property practice Flashcards
when acting for a buyer - what is the first thing you advise them to do
inspect the property - physical inspection of the property to determine whether there are any structural defects or problems which might affect the value.
three requirements for a solicitor to represent both the buyer and the lender
- lender is an institutional lender
- standard certificate of title is provided
- confidentiality as to both parties is maintained
preliminary matters
what is required for the buyer’s solicitor to disclose information to the lender and what must happen if this does not occur?
Will require the buyer’s consent. if the buyer wishes for a solicitor to keep something from the lender, the solicitor must cease acting for both parties.
conflict of interest
solicitor acting for parties on different sides of a transaction
where there is more than one buyer or seller what myst a solicitor acting for both do?
after what two steps can the clients agree for one to take the lead?
what things should be considered when entering into a commercial leasehold transaction?
An offer in writing should be made including clear terms on:
- rent and length of term
- rights to break the lease
- rent review
- right to assign
- obligations
starting a conveyancing transaction - how is title investigated in:
- the registered
- unregistered land
- registered land: copy of the register of title and title plan is obtained from HMLR
- title deeds and charges in the SELLER’S NAME need to be located.
who does the law society conveyancing protocol require to remedy pre contract title defects
the sellers solicitor, rather than waiting for the buyer to raise an inquiry
In the unregistered system, what must the seller’s solicitor do regarding the title deeds if they are held by a lender
- write to the lender to obtain the deeds and give an undertaking not to part with. The deeds until such time as the mortgage is paid of
- As such they will also seek an indicative redemption figure so they know there will be enough money to make good on this undertaking.
what is included int the contract package sent to the buyer from the seller of freehold property.
- draft contract on duplicate
- property information form TA6
- fittings and contents form TA10
- copy of the seller’s title
- copy of the title plan
- guarantees or planning permission if any
what does form TA6 contain details of?
boundaries
rights benefiting/burdening the property
disputes/ complaints/notices
alterations
planning and building regulations
occupiers
services and utilities
energy efficiency
what is a title plan
a map showing the location of the property being sold and a red outline included in the title
what type of defects must the seller disclose, and what does not need to be disclosed?
must disclose latent (i.e hidden defects)
need not disclose patent defects - those that would be obvious on reasonable inspection of the property.
what two remedies are available to the buyer when the seller breaches a duty to disclose
withdraw from the contract after exchange
claim damages
In what one situation will a seller actually be held liable where there is a defect which is both latent and physical?
where the seller has wilfully tried to obscure the defect.
what are the three sections in the contract incorporating the standard conditions of sale?
- particulars of sale
- standard condition of sale
- special conditions of sale
What is required of something agreed between buyer and seller to be legally binding?
it must be in the contract
what is the default position under the standard conditions
10% of the purchase price, although parties can agree lower
under the standard conditions, how is the deposit held between exchange and completion
by the sellers solicitor as STAKEHOLDER and can’t be paid to the seller until completion.
possible for the sellers solicitor to hold as an agent but not advisable to allow a buyer to do this.
what three things does it mean when the standard conditions provides that a seller sells a property with full title guarantee
- is entitled to sell property
- will at their own cost, transfer this title to the buyer and
- is selling the property freeform all charges or encumbrances other than those disclosed in the contract.
limited title guarantee
seller warrants that they have not created any charges encumbrances during their period of ownership other than those disclosed in the contract.
what is the buyer’s indemnity covenant in the standard conditions
if the contract does disclose any oblations on the bytes relating to the proper, the buyer agrees to carry these out and indemnify if the seller if the buyer breaches
in a lease of whole, who is responsible for what?
the tenant is responsible for repairing the whole building.
the landlord insures the building and recovers the whole cost from the tenant
lease of part: who is responsible for what?
The tenant is responsible for repairing the demise, which will be defined in detail in the lease.
the landlord insures the building and maintains the common areas and recovers a proportionate part of the cost of insurance from each tenant.
what is a qualified repairing obligation
Limits the tenant’s repairing obligation to keeping the premises in the same state of repair as at the beginning of the lease term.
repair who is responsible?
· A commercial tenant will almost always be responsible for the repair of their demise, ie the extent of the premises let to them. The first step is to look at the definition of “Premises”, “Demised Premises”, “Property” or similar in the lease.
