Property Law Practice Flashcards
Structure and content of a lease
- Prescribed clauses (by HMLR for registerable leases - ensures both parties interests are noted in title register)
- Repair
Whole - Full repairing lease - on tenant
Part - service charge - Insurance
Whole - landlord takes out insurance with cost passing to tenant - insurance rent (full reinstatement value and loss of annual rent where tenant unable to use building, if possible landlord will use insurance proceeds to reinstate property)
Part - multi tenanted property won’t permit tenants to take out own insurance of their demised premises so will structure leases so that landlord will insure at tenants expense the full reinstatement value and loss of annual rent, ll will make claims and use monies to repair/reinstate and loss of annual rent. - Alterations -
If lease is silent on alterations tenant may proceed.
If landlord requires consent for alternations must include covenants in lease:
Tenant will have regard to ll requirements when carrying out works
Notify the ll of any alterations carried out including provision of plans.
LTA 1927 gives tenants right to make improvements to business premises even if alterations are restricted by the lease.
Ll can’t unreasonably withhold consent (s19(2))
In certain situations tenants can improve even if forbidden by the lease (s3) and obtain compensation at the end of the term for improvements carried out (s1).
LTA doesn’t apply to works carried out as repairs under tenants repairing covenant. Only applies to improvements increasing value or usefulness of property. - User and planning
Leases of commercial property usually include restrictions on:
- purposes for which the tenant can use property
- right for tenant to request change to permitted use. - Rent and review
Should cover: amount payable, dates rent should be paid, advance or arrears, date from which rent is payable, calculation of first payment if apportionment is applicable, rent payment method, payment of VAT, if tenant is able to make reductions to rent, and any provisions for reviewing or changing the rent. - Alienation: disposal of interest in leasehold property including:
-Assignment
- underletting
- charging of an interest to a lender
- parting with possession.
REASONABLE CONSENT REQUIRED LTA - Options for term of a lease including break clauses.
Statutory reqs when considering term:
- lease of less than 6 months generally can’t benefit from protection under LTA ( exceptions may apply for example leases containing provision for extending term or where tenant has been in occupation for more than 12 months )
- a lease granted for a term of 7 yrs or less does not generally require substantive registration at HMLR.
Alienation
A lease may contain an absolute prohibition on the following. If the lease permits the tenant to assign or under let with consent (ie qualified prohibition) its implied that the ll consent cannot be unreasonably withheld(s19(1)(a) LTA 1927). The LTA attaches only to qualified covenants to assign.
S19(1A) LTA 1927 allows ll and tenant to agree and set out in lease granted on or after 1 Jan 96:-
- circumstances in which ll may withhold consent to an assignment
- conditions subject to which any such consent may be granted
The LTA states (assignment only) that where a tenant covenants not to assign an applicable lease without consent and that consent is not to be unreasonably withheld the LTA imposes statutory duties on the ll;
- to give consent except where it is reasonable not to do so
- to give consent within reasonable time
- to give tenant written notice of decision - if consent is given subject to conditions, those conditions - if consent is withheld, the reasons for doing so.
Underletting
Assignment
Charging of an intrest to a lender
Parting with possession
Remedies for breach of a leasehold covenant
- Action In Debt
Landlord may sue current tenant for non payment of rent, a former tenant (using privity of contract) or rely on the authorised guarantee agreement.
-Forfeiture
The right to re-enter and is exercised against the tenant in possession.
Lease must contain an express forfeiture clause allowing the LL to terminate the lease for non payment of rent or other breaches of covenant.
Ll can forfeit by peaceable re-entry or a court order for possession.
-Commercial rent arrears recovery
Ll enters premises and ceases the current tenants goods and sells them to pay any arrears of rent.
-Pursue guarantors and/or rent deposit
A guarantee or rent deposit may be requested by the landlord where there are concerns about a financially weak tenant or with a tenant with a relatively new credit history.
Guarantee: gives the landlord a direct contractual claim against the guarantor.
Rent Deposit: a cash deposit by the tenant as security for the payment of rent and the performance of the tenants covenants under the lease.
-Specific performance
Only available to ensure a tenant complies with a positive covenant provided no other remedies (such as damages) are available or appropriate.
- Damages
Landlords fight to recover damages for breach of repairing covenants during the term of the lease may be restricted by the following provisions:
Section 18(1) LTA 1927 - limits the damages that landlord can recover for breach of the tenants repair covenants to the diminution in the value of the landlords reversion caused by the breach.
S1 Leasehold property repairs act 1938 - this is only relevant where the lease was granted for a term of at least 7 yrs and has at least 3 yrs left to run.
