PROPERTY PRACTICE Flashcards
What is the DOCTINE OF WAIVER (in breach of covenant PROPERTY PRACTICE)?
- LL ignores a breach;
- AND commits some act which expressly or implicitly indicates that LL considers the tenancy to be continuing.
- LL will be deemed to have accepted the breach.
Explain the 3 types of leasehold covenant.
- ABSOLUTE C: T absolutely cannot carry out the stated action according to the lease. LL has total discretion [not always commercially acceptable].
- QUALIFIED C: allows T to carry out the stated action, but only if LL consents to it first.
- FULLY QUALIFIED C: allows T to carry out stated action if it obtains LL’s consent first but LL cannot withold consent unreasonably. Check lease for ‘reasonable’ and ‘unreasonably.’
Discuss precise meaning of a covenant ‘to repair.’
- [Lurcott v Wakely]: works of renewal or improvement go beyond repair. A question of fact and degree.
- [Welsh]: T needs to be careful of wording: ‘keep’ a building in repair also means to ‘put’ it into repair. Even if it means T would put building into better state of repair than when entering the lease. ‘Keep in good condition’ is even more onerous - it can obligate T to carry out some works even where no actual disrepair.
What will LL accept as T’s ‘strength of covenant?’ (Grant of Lease)
- References from a previous LL.
- Guarantee obtained from parent company, a bank involved in financing the transaction or from one or more of the directors.
- A rent deposit.
What are important considerations when drafting term of UNDERLEASE?
- UL should always have a term at least one day shorter than the HL.
- An UL of the whole residue will take effect as an assignment of the HL rather than the grant of an UL. This may be a breach of the alienation covenenant in the HL.
What is the balance/compromise which should be considered in drafting an lease/underlease?
A lease should be agreed which allows T to operate from the building without unnecessary restrictions BUT allows LL to maintain the necessary degree of control to protect the investment.
What is the purpose of an AGREEMENT FOR LEASE?
- AFL is useful where there is going to be a delay between agreeing the lease/UL and actually granting one.
- It requires both parties to be bound into the transaction.
- Examples: LL in process of construction; LL repairing/refurbing; T carrying out major works prior to lease; LL requires consent of lender to grant lease; LL negotiating surrender from current T; or T needs to obtain planning permission for use.
- It is drafted by LL’s solicitor (incumbrances must be disclosed, and should provide for indemnity to be given in respect of future breaches of any covenants affecting the title).
What does Standard Condition 8.2 (SCPC 11.2.3) provide for (Grant of Lease/UL)?
- Provides for lease/UL to be in the form annexed to the draft contract.
- And for LL to engross the lease/UL.
- And supply T with engrossment at least 5 working days before completion date.
Discuss DEDUCTION OF TITLE (grant of lease/UL).
- T will want LL to deduce title to the freehold interest.
- Under general law, T is not entitled to call for deduction of the freehold title unless the transaction is the grant of of a lease for more than 7 years.
- SC 8.2 (SPSC 11.2.4) requires LL to deduce such title as would enable T to obtain registration with an absolute title at the Land Registry.
- In case of UL, where HL is registered with absolute leasehold title, there will be no need to see title to freehold.
- In case of UL, where HL is unregistered, general law entitles UT to call for the HL and all subsequent assignments under which HL has been held for 15 years. BUT only entitled to call for deduction of the freehold title where grant of lease is for more than 7 years.
What are the pre-contract enquiries and searches undertaken before grant of lease/UL?
LL’s solicitor should provide T’s solicitor with the following documents:
1. draft agreement for lease (if applicable)
2. draft lease/UL
3. evidence of freehold title/HL title
4. copies of any relevant planning consents; and
5. evidence of lender’s consent to the grant of lease/underlease (where relevant)
T may also want to see LL’s insurance policy.
In which circumstances might the HT be in breach of the alienation covenenant in the lease?
Where LL’s consent is not given when HL underlets. LL consent must be given in the form of a licence to underlet.
How does a licence to UL deal with PRIVITY OF CONTRACT?
- UT enters into a direct covenant with the HLL to perform the covenants in both the UL and the HL.
