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SQE 1 Flashcards > Property (Grant of a Lease) > Flashcards

Property (Grant of a Lease) Flashcards

1
Q

What is a lease?

A

The grant of a right to the exclusive possession of land for a determinate term less than that which the grantor has himself in the land.

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2
Q

What are the essential ingredients of a lease?

A
  • Exclusive Possession
  • Fixed Term or Periodic Tenancy,
  • Formalities (deed if over 3 years)
  • Reversion
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3
Q

What is exclusive possession in the context of a lease?

A

The tenant must be able to exclude strangers and the landlord (except for rights such as inspection).

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4
Q

What is a fixed term or periodic tenancy?

A

A lease term must be for a fixed term (e.g., 6 years) or periodic (e.g., weekly, monthly, yearly). It cannot be indeterminate.

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5
Q

What formalities are required for a legal lease?

A

A lease over 3 years must be created by deed.

Leases under 3 years may be created orally or in writing, without a deed.

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6
Q

What is reversion in a lease?

A

The landlord holds the reversion, meaning that the property reverts back to the landlord at the end of the lease term.

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7
Q

What are typical objectives of a landlord in a lease?

A

To ensure premises are insured, kept in repair, used for permitted purposes, control occupancy, approve alterations, and increase rent via review.

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8
Q

What type of lease do institutional landlords insit upon?

A

Full repairing and insuring (FRI) lease

This means any costs are met by the tenant. Any rent paid by the tenant is clear of deductions.

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9
Q

What are typical objectives of a tenant in a lease?

A

To use premises as intended, have a satisfactory term, flexibility for changes, avoid onerous restrictions, and prevent steep rent increases.

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10
Q

What is an FRI lease?

A

A full repairing and insuring lease where the tenant covers repair and insurance costs, ensuring rent paid to the landlord is net of deductions.

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11
Q

What is a commencement date in a lease?

A

The date on which the lease term begins, which may be before, on, or after the lease is dated.

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12
Q

What is a reversionary lease?

A

A lease with a term that starts after the lease is dated.

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13
Q

When does a lease expire if the term is ‘from and including’ a certain date?

A

The lease expires the day before that date in the relevant year.

For example, a lease with a term of 10 years from and including 24 March 2019, would expire on 23 March 2029.

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14
Q

When does a lease expire if the term is ‘from’ a certain date?

A

The lease starts the day after that date and expires on that day in the relevant year.

For example, a lease with 10 years from 24 March 2019, would start on 25 March and expire 24 March 2029

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15
Q

What is a break clause?

A

A provision allowing either the landlord or tenant to terminate the lease before the end of the fixed term.

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16
Q

What is a mutual break clause?

A

A clause allowing either party, landlord or tenant, to terminate the lease.

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17
Q

What is a rolling break clause?

A

The right to use the break clause can be used any time after the specified date (e.g. after 6 months) - as opposed to a fixed date upon which the clause must be used.

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18
Q

What type of rent is common in commercial leases?

A

Usually market rent for short leases (e.g., 15-20 years), often paid annually or quarterly.

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19
Q

What type of rent and term is common in residential leases?

A

Long leases (e.g., 99 years) often with a low annual ground rent, and a premium paid by the first buyer.

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20
Q

What type of rent and term is common in commercial leases?

A

Usually short leases (15 or 20 years) with a market rent

A premium is not usually charged on the grant of the lease.

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21
Q

What are traditional quarter days for rent payments?

A

25 December
25 March
24 June
29 September.

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22
Q

What are the modern quarter days for rent payment?

A

1 January
1 April
1 July
1 October

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23
Q

What is a rent review?

A

An FRI lease will usually contain a rent review clause to **ensure rents are keeping with the market. **

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24
Q

What is stepped rent review?

A

A rent schedule that specifies different rent amounts for different years, e.g., £25k for year 1, £30k for year 2.

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25
Q

What is turnover rent review?

A

Rent based on a percentage of the tenant’s turnover.

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26
Q

What is index-linked rent review?

A

Rent adjusted based on an inflation index, such as the retail prices index.

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27
Q

What is an open market rent review?

A

Rent review based on the market rate for comparable premises, with specific assumptions and disregards.

From the starting point of the actual lease, the rent review provision instructs the valuers on assumptions (matters to assume) and disregards (matters to disregard) creating a hypothetical lease.

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28
Q

What are assumptions in an open market rent review?

A

Assumptions include …
* The premises are vacant and available
* There is a willing landlord
* There is a willing tenant
* The tenant has complied with all its obligations

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29
Q

What are disregards in an open market rent review?