· Lease of whole - the landlord’s title such as an office block, the definition of “Premises” will refer simply to the title and postal address of the office block. The tenant is responsible for the interior, exterior and structural repair.
· Lease of part - the definition of “Premises” will specify, for example, the fifth floor of the office block. But it will also go into much more detail of the demise, such as including the floor and ceiling coverings, but not the structure nor exterior of the building. The tenant is only responsible for interior repair.
· Lease of whole - the repairing responsibility is solely the tenant’s.
· Lease of part - other demises are the responsibility of their respective tenants. Areas of the building or estate used commonly by all tenants (“common parts”), such as hallways, lifts and staircases, communal car parking, etc, are the responsibility of the landlord.
· Although the landlord will bear responsibility for repairing the common parts, the landlord will recover the cost of doing so collectively from the tenants by way of service charge payments. An FRI lease typically contains extensive clauses setting out the services and how they are charged.
types of repairing covenants
- full repairing obligation
- qualified repairing obligation
limit of the repairing obligation
- unless the lease states otherwise the tenant may generally choose whether to repair or replace an item of disrepair.
- if the premises are damages beyond repair, e.g. subsidence has caused the premises to be so damaged they need to be rebuilt, this is renewal not repair and the tenant is not responsible for doing this under a simple repairing obligation.
- a tenant may be asked to covenant to renew the premises but this is onerous and should be avoided.
- if the lease refers to keeping the premises in good repair and condition - this is more onerous to the tenant e.g. condensation comes with condition but not repair.
inherent and structural defects?
- if the property is newly constructed it may have inherent or structural defects which only come to light over time.
- this may cause issues that the tenant would be obliged to repair under the repairing obligation - which is unfair as the tenant is not responsible for them and the landlord should have warranties from the contractors, the builder, engineer etc that the landlord should be able to rely on.
- therefore, a tenant taking a lease of a newly constructed office property should ensure that inherent and structural defects are therefore excluded from the tenant’s repairing obligation and service charge contributions.
insurance
usually recovered from the tenant(s) via ‘insurance rent’.
typical definition of insured risks:
· fire, explosion, lightning, earthquake, tempest, storm, flood, bursting and overflowing of water tanks, apparatus or pipes, damage to underground water, oil or gas pipes or electricity wires or cables, impact by aircraft and aerial devices and articles dropped from them, impact by vehicles, subsidence, ground slip, heave, riot, civil commotion, strikes, labour or political disturbances, malicious damage
What are insured risks?
these are risks that will be covered by the insurance policy the landlord has taken out.
the definition may allow the landlord to add other risks to the list from time to time.
they will also be excluded from the tenant’s repairing obligation except in certain instances e.g. the tenant’s negligence means that insurance is not paid out.
full repairing obligation
is typically expressed as an obligation to keep the premises in repair but extends to putting the premises into repair if they are not.
what can a covenant against alterations be?
- absolute (not allowed)
- qualified (with the landlord’s consent)
- fully qualified (allowed with the landlord’s consent not to be unreasonably withheld)
what are alterations?
changes to the premises
what happens if a lease is silent on alterations
the tenant will be free to carry out alterations.
the only restriction imposed is the doctrine of waste, which means that the tenant cannot carry out alterations which reduce the value of the premises.
absolute covenants against alterations
landlord has no obligation to even consider such a request - but the tenant can still make a request.
qualified covenants against alterations
landlord does not have to give consent
a fully qualified covenant
consent must not be unreasonably withheld and any conditions must be reasonable
when is a fully qualified covenant against alterations upgraded to fully qualified?
if the lease contains a qualified covenant against alterations, s19(2) Landlord and tenant act 1927 converts it into a fully qualified covenant insofar as the tenant’s proposed alterations are improvements from the tenant’s POV.
licence for alterations
if the landlord consents to alterations under a qualified covenant, then the consent will usually be documented in a licence for alterations.
as well as the details of the works consented to and any time limit for carrying them out it will contain various covenants:
- carry out the works in compliance with the landlord’s requirements; typically with good materials and a high standard of workmanship.
- pay the landlord’s costs in dealing with the application for a licence for alteration
- obtain all necessary consents e.g. planning permissions, building regulations approval
- reinstate the premises at the end of the lease term and put back to original state.
tenant’s statutory right to carry out improvements
If the tenant’s proposed alterations are improvements, then even if the lease contains an absolute covenant against alterations, the tenant may be able to circumvent this.
