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Property Law & Practice > SGS 8 - Contents of a lease: Repair > Flashcards

SGS 8 - Contents of a lease: Repair Flashcards

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1
Q

What will LL typically want from a lease?

A
  • Clear income stream in form of rent
  • That rent received is not reduced by running costs
  • Requires tenant to be responsible for these as the owner of the leasehold interest
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2
Q

What does the clear rent principle dictate when the landlord does not have make payments towards running of the property?

A
  • Tenant reimburses LL for such expenditure
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3
Q

What is the FRI lease?

A
  • Full repairing and insuring lease

- Tenant in/directly through service charge payments pays for repair and insurance of property

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4
Q

What can LL expect from FRI lease?

A
  • Clear return on investment
  • Free from additional costs
  • PLUS capital growth on their investment
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5
Q

Which sort of tenant has the strongest bargaining power?

A
  • Anchor tenant

- In shopping centre e.g. john lewis - could negotiate deviations from the standard terms of a FRI lease

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6
Q

What is covenant strength?

A
  • Tenant being solvent / reputable
  • And more likely to pay rent and comply with leasehold covenants.
  • Want to be sure of current ‘passing’ rent but also future uplifts of rent
  • Usual to have rent review every 5 years
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7
Q

What is the benefit of having tenants with good covenant strength?

A
  • Property more attractive to potential buyers

- Capital value more likely to increase

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8
Q

What is a rent deposit?

A
  • LL get amount of money to be paid before grant of lease
  • To be held for duration of tenant ownership of the lease
  • Documented in rent deposit of deed - which sets out circumstances in which LL can draw against deposit £ and how it will be repaid.
  • Usual to put into a separate account
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9
Q

What happens if the tenant has no rent deposit?

A
  • Someone else can guarantee performant of tenant obligations
  • A guarantor. They should be advised of potential liabilities
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10
Q

what are the tenant objectives?

A
  • ensure no restrictions that prevent them from using premises for required purpose
  • make sure rent does not rise too steeply
  • ensure it can assign / sell / underlet the else if premises are no longer required
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11
Q

What is “alienation”?

A
  • Transactions that involve tenant either disposing of existing leaseholder interest
  • Or granting further leasehold interest out of that leasehold interest to a third party
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12
Q

Explain the process of granting a lease?

A
  • Investigate LL freehold title
  • Carry out all the relevant pre-contract searches and enquiries
    • To check that the LL actually has authority
    • To see if anyone else has rights over the property
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13
Q

Explain the following point of difference between grant of lease and sale of freehold:

LENDER CONSENT

A
  • Some properties subject to a mortgage
  • Mortgage - not discharged on grant of lease
  • Proprietorship register of LL title will also have lender restriction forbidding any disposition, e.g. the grant of a lease without getting consent from lender
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14
Q

How will the mortgage be released on the sale of a freehold?

A
  • DS1 / e-DS1 for registered land
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15
Q

Explain the following point of difference between grant of lease and sale of freehold:

DOCUMENTATION

A
  • New completion document = the lease itself
  • Replaces the purchase deed (TR1) used in sale / purchase of freehold land
  • Agreement for lease required
  • There is no deposit paid by tenant –> LL on exchange of agreement for lease for commercial FRI lease
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16
Q

What is an agreement for lease?

A
  • Conditional agreement - is a contract

- There are conditions precedent that need to be satisfied before you are able to move in

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17
Q

What happens when the lease is produced, agreed and ready to be completed?

A
  • Produced in duplicate on thick paper and bound
  • Known as “engrossements”
  • Original is signed by LL
  • Other part signed by tenant
  • At completion - 2 parts are dated and each party sends a signed copy
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18
Q

Summary of the Pre completion searches for a lease?

A
  • Official search of register - OS1 / OS2
  • SDLT
  • Registration for leases post 13 Oct 2003
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19
Q

Searches to carry out?

A
  • CON29 / CON29O
  • LLC 1 - local authority search
  • Water drainage / waterways search
  • If there was a mine nearby, mining search
  • SIM search - search of the index map
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20
Q

What do the OS1/OS2 searches achieve?

A
  • Official Search of Register - OS1 of the landlord title
  • OS2 - if taking a lease of part
  • These give 30 working days priority from date of search result
  • Carried out if tenant lease needs to be registered
  • Identify if any changes to landlord official copy of title, since the “search from” date specified on the version from beginning of transaction
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21
Q

What is the SDLT search required?

A
  • SDLT may be payable on the grant of a lease
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22
Q

Explain the Registration search for leases?

A
  • All f/h property must be registered
  • Leases from 13 October 2003 only require registration at Land Registry if they are for more than 7 years.
  • Lots of classes of title. Absolute, Good Leasehold, Posessory, Qualified.
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23
Q

What are the 8 key lease provisions?

A 
Demise 
Repair 
Insurance 
Services 
Use 
Alteration 
Alienation 
Rent Review
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24
Q

Is forfeiture automatic?

A
  • No, need an express ability to be able to forfeit for the non-payment of rent.
25
Q

How is “premises” defined in different properties

A
  • When only a lease of part - the premises demised to the tenant will only be the “internal envelope”. All structural and external parts excluded
  • Common parts - reception areas / lifts / toilets / external parts
26
Q

Describe the interrelationship with covenants to repair and “premises”

A
  • Tenant will be under obligation to keep premises in repair
  • Tenant solicitor should make sure that only areas within the demise to the tenant are included in tenant repairing obligations
  • Common areas - maintained by landlord&raquo_space; service charge to recover costs from tenants
27
Q

What are “rights granted and reserved”?