A
  • Disregard what the tenant has done voluntarily
  • Disregard the effect of the tenants occupation on the rent
  • Ignore goodwill attached to the tenant’s business
30
Q

What is a rent review memorandum?

A

A document signed by both parties that records the agreed or determined new rent after a rent review.

31
Q

What is the Code for Leasing Business Premises?

A

A code to improve fairness in lease negotiations and create comprehensive heads of terms for efficient lease drafting.

32
Q

To whom does the Code for Leasing Business Premises apply?

A

Applies to all RICS (Royal Institution of Chartered Surveyors) Firms

33
Q

What are the mandatory requirements under the Code for Leasing Business Premises?

RICS Members and Regulated firms MUST follow them….

A

1 - Constructive negotiations

2- Informing unrepresented parties of the Code

3- Comprehensive heads of terms before drafting including
…..
* Extent of premises
* Length of term and break rights
* Rent and rent review
* Preparing obligations
* Rights to assign or underlet the lease
* Permitted use of the property
* Rights to alter the property and restore

34
Q

What is considered good practice in heads of terms according to the Code?

RICS Members and Regulated firms must follow them unless there are exceptional circumstances…

A
  • Including clear definitions
  • Lease plans
  • Rent details
  • Ensuring tenant obligations are fair based on lease length and premises condition
35
Q

What are the landlord solicitor’s pre-exchange tasks?

A
  • Preparing the draft lease
  • Deducing title
  • Responding to queries
  • Getting the landlord’s signature > Engross the agreement
36
Q

What are the tenant solicitor’s pre-exchange tasks?

A
  • Reviewing the draft lease
  • Investigating title
  • Raising queries and searches
  • Arranging tenant’s signature.
37
Q

What is the purpose of an agreement for lease?

A

To commit both parties to complete the lease under certain conditions, often when they are not yet ready to proceed.

38
Q

What searches should the tenants solicitor raise?

A

The tenant solicitor will raise a CPSE1 enquiry but also a CPSE3 enquiry which are specific to the grant of a lease.

CPSE 1 and CPSE 3

39
Q

Is a deposit payable on exchange? What formula is adopted?

A

Usually adopt Law Society B

No deposit is usually payable

40
Q

What Pre-Completion Searches need to be undertaken?

A

OS1 search with Lease of Whole

OS2 search with Lease of Part

OS3 search if the lease is not registrable (i.e. under 7 years)

41
Q

When is OS2 Search used for leases?

A

Where the lease is for part of the landlords property (as opposed for the whole) andd it is registrable

42
Q

What is a completion statement in lease transactions?

A

A statement detailing the funds due on completion, with rent and charges apportioned based on occupancy days in the current quarter.

43
Q

What is the post-completion SDLT and LTT deadline?

A

SDLT or LTT must be paid within 14 days from the effective date of the lease by the tenant solicitor.

44
Q

What is Net Present Value (NPV) in lease transactions?

A

The sum equivalent to the rent over the lease years, used for SDLT/LTT calculations.

In SQE, NPV will be provided when calculating SDLT or LTT.

45
Q

What are the SDLT rates for commercial leases?

A

0% for up to £150,000

1% for £150,000-£5 million

2% for over £5 million.

You must round to nearest pound

46
Q

What are the LTT rates for commercial leases in Wales?

A

0% for up to £225,000
1% for £225,000-£2 million
2% for over £2 million.

Unlike SDLT, do not round to nearest pound

47
Q

When does a lease require registration?

A
  • Leases over 7 years must be registered and noted against the landlord’s title
  • Leases between 3-7 years can be registered and noted against landlord’s title (but this is not necessary)
  • Leases up to 3 years do not need to be registered and cannot be noted against landlord’s title
48
Q

What is the registration procedure for leases over 7 years?

A

A tenant registers using….

  • AP1 (if landlord’s title is registered) or
  • FR1 Form (if landlord’s title unregistered)

If the landlord’s freehold title is charged, a letter of consent from the lender will be needed.

49
Q

Who is responsible for repairs in a lease of the whole?

A

The tenant is responsible for all repairs, including interior, exterior, and structural repairs.

The repairing responsibility is solely the tenant’s

50
Q

Who is responsible for repairs in a lease of part?

A

The tenant is responsible for the interior, but common areas and other demises are managed by the landlord.

51
Q

What is a Full Repairing Obligation?