· Under s3, LTA1927, the tenant serves notice on the landlord of its intention to carry out improvements.
· If the landlord objects, the tenant can apply for the court’s permission to carry out the improvements. The court will give permission if the improvements:
add to the letting value of the property;
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 does not object within three months, the tenant may go ahead and carry out the improvements.
· The landlord may offer to carry out the works itself and increase the rent, but the tenant does not have to agree to this. However, the tenant can then not ask the court for permission.
a) court will grant permission for a T to alter against an absolute covenant under s3 LTA if:
b) how long does the LL have to object to the improvements
- It is an improvement
- adds to the value letting of the property
- is suitable and reasonable to the character of the property and
- will not diminish the value of any other property belonging to the landlord.
b) the LL has three months to object, if they do not, the tenant can go ahead and carry out the improvements
c) the landlord may offer to carry out the works itself, and increase the rent, but does not have to agree to this. however they cannot then apply to the court to ask for permission.
User meaning in a lease:
user clauses refer to what the lease allows the tenant to use the premises for.
if the lease were silent on user, then the tenant is free to use the premises for anything they like.
- the clause may be very specific or may be by reference to the appropriate use class e.g. as a use within class e (a) of the town and country planning order 1987.
- generally the tenant will want flexibility
- narrow - could limit the market rent on rent review and limit the appeal of the premises.
covenants against changes of use - STATUTE DOES NOT COVERT QUALIFIED -> FULLY QUALIFIED LIKE FOR ALTERATIONS.
As with alterations, the lease may prohibit changes of user (an absolute covenant), allow changes of user with consent (qualified covenant) or allow changes of user with consent not to be unreasonably withheld (fully qualified covenant).
· Note that unlike a qualified alterations covenant (regarding tenant’s improvements), statute does not convert a qualified user clause to a fully qualified user clause.
what happens if the landlord consents to change of use?
section 19(3) of the Landlord and Tenant Act 1927 does mean that if the landlord decides to give consent to a change of use, the landlord may not charge a lump sum or increase the rent for giving consent unless the change of use also requires structural alterations (in which case the landlord may charge a lump sum or increase the rent for giving consent).
code for leasing business premises - alterations and change of use
the code sets out good points of practice:
- the lease should only restrict alterations and change of use insofar as necessary to protect the value of the premises and any adjoining or neighbouring premises of the landlord.
- requires a landlord to give at least a fully qualified covenant for internal non structural alterations in a lease of part and the tenant the ability to carry out internal non structural alterations without consent in a lease of whole.
- if the landlord requires any alterations to be reinstated at the end of the lease, this should be made clear in the heads of terms. otherwise the lease may only require this if it is REASONABLE.
What is the landlord’s reversion?
the reversion is the interest that the landlord holds in the property subject to the lease. at the end of the lease term, the property reverts back to the landlord.
what is the term commencement date
the term commencement date is the date on which the lease term eg. 5 years starts.
may be the date of the completion of the lease i.e when it is dated and becomes legally binding but may also be before or after.
e.g. if a landlord wishes all the leases to start at the same time for simplicity.
note that if a term stated in the past the tenant is not generally expected to pay rent for the period they havent’ used.
calculating the expiry of a lease term
- if the term of the lease is “from and including” a certain day of the year, the term expires on the day before that day of the year int he relevant year.
if the term of the lease is “from a certain day of the year” the term starts the day after that day and so expires on that day of the year in the relevant year.
break clauses
- if the tenant is unsure about the commitment of a lease term, and the landlord is unwilling to grant a shorter term, a break clause can offer a compromise solution
landlord break - only the landlord can exercise it or a tenant break - meaning only the tenant can exercise it - more common or a mutual break either party can exercise it.
the break clause may specify a date e.g. the fish anniversary of the term of the commencement date (i.e on that day can choose to break) or a rolling break e.g. any time after the fifth anniversary of the term commencement date.
rent: what are the usual two categories
- short lease with a market rent
- long lease with a ground rent
what is the usual rent for commercial leases?
usually short leases (15-20 years) with a market rent. a premium lump su is not usually charged on the grant of a commercial lease.
rent in a commercial FRI lease
- rent is payable as a yearly figure e.g. £80,000 per annum but payable quarterly.
