Rent review, alienation and LL licences Flashcards
What does the Code say on upwards only rent review clauses?
Recommends use of alternatives….
What type of business will take a lease long enough to be subject to rent review?
Cinemas, hotels or offices still go for leases of 10 years and upwards BUT retail sector for example is now moving away from 10 year leases.
If drafting for a T what wording should be avoided in a rent review clause?
The words ‘best rent’ should be resisted as it will ALLOW THE VALUER to take into account bids by hypothetical potential tenants with a particular interest in bidding for the property and thus willing to pay the ‘best rent’ rather than a more moderate sum. E.G. tenant of adjoining premises who wants to expand.
How is the rent calculated?
Size, quality and location of premises:
Comparables - similar properties in the area.
Each party will have their own list of comparables to forward case in negotiation.
ALSO the HYPOTHETICAL LEASE - assumptions and disregards
Who is involved in the assessment and negotiation of rent review?
Appoint an expert surveyor.
What are the basic elements upon which a valuer makes their valuation?
- size, location, quality of property
- terms of the hypothetical lease, which should be as close as possible to the actual lease b/c
- a more flexible lease with fewer restrictions would mean the T would pay higher rent
while
- a lease that is ‘LL friendly’ in sense of more tightly controlled by LL as to what can and can’t be done, would attract a lower rent.
Describe why the following is fair - ‘Assume that the T has performed all its obligations’
If T had failed to decorate for e.g. - T would not only be in breach of duty, BUT this would mean the property would have lost rental value, which if not an assumption, would mean the T benefits from their breach through a lower rent.
Explain why this is NOT fair:
‘Assume that the LL has performed all of its obligations’
If the LL had not repaired a leaky roof for example and this had led to loss on part of T, this assumption would cause the valuer to calculate a rent that would be higher than the actual property would attract and thus reward the LL’s breach. Whilst the T would incur higher rental costs whilst still suffering effects of the breach.
Why is this Disregard fair?
‘Disregard any improvements made by the Tenant to the Property’
Fair b/c the T has made expenditure to improve the Property which if not disregarded in the valuation of the prop would incur a further cost in form of higher rent.
If h/e LL has paid for the improvements and merely asked T to carry them out should not be disregarded.
Is there any benefit to a T in a delay of agreeing rent review sum?
No b/c have to pay interest!
Lease must make allowance for delays in agreeing rent at review.
What are intervals of RR?
5 years.
Or 3 for retail.
What is the SDLT consequence of an ‘abnormal’ increase - more than 20%?
On properties where SDLT is payable, further SDLT will be payable in connection with any RR in first 5years of term…
What is Privity of Estate?
Relationship between parties with same interest in the land. e.g. Freeholder and Tenant and Tenant and Undertenant.
It ENDS when one party disposes of their interest.
What is Privity of Contract?
Privity of contract is between original parties of a contract.
Before the L
What is a ‘New’ lease?
What are the implications of this?
It is one granted FROM AND INCLUDING 1st Jan 1996 and removes privity of contract.
THUS in an assignment the assignor is automatically released from all covs and the assignee automatically bound.
The ‘New’ lease system means that a LL can no longer rely on the covenant strength of the original T in performing the obligations under the lease and will be more conservative with who they allow the T to assign the lease to.