A

The tenant must put the premises in good repair and then keep it in repair

52
Q

What type of repairing obligation is it if it states ‘keep the premises in good repair’

A

Full Repairing Obligation

It may say “to keep the premises in good repair” - don’t be fooled by the word ‘keep’ - it is still a full obligation

A tenant taking on a full repairing obligation should obtain a survey.

53
Q

What is a Qualified Repairing Obligation?

A

This is not an FRI lease repair covenant. They often only require good maintence and not ‘putting’ into repair

For example “to keep the premises in good repair but not to put the premises in any better state of repair than at the date of commencement….” (To Maintain)

54
Q

Must the tenant replace or repair items?

A

Unless the lease specified, the tenant can choose to replace or repair an item.

If the lease states that damaged items must be replaced, the tenant will want this obligation only to apply if the item is beyond economic repair.

55
Q

What should the tenant do if the premises are damaged beyond repair?

For example, if subsidence caused the premises to be damaged so that it needs to be re-built.

A

If the premises are damaged beyond repair this is renewal and not repair and the tenant is not responsible under the repairing obligation.

56
Q

Who is responsible for Inherent and Structural Defects?

A

The tenant is not responsible for inherent or structural defects if the property is a new construction and they can only be expected to come to light over time.

57
Q

Who is responsible for insuring a commercial building?

A

A commercial landlord is almost always responsible for insurance of the building. However, the costs are recovered from the tenant

58
Q

How does a tenant of a lease of a whole refund their landlord for insurance?

A

The sole tenant will refund the landlord the whole premium

59
Q

How does a tenant of a lease of part refund their landlord for insurance?

A

The tenant will refund the landlord a proportionate part of the premium.

60
Q

What if the lease silent as to alteration?

A

The tenant is free to carry out alterations.

The only restriction is the doctrine of ‘waste’ - the tenant cannot carry out alterations that reduce the value of the premises.

61
Q

What is the doctrine of ‘waste’ ?

A

The tenant cannot carry out alterations that reduce the value of the premises.

62
Q

What is an absolute covenant against alterations?

A

Alterations are not allowed. They could request permission, but the landlord has no obligation to even consider a request.

63
Q

What is an qualified covenant against alterations?

A

Alterations are only permitted with consent. The landlord does not need to give consent.

However, s.19(2) LTA converts it to a fully qualified covenant if it is an improvement. If so, the landlord must act reasonably in its decision to give/withhold consent.

64
Q

What is an fully qualified covenant for alterations?

A

If the alteration is an improvement, the landlord must act reasonably in deciding whether to withhold consent.

It will be rare that a tenant will propose an alteration that does not constitute an improvement in their view.

65
Q

If consent is requsted for alterations, what will the landlord provide?

A

A licence for alterations.

66
Q

Is there ever a way the tenant with an absolute covenant against alterations can make alterations if consent is refused?

A

The tenant may be able to circumvent it by relying on s.3 LTA.

Once the tenant serves notice on the landlord and they object, the tenant can apply for court permission which may be granted if the improvements:

  • adds to the letting value;
  • are reasonable and suitable to the character of the property; and
  • will not diminish the value of any other property belonging to the landlord

If the landlord doesn’t object within 3 months, the tenant can carry out the improvements.

67
Q

If a court allows alterations per s.3 LTA, what can the landlord do?

A

If the landlord doesn’t object within 3 months, the tenant can carry out the improvements.

The landlord may offer to carry out the works itself and increase rent, but the tenant does not need to agree. However, if the tenant refuses, they cannot then ask the court for permission.

68
Q

What is the use of the premises if the lease is silent on use?

A

The tenant is free to use the premises for anything they like.

69
Q

What can prohibit changes of use?

A

The lease may…

  • prohibit changes of use (absolute covenant)
  • allow changes with consent (qualified covenant)
  • allow changes or user consent not to be unreasonably withheld (fully qualified covenant).
70
Q

When there are covenants against altering the use, does statute upgrade a qualified covenant?

A

Unlike alteration covenants, statute does not convert a qualified user clause to a fully qualified user clause.

But, s.19(3) LTA does mean that if the landlord decides to give consent, they cannot charge a lump sum or increase rent for giving consent unless the change of use also requires structural alterations.

71
Q

How is SDLT payable on a lease?

A

SDLT is payable on either

  • Long Leases: The premium payable on lease transfer or
  • Shorter leases where you pay a market rent: the net present value of the rent.

SDLT is not be payable on a ground rent.

SQE 1 Flashcards (58 decks)

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