- 1st jan, April, July an October
rent is usually due in advance on the quarter day
however the lease needs to state if the rent is payable in advance - f not will be payable in arrears
the lease will set out how the rent is to be paid usually by standing order and whether vat is payable on it.
the lease will usually describe other payments such as contributions to the insurance premium and service charge as rent (this is for forfeiture reasons).
types of rent review
- stepped rent
- turnover rent - the rent may be calculated based on the tenant’s turnover e.g. shops
- open market rent reviews- most common type of rent for full repairing insurance leases and involves ascertaining the rent based on comparable premises and certain assumptions and disregards
open market rent review
commercial leases almost always have upwards only - rent can only increased.
typically the rent review clauses will give the landlord and the tenant the opportunity to agree the new rent between themselves.
if they cannot agree then the lease will set out a mechanism for a specialist valuer to be engaged to determine the new rent.
what will the valuer consider?
1. the rent payable for comparable premises - similar size and location and
2. the terms of the hypothetical lease based on the actual lease but assuming certain matters and disregarding others
hypothetical lease in open market rent review
from the starting point of the actual lease and premises the rent review provision instructors valuers on matters to assume and matters to disregard - therefore it differs form the actual lease and premises.
ASSUMPTIONS in open market rent review
the basic assumption enables valuation to take place
the premises are vacant and available
there is a willing landlord and a willing tenant
the tenant has complied with all its covenants under the lease
should not be included that the landlord has complied with all its covenants under the lease.
common disregards
generally operate to ignore what the tenant has done voluntarily and is not an obligation of the lease
the effect of the tenants occupation of the lease
goodwill attached to the tenant’s business
tenant;s improvements
what happens after rent review?
once the parties have agreed the new rent, or the new rent has been decided by a valuer, the new rent is documented in a rent review memorandum.
this is a short document that records the new rent, and is signed by the landlord and the tenant and is kept with the lease for future reference.
if the rent review is before the 5th anniversary of the term commencement date the tenant may have to pay further salt as this is calculated on the first 5 years of rent.
if the rent review is on or ayer the 5th anniversary of the term of the commencement date the tenant will not.
if the new rent has only been agreed some time after the rent review date set out in the lease, the new rent is backdated to the rent review date and therefore, the tenant will have to pay an additional sum + interest at a rate set out in the lease.
what is the aim of the code for leasing business premises.
the code aims to make commercial lease negotiations fairer and more transparent
who does the code for leasing business premises apply to?
RICS MEMBERS AND RICS REGAULATED FIRMS.
557
See all Cards in this Deck
q
Mandatory requirements for the Code for Leasing Business Premises?
a
·
The mandatory requirements include the following:
* Lease negotiations must be approached in a constructive and collaborative manner
- An unrepresented party must be advised about the existence of the Code and recommended to seek professional advice
- The landlord (or its letting agent) is responsible for ensuring that heads of terms compliant with the Code are agreed before the draft lease is circulated
- It is also mandatory to prepare written heads of terms, stating that it is subject to contract. The Code specifies certain areas which must be covered in the heads of terms. These include:
· extent of the premises
· length of term and break rights
· rent and rent review (including basis for rent review)
· repairing obligation
· rights to assign (transfer to a new tenant) or underlet the lease
· permitted use of the property (and whether tenant can change it)
· rights to alter the property and any obligations to put the property back in its original state
good practice for the code of leasing business premises/.
The rest of the Code (which is much more detailed) indicates good practice. As RICS members and regulated firms are obliged to follow good practice unless there is justification not to, it is likely that the provisions of the Code will become standard in time.
· Some specific areas of concern are listed below:
- Premises
- The heads of terms should clearly define the demise, provide a lease plan and refer to all the rights that the tenant will need for its use of the premises (eg, the right of access to the premises, water and electricity, etc).
- Length of term, renewal rights and break rights
- The heads of terms should clearly specify the length of term and any break rights.
- The Code sets out basic conditions to exercising the break that are acceptable; others may be included but must be specified in the heads of terms. (This is an area where landlord-weighted drafting of the lease can make it very difficult for a tenant to exercise the break.)
- Rent and rent review
- The heads of terms should clearly state the initial rent, frequency of payment (eg, quarterly) and whether VAT will be charged. They should also state whether there is a rent-free period (for example, the tenant may not have to pay rent for the first three months while they are fitting out the premises for their purposes).