-Self help / Jervis v Harris clause
If the lease has a contractual self help remedy clause (also known as jervis v Harris clause) the landlord will be entitled to do the following:
- enter the property
- carry out an repair works
- recover the cost from the tenant.
The landlord can recover these costs as a debt and not as damages.
Termination of a lease
1 Effluxion of time
Lease ends as term has come to an end.
No notice required.
- Surrender
Tenant yields the lease and the landlord accepts the surrender.
Documented in deed of surrender. - Merger
Tenant acquires the freehold estate and the lease merges into the reversionary title.
How to calculate SDLT
Calculation applicable to freehold purchases in England.
(If VAT is payable on purchase price - SDLT calculation based on purchase price including VAT)
Residential Calculation
Value Rate
Up to 250,000 Zero
Next 675,000 (portion from 250,001 - 925,000) 5%
Next 575,000 (portion from 925,001-1.5mil)
10%
Remaining amount (portion above 1.5mil)
12%
It is possible to allocate separate value to contents however this is rarely used anymore. Only when contents are particularly valuable.
First Time Buyers
- Discount (relief) applicable provided purchase price is no more than £625,000
-If more than 1 person buying all must be a first time buyer.
-If relief applies, no SDLT for first 425,000 of purchase price and 5% on amount above up to 625,000.
Residential Transactions - 2nd Properties
> If buyer is buying a 2nd property, there is additional SDLT payable at 3% of whole purchase price.
*calculate as usual and add 3% to total purchase price.
Non-residential Calculation
Up to 150,000 Zero Rated
Over 150,000 2%
Over 250,000 5%
How to calculate capital gains tax
CGT arises when:
- there is a chargeable disposal;
- of a chargeable asset;
- by a chargeable person;
- which gives rise to a chargeable gain!
Chargeable disposals:
- Sale of an asset
- Lifetime gift of an asset.
Gifts upon death do not count as a chargeable disposal for CGT purposes.
Chargeable assets:
- Include certain valuable possessions (not including cars) and certain non physical possessions e.g. shares.
- All property assets (land) are chargeable assets, except the main home where and insofar it qualifies for private residence relief.
Chargeable person:
- Individuals who are UK taxpayers (under residence rules) for the relevant tax year.
- Companies dont pay CGT (they pay corporation tax).
- Charities are usually exempt from paying CGT.
Chargeable gain:
- Even if a chargeable person makes a chargeable disposal of a chargeable asset, there still needs to be a chargeable gain to give rise to CGT liability.
- Chargeable gains look at the increase in value of the asset.
- When calculating the chargeable gain, the taxpayer can take into account allowable expenditure… including…
1. Costs incurred in acquiring the asset (e.g. conveyancing fees)
2. Costs incurred contributing to value of the asset (e.g. extension but not maintenance or repair fees)
3. Costs incurred in disposing of the asset (e.g. conveyancing fees / estate agent commission)
Capital losses and annual exemption:
- Can offset losses against gains.
- Everybody has annual exemption of 3,000.
Private residence relief:
- Applies so that a person does not pay Capital Gains Tax if they sell or dispose of their home, provided the following conditions are met:
- it has been the person’s main home for all the time that they lived in it
- they have not let it out (other than taking a lodger)
- it has not been used for business purposes (using a room as a temporary office is ok)
- the grounds including all buildings are less than 5,000 square metres
- it was not bought just to make a gain
If any of these conditions are not met, then Private Residence Relief may be reduced or not available at all.
Married couples and civil partners can only treat one property as their main home between them (they can’t have one each).
A fixed term tenancy
Creates exclusive possession and a proprietary interest.
Binds successors in title to the landlord.
Tenant can use the property as if they were the owner.
It can benefit from Security of Tenure.
A periodic tenancy
Creates exclusive possession and a proprietary interest.
It binds successors in title to the landlord. However, it can be brought to an end by notice.
It can benefit from security of tenure.
A licence
Personal permission to be on the land and is not a proprietary interest.
Doesn’t bind successors in title to the owner granting the licence.
It cannot benefit from Security of Tenure.
A tenancy at will
Similar to a licence as it is a personal permission but unlike a licence, the tenant can have exclusive possession.
However, the important feature is that either landlord or tenant can end the tenancy at any time.
Cannot benefit from security of tenure.
Security of tenure
‘… any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes…’
If tenant underlets they cannot benefit from SOT.
Contracting out of security of tenure (s38A LTA)
- Must be a fixed term lease! Periodic tenancy not capable of contracting out.
- Parties must agree.
- Offering protected tenancies, in practice, encourages long term tenants, and not doing so may limit the premises’ appeal.
