Property practice session 3

Question 1

What is the demise?

Answer 1

This is the property that is being let. If it is a lease of part, it has to be defined- contains the inside of building walls.

Common parts are the area all the tenants can use- tenants given rights to use and remain landlords responsibility

Question 2

What is the term and break clause

Answer 2

This is the length of the term. A break clause is when the lease can be broken mid term

Question 3

How do you do a rent review?

Answer 3

on a hypothetical lease- valour would look at the current state of the property and reduce rent if the tenant has not complied with any of their covenants. Assumption therefor is that the tenant has complied

If the landlord does not keep their covenants, the assumption is that the landlord has not complied, and therefore the rent is reduced

Some matters are disregarded when reviewing rent- eg if the tenant improves the premises this will be disregarded as they are then being punished for improving the property.

This is then backdated to the rent review date- not in the interests of either party.

The tenant will then pay interest on the backdated rent

Question 4

What are the tenants repairing obligations

Answer 4

Tenant has to keep the premises in repair.- if not in repair they will then need to put the premises into a state of repair.

LL may phrase as ‘good and substantial repair’.

Good repair and condition- this puts a further onus on tenant for things like condensation.

Tenant may want a clause requiring them not to put it in a better state of repair and condition than they were at the beginning of the term

Question 5

What are latent and inherent defects

Answer 5

These are problems that emerge from newly built properties due to errors of design or workmanship- tenants should not be asked to repair these.

Question 6

What is the position for alterations?

Answer 6

Cannot reduce the value of the property- in an FRI lease, will be greater protected.

Question 7

What is an absolute covenant?

Answer 7

this cannot be done at all

Question 8

What is a qualified covenant

Answer 8

this means the tenant can do what it is they want but with the landlords consents. If for an alteration, and the alterations amount to an improvement-its implied that the landlord cannot reasonably withhold consent

Question 9

What is a fully qualified covenant

Answer 9

This will state that the landlords consent cannot be unreasonably withheld.

Question 10

What is the change of use position?

Answer 10

it may be a qualified, fully qualified or absolute covenant. Consent is required- no statutory provision, does not have to act reasonably.

Question 11

What is the code for leasing business premises?

Answer 11

This is to promote transparency and negotiating.

Affects RICS members.

Implements mandatory requirements and good practice:

Mandatory:
Lease negotiations in a constructive and collaborative manner
A party not represented by an RICS member must be advised by the other party about existence of the code
Must be recorded in a set of heads of terms

Good practice:
Break clause conditional on basic rent.
Repairing obligations should be appropriate on the term.
No prohibition of non-structural alterations
Terrorism insurance should be included

Question 12

What is the position of alienation provisions in a lease?

Answer 12

Can be an absolute covenant, qualified or fully qualified.

Under statute, a qualified covenant gets automatically upgraded and cannot unreasonably delay.

Question 13

What is the proceedure for applying to consent

Answer 13

A formal written application is made to the landlord

An undertaking is given for the costs of the landlord

Lastly the landlord will look at the covenant strength of the parties,

What are reasonable grounds for withholding consent:
1) unsatisfactory covenant strength.
2) proposed use would breach lease
3) business that competes with landlord
4) mixed-use policy

Unreasonable:
1) Landlord’s personal grievance
2) leverage
3) minor beaches of repairing obligation

Question 14

What does a licence do?

Answer 14

This formalises the landlords consent
Creates privity of contract

Question 15

What are the rules for assignment of a lease before after 1996?

Answer 15

After 1st Jan 1996- not necessary to create privity of contract as the act automatically binds the assignee but does not apply to subletting

Question 16

What is in a licence to assign

Answer 16

An AGA is required by the outgoing tenant (especially if pre 1996). This means the outgoing tenant guarantees the obligations of the incoming tenant. Only lasts as long as that relationship exists, if a new tenant comes in, the old tenant is discharged of their obligations if a new AGA is signed

There is also no release of tenant obligations.

Question 17

What is in a licence to underlet?

Answer 17

Draft underlet
a covenant to observe covenants of both leases

Question 18

What are the different types of business tenancy?

Answer 18

1) lease
2) licence
3) tenancy at will

Question 19

What is security of tenure?

Answer 19

This is governed by the Landlord and tenant act 1954- this means that they can ‘hold over’ after the end of the contractual term and can apply to the court for a new tenancy.

Question 20

How do you contract out of security of tenure?