- If the landlord intends to review the rent, then the tenant should be advised how (eg, market rent, turnover, etc) and how often (eg, every fifth year).
- Landlord’s title
- The landlord should be responsible for obtaining any consent needed to grant the lease (such as from a superior landlord, mortgagee or any other third party).
- Repairs
- The tenant’s repairing obligation should be appropriate to the length of the term and the condition of the premises. (An extreme example might be that it would be unfair to ask a tenant on a 6 month tenancy to take a full repairing obligation of premises that are badly dilapidated!)
- If the tenant gives a qualified repairing obligation (ie, limited to the initial state of the premises), a schedule of condition should be required.
- Where the premises are newly built, the tenant should be given appropriate protection against inherent construction defects.
- Insurance and damage
- The lease should suspend the rent if the premises are damaged by an insured risk (unless the damage is due to something the tenant has done or not done) or an uninsured risk.
- Other provisions of the Code will be considered alongside the relevant elements.
when is SDLT payable on a lease?
SDLT must be paid within 14 days of the effective date- i.e completion but will be earlier if in occupation beforehand.
e.g. if the tenant occupies the lease prior to completion they must pay SDLT 14 days from the date the under tenant went into occupation of the warehouse.
Stages of granting a lease:
- commonly do not need exchange, so usually just pre completion and post completion.
pre exchange of granting a lease - what happens?
- LL solicitor tasks:
- take instructions from the client
- prepare draft lease and agreement for lease if there needs to be an exchange
- deduce the title and check the lender will consent to letting and respond to any queries on title (look for mortgages, covenants, and that the landlord has full legal title and the power to grant a lease.
- answer pre contract enquiries
once agreed engross the agreement for lease, obtain the landlord’s signature and send counterpart to the tenant’s solicitor for execution - documents to send to the tenant’s solicitor:
official copy entries of the registered freehold title
replies to CPSE.1 and .3 enquiries
- a draft agreement for the lease
a draft ease and
writing consent from their lender to the letting
- T’s solicitor:
- take instructions from prospective tenant
- review the draft lease and agreement for lease and amend as required
what does engross mean?
print a copy for signature - the original of a lease or an agreement for lease is executed by the landlord, and the counterpart is executed but the tenant.
what does drafting the lease involve (LL’s solicitor?)
LL solicitor will draft the lease based on the heads of terms agreed between the parties.
the tenant’s solicitor will then go through the lease and amend anything that is onerous or unfair to the tenant or simply tr to balance it more in favour of the tenant.
agreement for lease - when will it be needed
an agreement for lease s needed whre the parties wish to commit to completing the lease but either are not ready, or there are conditions which need to be satisfied, e.g. something needs to be repaired
investigation of title, searches and enquiries
- the LL solicitor will deduce their freehold title and the tenant’s solicitor should investigate it.
- ensure the LL has title to grant the lease and will need to consider and encumbrances that will bind the tenant e.g. fh covenants.
- the tenant’s solicitor will raise CPSE1 AND CPSE3 (enquiries specific to the grant of a lease)
- tenants solicitor should raise the same searches as they would if they were buying the freehold.
in practice, the tenant may agree with their solicitor that the cost of full investigations are not justified for a very short lease with limited repair and other obligations. in this case the tenant’s solicitor should ensure that the tenant is advised of the risks of not doing so.
on exchange of an agreement for a lease;
the landlord’s solicitor and tenant’s solicitor exchange in similar manner as for a freehold contract (usually adopting Law Society B)
no deposit is usually payable
the agreement for lease may set a fixed completion date, but more likely will set out what conditions need to be satisfied and by when for completion to take place
the agreement for lease will usually have a draft of the agreed form of lease annexed to it, so it can only be exchanged once the terms of the lease have been agreed
pre completion tasks
landlord’s solicitor tasks
- prepare original and counterpart of the lease, obtain the landlord’s signature and send the counterpart to the tenant’s solicitor for tenant’s signature.
- prepare and send a completion statement detailing the money due on completion e.g. any apportioned annual rent, service charge, and insurance rent.
tenant’s solicitor tasks:
- arrange for the tenant to sign the counterpart lease
- obtain funds from the client needed to complete as per the completion statement
- raise pre completion searches
pre completion steps
completion statement calculation: apportionment of rent
- take yearly rent and divde by 365 to get the daily rent. then times by how many days.