A
  • Right to occupy the premises itself
  • Tenants might needs rights over the rest of the building - particularly if a lease of only part of building
  • TS - check that there are adequate rights
28
Q

What are the 3 elements of repair in a commercial lease?

A

(1) the obligation on the tenant to repair the premises during the term;
(2) the obligation on the tenant to replace items within the premises (usually only those which are damaged beyond repair) during the term; and
(3) the obligation on the tenant to decorate the premises during the term at the intervals agreed by the parties.

29
Q

Compare and contrast the tenant and landlord objectives?

- LANDLORD

A
  • Obtain clear rent (clear income stream)
  • By making sure tenant pays for running costs associated with property
  • Capital value of property to rise
  • Sweep up clause
30
Q

Compare and contrast the tenant and landlord objectives?

- TENANT

A
  • Definition of “premises” does not include areas that it has not anticipated that they will need to keep in repair
  • Critical that each and every part of building is someones responsibility - TS should make sure LL obligated to repair other areas
  • Make sure LL acts reasonably
31
Q

Why would a tenant lease instead of buying

A
  • More flexible
  • Availability of property to purchase
  • Expense
  • Taking a risk by buying property - no guarantee that you will be able to sell it afterwards.
  • Property management - not ideal for commercial tenants who just want
32
Q

What is “repair?”

A
  • Restoration by renewal / replacement of subsidiary parts of a whole
  • Involves no more than renewal / replacement of defective parts; not the whole thing.
  • Schedule of condition - photographs and verbal description of premises prepared by surveyor
33
Q

Why would a tenant not like liability for “renew” or “replace and rebuild”?

A
  • As it extends the tenants liability beyond repair
  • Would only want to have to replace item where it is beyond economic repair.
  • And would want to replace with items that are “substantially similar”.
34
Q

When is a schedule of condition usually required?

A
  • For old buildings.
35
Q

What are latent or inherent defects?

A
  • Defects that arise because of design / construction of property
  • Concern of new buildings.
  • Rectifying can be costly for tenant
  • Liability depends on drafting of the repair clause.
36
Q

How can tenant solicitor prevent liability from latent / inherent defects arising?

A
  • Excluding “any obligations arising from an inherent defect with a requirement that the LL is to assume responsibility”
37
Q

What should tenant ensure re decoration?

A
  • LL does not have a veto over colours used
  • Tenant will not be required to redecorate in the last year of the term if the tenant has redecorated within the previous 12 months.
38
Q

Acting reasonably

A
  • If any element of the repair clause is drafted so the tenant has to do something to the satisfaction of the landlord, the tenant will want to amend this to “the satisfaction of the landlord[’s surveyor], acting reasonably”. Equally, if costs are referred to, they should be “reasonable and proper”
39
Q

Explain the covenant to ‘yield up’ in repair - what happens if tenants do not ensure that premises are in adequate repair at the end of the term?

A
  • Yield up / give back premises to LL in full accordance w/ repair obligation.
  • Schedule of dilapidations may be served on the tenant
  • Tenant can: do repairs, or agree sum of payment representing cost of repairs.

“if the landlord requests it to remove the tenant’s fixtures and fittings at the end of the term and make good any damage caused during such removal”

40
Q

Where is the code of leasing business premises: repair, found?

A
  • Recommendation 7 of the Code covers repair
  • Says tenants repairing obligations should be appropriate to length of term and also condition of premises.
  • One of the more controversial recommendations adopted in the Code
41
Q

Explain insurance for the FRI lease?

A
  • Common for LL to insure whole building
  • And recover proportion of cost from each tenant.
  • T will want insurance to be effected with reputable insurer
  • Should ask to see copy of insurance policy prior to grant of lease
42
Q

Explain insurance for the tenants covenant to pay?

A
  • Tenant will covenant to pay insurance premium, or fair proportion of it
  • Insurance payments are referred to as “insurance rent”
  • Reason for these sums to be reserved as “rent”
43
Q

What are examples of typical insured risks?

A
  • Fire / riot / storm / burst pipes / quakes
  • Flooding and terrorism - controversial
  • Sweeping up clause: “such other risks as the landlord may from time to time reasonably consider necessary”
44
Q

What is rent abatement / rent suspension?

A
  • Tenant is always obliged to pay rent unless there is a clause suspending the payment of rent
  • Tenant has to make sure that clause suspending the payment of rent is included in the lease
45
Q

Explain a covenant by the LL to reinstate the premises?

A
  • No common law obligation on LL to use insurance to reinstate premises
  • Which have been damaged by insured risk
  • Covenant “reinstate and to make up any shortfall in the insurance monies out of its own monies”
46
Q

What is forfeiture? Explain how this can be a remedy for the LL.

A
  • LL remedy for breach of tenant covenant
  • Which involves bringing lease to an end before expiry date
  • And removing the tenant from the premises
    Express forfeiture provision in the lease - commercial lease usually contains provisio enabling LL to re-enter the demised premises and end the lease early
  • Right of LL to forfeit a lease is not automatic
  • Only available as a remedy if the lease expressly reserves such a right
    LL re-entry can be peaceable
47
Q

Which notice does the LL have to serve on the tenant before exercising right to forefeiture for breach of covenant?

A
  • S146 LPA 1925 notice on tenant
  • Exception - for breach of covenant to pay rent
    • Set out breach
    • Require remedy
    • Claim compensation required
48
Q

How can the tenant respond to a s146 LPA notice?

A
  • