A
  1. Identify Net Present Value (NPV) (rent payable over term +discount future payments by 3.5% per annumn)
  2. SDLT payable on NPV
115
Q

Rates of SDLT

A

NPV £0-£150k=0%
portion of NPV from £150,001-£5mill=1%
portion of NPV above £5mill=2%

116
Q

Timeframe for paying SDLT to HMRC

A

within 14d completion of grant of lease

117
Q

What is LTT charged on?

A

leases of non residential prop

118
Q

How is LTT calculated?

A

*same as freehold BUT 1% NOT 0% band for premiums extending to£225k where relevant rent exceeds £13,500
*‘Relevent rent’ normally highest rent payable in any year across term of lease

119
Q

Rates of LTT?

A

NPV £0-£225k=0%
Portion of NPV from £225,001-£2mill=1%
Portion of NPV above £2mill=2%

120
Q

Time dealing for paying LTT to WRA?

A

30d completion of grant of lease

121
Q

What leases are not capable of being registered with their own title and how are they binding?

A

*Legal lease for 7y or less:
*Registered land=is overriding interest under LRA 2002, whether or not tenant in actual occupation
*Unregistered land=binding on all subsequent owners of land, irrespective of notice

122
Q

What types of leased are registered and where?

A

legal lease over 7y registerable with own separate title number and if landlords title is registered, will also be noted on landlords file

123
Q

What will a tenant need to do if its granted a lease out of an unregistered freehold?

A

app to LR for first registration, within 2mo completion

124
Q

On first registration, how may the leasehold title be classed as?

A

◊ Absolute
◊ Possessory
◊ Qualified
◊ Good

125
Q

What does good leasehold title mean?

A

registrar satisfied title to leasehold sound but has no access to superior title (where freehold registered with less than absolute title, good leasehold title may be regarded as title defect)

126
Q

Time limit for tenant applying for registration of lease where the freehold is registered?

A

within priority period conferred by OSR1

SQE 1 (mine) (30 decks)

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