The following tenancies are commonly contracted out:
1. Short term leases of 5 yrs or less;
2. Underleases (usually required by tenants lease).
Procedure for contracting out:
1. Landlord must serve a warning notice on tenant in prescribed form. Details consequences of contracting out of SOT provision. MUST be served BEFORE the parties complete the lease.
- The tenant must provide a declaration in a prescribed form to the landlord before completing the lease.
If lease completion is at lease 14 days from the date of the warning notice, then this can be a simple signed declaration.
If the lease is less than 14 days away, then the tenant must provide a statutory declaration (declared before an independent solicitor). - The lease must contain reference to both the notice and the declaration (or statutory declaration) of contracting out.
If procedure not followed it is like lease will enjoy SOT.
Implications of Security of Tenure
What happens at end of contractual term?
- Non protected tenancies, tenant has no right to occupy beyond contractual term.
If landlord has notified the tenant that it requires possession at the end of the contractual term, then if the tenant continues to occupy, the landlord may treat them as a trespasser and recover possession.
- By contrast, for a protected tenancy, the tenant has the right to stay in occupation. This is known as holding over. The landlord cannot evict the tenant, and the tenant’s occupation can only be brought to an end by certain methods allowed by the LTA.
Ending a protected tenancy - Landlord
- Landlord has limited options to bring tenancy to end… options are to:
1. Forfeit the lease if there has been a breach of the tenant’s covenants and the lease allows this.
2. Serve s.25 notice, which may indicate an intention to recover the premises or offer a renewal lease.
Ending a protected tenancy - Tenant.
- As SOT provisions are for tenants protection, they have more options for bringing the lease to an end, options are:
1. Simply vacate premises at end of contractual term;
2. To surrender the lease with landlord agreement;
3. Periodic tenancy - serve notice to quit to bring tenancy to end;
4. serve s26 notice to request new tenancy
5. serve s27 notice to leave premises.
What are the methods of terminating a lease?
a. Effluxion of time - means the lease ends at the end of the contractual term.
A protected tenant will be able to hold over after the end of the contractual term.
A break clause generally requires positive action by a third party to end the lease.
b. Surrender - means that the tenant gives up the leasehold interest to the landlord (with landlord agreement). This is possible with a protected tenancy.
c. Notice to quit -for a periodic tenancy means either the landlord or tenant giving notice that they intend the tenancy to end.
For a protected tenancy, a landlord’s notice to quit will end the periodic tenancy, but the tenant can hold over.
d. Merger - means either the tenant acquires the landlord’s interest, or a third party acquires both interest. Either way, the freehold (or superior interest) and the leasehold are merged and come to an end.
This would happen whether the tenancy is protected or not.
Effluxion of time
A fixed term tenancy which does not have security of tenure will expire at the end of the contractual term. The landlord can require the tenant to vacate the premises and if the tenant refuses, the landlord can treat the tenant as a trespasser.
If the landlord consents to an unprotected tenant remaining in occupation, the tenant is NOT holding over, but will be treated as a ‘tenant at will’.
If the landlord accepts rent, then the tenancy at will may be converted to a periodic tenancy. A landlord needs, therefore, to exercise care.
Break clause
A fixed term tenancy may contain a break clause, which allows the lease to be ended before the end of the contractual term.
If the tenant exercises the break, then it is effective with a protected tenancy.
However, if the landlord exercises a break (either a landlord only or mutual break clause), it only operates to bring the contractual term to an end. The tenant may still hold over. Therefore if a landlord’s break clause is to be effective, a lease that would otherwise be protected must be contracted out.
Notice to quit
A periodic tenancy cannot be contracted out, but of course not every periodic tenancy will qualify as a protected tenancy (e.g, a non-commercial tenancy or a service tenancy).
Unless there is a tenancy agreement that specifies otherwise, the notice period required depends on the period of tenancy:
Period Notice period req Weekly Res=4wks. Other=1wk.
Monthly 1 month
Quarterly 1 quarter
Yearly 6 months
Notice to quit gives other party a specific date to vacate, which must expire on the first day or the last day of the tenancy period.
E.G. if the tenancy runs from the 15th day of each month to the 14th day of next month, notice period may end on either 14th/15th.
Notice to quit and security of tenure
- If periodic tenancy is protected, then the landlord may still serve notice to quit, but it will only end the periodic tenancy itself. The tenant will be entitled to hold over.
- Tenant may also serve notice to quit if it wishes to leave, effective whether the tenancy is protected or not.
- Landlord wishing to recover possession from a protected tenant under periodic tenancy will need to serve a hostile s25 notice supported by one or more statutory grounds. Must follow notice requirements of s25 (ie 6 to 12 months notice of the termination date) but may double as a notice to quit provided it also, for example, ends on the first day or last day of the period. Alternatively a separate notice to quit may be served.