Answer 20

1) notice must be given in required form
2) Tenant must give a declaration to this that they understand the implications of excluding the security of tenure provisions

If the notice is given at least 14 days in advance, then the tenant can provide an ordinary declaration. If not, has to be a statutory declaration.

Lease must state that they have been excluded and made reference to the declaration.

Question 21

How do you end a protected lease?

Answer 21

IF the tenant wants to leave, it is very straightforward and they do and the lease comes to an end.

If they don’t, they will hold over (unless they forfeit by rent unpaid etc)

Question 22

What notices can you serve if a tenant is holding over?

Answer 22

1) section 25 notice- served by landlord on tenant- brings current tenancy to an end- states date of termination.
If ‘friendly’- it means the landlord is willing to grant a new tenancy and sets out proposed terms.
‘Hostile’ notice- same as above, but states they are opposed to the grant of a new tenancy. Must have grounds to do so:

Mandatory:
1) alternative accommodation available
2) the landlord wants to demolition or reconstruct the premises
3) landlord intends to occupy the premises for their own purposes

Discretionary:
4) delay in paying rent
5) breach of repair obligation
6) any other breach.
(all of these need to be persistent and serious)
7) underlease of part- need the whole.

If landlord is successful in opposing the tenancy compensation is payable unless the ground is based on the tenants fault or alternative accommodation is available.
This is done at the following rates:
1) equal to the rateable value, or
2) if the tenant has been in occupation for 14 years or more, twice the rateable value

Compensation can be excluded or reduced if tenant is less than 5 years in occupation

2) section 26 notice- served by tenant on landlord:
1) requests a new tenancy
2) states date of proposed start
3) date of termination will be day before
4) sets out terms of proposed tenancy.

3) section 27 notice- served by tenant on landlord:
1)Not in prescribed form
2) Brings holding over to an endW

Question 23

What is the timing of the notice?

Answer 23

1) s25 notice, must be served no less than six months and no more than 12 months before the proposed date of the termination of the current tenancy

2) s 26 notice, no less than 6 no more than 12 before the commencement of the new tenancy (different from above as that is when it ends)

3) s 27 notice- is at least three months

Question 24

What is the advantages of a section 26 notice over simply holding over?

Answer 24

1) lower rent in a falling market
2) certainty of a new lease term
3) selling a business

Question 25

What is the interim rent?

Answer 25

both landlord and tenant can apply to the court for them to fix the rent.

Where landlord is willing to grant a new lease- rent is set at market rate

Where landlord is opposed- interim rent will be 10-15% lower than market rent

Question 26

If ordered by the court, what can the terms of the new lease be?

Answer 26

1) premises must be the same
2) the term is less than 15 years
3) has to be open market rent
4) other terms that the court deems relevant

Question 27

How can a lease be terminated?

Answer 27

1) effluxion of term

2) Notice to quite (periodic tenancy) - have to be on the prescribed period.

3) surrender- if both parties agree- need to pay a premium to the other party.

4) Merger- where the freeholder and leasehold are held by the same party eg the tenant buys the freehold for a third party buys both

5) forfeiture

Question 28

How can a landlord deal with rent arrears?

Answer 28

1) debt action in court (recover up to 6 years

2) claim debt from former tenant in case of privity of contract or AGA

3) Commercial Rent arrears recovery:
only be used to recover rent and interest and VAT (no service charge or insurance rent)
Cannot be used for less than 7 days rent
Only claim up to 6 years of arrears
7 days notice
Cannot be used with forfeiture.

Question 29

How does a landlord deal with a breach of repairing obligation?

Answer 29

Statutory cap to the amount by which the landlord reversion has been reduced in value.

Self help clause- jervis and hardin clause- landlord can serve notice to repair, if tenant fails- landlord can enter the premises, repair and recover the costs as a debt from the landlord

Question 30

What about other breaches?

Answer 30

1) damages
2) specific performance
3) injunction

Question 31

How does forfeiture work?

Answer 31

Non payment of 21 days
Breach of repairing obligation
Tenant insolvency.

Can be done by peaceful re-entry (changing locks)
By court order

Question 32

What is the landlord accepts the breach

Answer 32

If the landlord continues to accept rent or acknowledges the breach, they are deemed to have waived their right to forfeiture.

Difference between continuing and once and for all breach.

The tenant can apply for relief from forfeiture but it is an equitable relief- must show the court why it would be equitable to grant leave.