- The DC usually excludes the HL covenants to pay rent and only applies in so far as the HL covenants relate to the UL property.
- DC creates contractual relationship which allows HLL to sue the UT for breaches of either the HL (other than non-payment of rent) OR the UL.
What are the key provisions in a LICENCE TO UNDERLET?
- Consent of HLL to the grant of UL.
- Direct covenant from UT to the HLL.
- Likely to contain an obligation on part of HT to pay the HLL’s costs for approving the UL and granting the licence.
What are the pre-completion formalities for a grant of lease or UL?
- 2 identical parts (lease and counterpart).
- Lease executed by LL and counterpart by T.
- Engrossment/top copy is signed.
- Counterpart sent to T’s solicitor for execution by T (at least 5 working days before contractual completion if SC 8.2.5 or SCPC 11.2.5 applies).
Explain steps to registering a lease/UL?
- A legal lease for 7 years or less is not capable of registration. In registered land, such lease will take effect as an overriding interest under LRA ‘02. Must be made within 2 months of completion of grant.
- If unregistered, a legal lease is binding on all subsequent owners of the land, irrespective of notice.
- A grant of lease for a term more than 7 years is registrable in its own right after completion. If LL’s title is registered, it will also be noted next to this.
- Freehold unregistered? T apply to Land Registry for first registration, application must be made within 2 months of completion of grant of lease. T’s app must be made within priority period conferred by OSR1 search result.
Discuss LL’s CONSENT in the assignment of a commercial lease.
- It is the assignor’s responsibility to obtain the consent, but both parties to the assignment will need to be involved.
- LL will likely want to take up references on prospective assignee. Sources: a current LL; the assignee’s bank; the assignee’s employer; a professional person such as an accountant or solicitor; a person/company with whom they regularly trade; 3 years accredited accounts.
- Assignor’s solicitor should firsts seek assignor’s authority to give the undertaking (limited to reasonable costs incurred).
- LL may require assignee to provide a guarantor as a condition of grant and/or for the assignor to enter into an AGA.
- LL’s consent must be given by or on completion date, or assignor is likely to be in breach of assignment covenant in lease.
How does the contract deal with assignor’s breach of covenant (in not seeking LL’s consent for assignment of lease)?
- Under the SCs, either party may rescind the contract by notice if the consent has not been given 3 working days before the completion date.
- The SCPCs provide that if LL’s consent has not been obtained by completion date, completion is postponed until 5 working days after assignor notifies buyer that consent has been given. Contract may not be rescinded until 6 months have passed since the OG completion date.
What is the purpose of a LICENCE TO ASSIGN?
The purpose of an LTA is for the LL to give consent to the assignment of the lease by the assignor to the assignee.
If assignor commits breach of a T’s alienation covenants in the lease, they may not be released from liability under T’s covenants and the lease itself could be liable to forfeiture.
How is a LICENSE TO ASSIGN prepared?
- Draft by LL’s solicitor.
- Sent to assignor’s solicitor to coordinate with assignee.
- If aor and aee enter into convenants in the lease, then all 3 will be parties to the lease and must be in the form of a deed.
What are the key provisions in the LICENCE TO ASSIGN?
- LL grants consent to the aor to assign the lease to aee. Often time-limited (e.g., 3 months).
- Lease granted on or after 1 Jan ‘96, enter into an AGA.
- Lease granted before 1 Jan ‘96, a direct covenant by aee to the LL to observe and perfom covenants in lease for remainder of term.
- aor to pay LL’s legal and professional costs.
What are the typical covenants contained in the AGA (by aor)?
- aee will perform T’s covenants in lease, including covenant to pay rent.
- promising to perform such covenants if aee does not.
- indemnifying LL for aee’s failure to pay rent or to observe other covenants.
- promising to take a new lease if the liability of the aee is disclaimed on insolvency.
What pre-contract enquiries and searches should be taken by aee’s solicitor (Assignment)?
- same as for freehold purchase.
- Additionally, aee should ask to see insurance policy and receipt for lase insurance payment date.
- aee should also check receipt of last payment of rent to check aor is not in breach (LL can enforce against aee if there is).