- as with freehold transaction pre completion searches are carried out - OS1 lease of whole, OS2 lease o part.
- if the lease is not registrable then an OS3 search could be carried out this does not confer priority but will check that the landlord is free or not to grant the lease.
on completion of the lease
tenant’s solicitor sends the landlord’s solicitor completion monies
the landlord solicitor to hold the money to order until completion
the landlord’s solicitor and tenant’s solicitor agree over the phone to complete and date the executed leases that they are holding.
the landlord’s solicitor and tenant’s solicitor send the completed original and counterpart to the other
post completion steps
landlords solicitors tasks:
- send summary of main provision of lease to the landlord
tenant’s solicitor tasks
- arrange to submit salt or let return and pay appropriate sdlt if necessary
- 14 days from the completion
- register the lease if it is necessary (over 7 years)
- form ap1 and certified copy of the lease including prescribed lease clauses, consent from the lender and sldt5 to prove you have paid stamp duty.
how to register a lease?
- if a lease is registrable then an OS1 OR OS2 search should have been carried out prior to completion in order to give priority (forms depend on whether lease of whole or lease of part).
- the tenant then applies to register the lease using form AP1 if the landlord’s title is registered or FR1 if unregistered.
- a certified copy of the lease may be scanned and submitted electronically.
- if the landlord’s freehold title is charged, then a letter from the lender will also be required
SDLT
- with a freehold or long leasehold where a premium is paid, it is quite simple to take that premium as a basis of the calculation
- it is a little more complex with a short lease with market rent sum payable.
- first step - calculate lump sum equivalent of the rent over the years it is payable - which is called the NET PRESENT VALUE.
sdlt - net present value - commercial leases - how is it assessed and what are the brackets.
assessed on the net present value for commercial leases
- up to £150,000 there is no sdlt payable
- £150,000 - 5 million 1% is payable
-over 5 million 2% is payable
rounded to the nearest pound.
what happens if a landlord consents to a change of use
s19(3) LTA does mean that if the landlord decides to give consent to a change of use - the landlord may not charge a lump sum or increase the rent for giving consent unless the change of use also requires STRUCTURAL ALTERATIONS in which case the landlord may charge a lump sum of increase the rent for giving consent.
if the tenants covenant strength is not sufficient then the landlord may accept them anyway with additional safeguards - what are the safeguards:
- rent deposit documented by a rent deposit deed - this is usually between 3 and 6 months rent.
if the tenant falls behind with its obligations, the landlord can dip into the fund.
- guarantor - in the case of a company could be a personal guarantee from the directors or guarantee from a parent company - the guarantor will then need to be assessed for their covenant strength.
privity of estate
exists between any current landlord and current tenant of the property and lasts only for the period the lease is vested in the tenant
difference between assignments of new leases and old leases?
the LTCA 1995 changed the principle of the original tenant and landlord liability for ‘new leases’ (post 96)
the original landlord liability for no longer liable for the full duration of the lease term.
upon assignment of a new lease provide for the automatic transmission of the benefit and the burden of the covenants to the new owner of the reversion and lease.
the only exception is that the benefit and burden of the covenants will not be passed to a third party where the covenants are expressed to be personal.
if a lease is assigned in breach of an alienation covenant
this is an excluded assignment and the defaulting tenant will not be released from its obligations under the terms of the lease.
old leases
created before 1st January 1996
old lease liability rules
the original landlord and the original tenant liability continues for the full duration of the term - even after assignment. therefore the original tenant and the original landlord of an old lease remain liable for the covenants they entered under the lease long after the leasehold/revisionary interest have been sold or given away to others.
this continuing liability of the original contracting parties led to absurdities hence the new act.
enforceability of leasehold covenants - new leases
liable for breaches that occur during their period of occupation so long as they touch and concern the land and are not expressed to be personal
BUT consider aga - usually a condition in the lease under assignments
AGA s16 LtCA 1995 -
Of the outgoing tenant has provided an authorised guarantee agreement to the landlord, the landlord could sue the former tenant who is in effect guaranteeing the obligations of ONLY THEIR IMMEDIATE SUCCESSOR. They are released upon further assignment.
what choice does an aga give a landlord?
provides the landlord with a choice - sue the current tenant or se the outgoing tenant
if the landlord sues the former tenant under aga - remedy is limited to damages as they are no longer in control of the premises.
does a qualified covenant get upgraded for assignment?
yes - also implied that decision whether to grant consent is made within a reasonable time - days and weeks not months
what documents will the assignee be part to in an assignment?