- Although protected tenant of periodic tenancy can hold over, it cannot serve s26 notice!
Surrender
Fixed Term Tenancy may be brought to an end earlier than end of contractual term provided both LL and T agree. T gives up leasehold interest to the LL. An express surrender must be made by deed.
Tenant may want to surrender if no longer needs premises for business purposes. LL may want tenant to surrender if it needs premises back to redevelop or for other purposes.
A premium may be payable for the surrender, but the direction will likely depend on who has the most to gain. A premium paid by T to give up its interest is known as a reverse premium.
A surrender by operation of law arises when the landlord and tenant act in a way that is inconsistent with the continuation of the tenancy. For example, the landlord accepts the keys from the tenant with an understanding that the tenant is leaving the premises permanently.
Either an express surrender by deed or a surrender by operation of law are effective even if the tenancy is protected.
If, as sometimes happens, there is an agreement to surrender a protected tenancy in advance of the deed, however, there is a procedure similar to contracting out which must be followed.
Merger
Happens when either the tenant acquires the landlord superior interest (the opposite to surrender), or a 3rd party acquires both.
Landlord remedies for breach of lease.
- Damages:
- Action in debt:
- Guarantor and rent deposit:
- Commercial rent arrears recovery (CRAR):
- Equitable remedies: specific performance and injunction.
- Forfeiture - apply to court to ensure legally valid.
Self-Help Clause or Jervis v Harris Clause.
If T breaches repairing obligation then LL can serve notice requiring T to repair and if fails to do so by specified date, LL can enter premises, make repairs and recover cost as a debt.
Advantage that because its a debt and not damages, ll’s can recover the full amount from the T. Not restricted by statutory cap.
Damages - Tenant breach of covenant
A tenants covenants are enforceable as a matter of contract between the parties, and the landlord can bring proceedings in the court to claim for damages.
The measure of damages is to put the landlord back into the position they would have been were it not for the breach of covenant.
Court proceedings can be costly and protracted, and the landlord may not be able to recover its costs.
There are particular issues relating to damages for breach of the repairing covenant.
Action in debt
LL can issue court proceedings to recover a debt, such as unpaid rent, service charge or insurance rent.
An action in debt is limited to rent due in the last 6 years before issue of proceedings. Any earlier rent is unrecoverable. This is unlikely to be significant with a commercial rack rent lease (where the LL is unlikely to allow 6 years of rent arrears to build up), but is relevant to long leases, where low ground rents often go unpaid.
Again disadvantage is court claims can be costly and time consuming.
However an advantage is that the time taken to pursue the debt gives the tenant breathing space, and strangely may therefore help preserve the landlord/tenant relationship.
If the current T is an assignee, another possibility is to pursue the former tenant, if it is an old lease or the former tenant gave an Authorised Guarantee Agreement (AGA). In certain circumstances, a former tenant who is paying the current tenants debts may apply to the LL to be granted a lease.
Guarantor and rent deposit
If the LL had concerns about the covenant strength of a tenant or assignee at the time of the grant or assignment, the LL may have obtained a guarantor or rent deposit from the tenant.
The LL can rely on the contractual terms of a guarantee to claim its losses from the guarantor.
A guarantee will typically cover all the tenant’s obligations, so that the LL is not limited to pursuing unpaid rent, but also any breach of the tenant’s covenants.
The landlord can draw on a rent deposit (usually limited say to 6 months rent) if there are any arrears.
The tenant will be required to top up the deposit after a withdrawal. If the breach is an isolated occurrence, this can provide a useful cushion while preserving the landlord/tenant relationship.
Commercial rent arrears recovery (CRAR)
Self-help remedy (similar to old common law remedy of distress displaced in 2014)
Self-help remedies have the advantage of being generally cheaper and quicker than court proceedings.
Used where:
- Premises are purely commercial (cannot be used for example where the premises comprise a shop and residential flat)
- A minimum of 7 days principal rent is owed (it cant be used to recover service charge or any other sum reserved as ‘rent’ but does include VAT and interest)
- The lease has not been forfeited.
As it is a self-help remedy, there are strict requirements to the way in which CRAR must be conducted:
- LL must appoint a enforcement agent who either has the required certificate from the court or is exempt from the requirement (e.g. a police officer).
- 7 Clear days notice must be given of the intention to enter the tenants premises (clear days exclude sundays and bank hols)
- The notice must include certain details, such as the amount of the debt and how to repay it, details of the power being used to enforce the debt, and contact details for the enforcement agent.
- If the notice expires without repayment of the debt, the enforcement agent can enter the premises and take control of goods belonging to the tenant up to the value of the debt owed.
-LL must serve further 7 days clear notice if it intends to sell any of the seized goods.