TR1
LICENCE TO ASSIGN
subleases
a) when there is a sublease, there is no direct relationship between the landlord and the subtenant.
b) despite the lack of relationship, latch 3(5) allows restrictive covenants in new leases to be enforced against any owner or occupier of the premises.
c) however landlords will not be able to enforce directly against a subtenant any positive covenants and so
- any tenant whether the original tenant or an assignee, knowing they are responsible for the breaches of the subtenant is likely to include a provision in the sub lease in which the subtenant covenants to observe and perform the covenants contained in the head lease.
this makes it easier for the tenant to control the actions of the subtenant and therefore indirectly protects the landlord.
if the landlord forfeits the head lease, the sublease is automatically terminated, subject to a claim for relief.
the threat of this should be a strong incentive for the subtenant to observe the covenants.
additionally, a prudent landlord will as a condition to the consent of subletting , will insist on any subtenant of the property entering into direct covenants in the lease creating a contractual relationship between the landlord and subtenant
why will a tenant wish to assign?
A tenant may want to assign the premises if they no longer need them for the purposes of their business or cannot afford to keep paying the rent (perhaps following a rent review).
If the premises are right for the assignee, conversely, they may be only too happy to take the lease.
If the lease is silent, then the tenant is free to assign. In practice, a commercial lease will likely require that before assignment, the tenant apply to the landlord for consent. The landlord will want to be able to vet potential assignees.
A tenant’s covenant against assignment may be drafted as absolute, qualified or fully qualified.
An absolute covenant means that assignment is not allowed. A commercial lease will usually contain an absolute covenant against assignment of part of the premises.
The landlord will not want a letting split into parts, which creates various problems (that are beyond the scope of this course).
when is it reasonable to withhold consent against assignment
proposed use of the premises
justifiable concerns about the assignees ability to pay the rent.
conditions and circumstances can be recognised in the lease - and provide the landlord with specific grounds on which consent can be reasonably withheld e.g. yearly rent must be up to date and the assignee provide and guarantor amongst other obligations. s19(1A) LTA 1927
consent application
the tenant’s solicitor will usually apply to the landlord for consent early on in the transaction as the whole transaction hinges on this being successful.
the landlord’s solicitor will ask the tenants solicitor to give an undertaking for costs - t’s solicitor will need to ensure they have money in the client account form the client to cover the undertaking.
the undertaking will typically cover the landlord’s solicitors and surveyors costs in considering the application - it will be capped at a certain amount e.g. £850 + VAT
once the undertaking has been provided, the landlord’s solicitor will prepare a draft licence to assign.
differences between a grant of a lease and an assignment procedure
whereas a new tenant will have the opportunity to negotiate the lease, an assignee generally takes the lease as it is - only in rare instances, e.g. the landlord would prefer to have the assignee over the tenant, might the landlord agree to cary the lease which would require a deed of variation.
on completion of assignment
the assignee’s solicitor sends the tenant’s solicitor the completion monies.
the landlord’s solicitor, tenant’s solicitor and assignee’s solicitor agree over the telephone to complete and date the licence to assign.
underletting - what is it?
involves the tenant creating an under lease to the under tenant
the tenant takes on a landlord role but their landlord = the superior landlord
under tenant is likely paying market rent.
who is liable in an underletting for breach of covenants
After underletting, the tenant remains liable to the landlord for its covenants.
After underletting, the undertenant is liable to the tenant for its covenants, but will generally be required to give the landlord a direct covenant, as otherwise it is not liable directly to the landlord.
what is a licence to assign?
landlord’s consent to assignment or underletting is documented in a formal deed
long leases - licence to assign?
most long leases do not require landlord’s consent to assign.
common provisions in licence to assign and underlet
the assignee or underlesee covenants directly with the landlord to observe the obligations in the lease.
tenant agrees to pay the landlord’s costs
notice of dealing
following an assignment the assignee will be required to give the landlord formal notice within a month that the transaction has completed
different forms of alienation
prescribed clauses?
summary of the important details in the lease and bring together on one place all the information the land registry needs to know to complete registration
commencement clause
this lease followed by the date of its grant. and the names and addresses of the parties.
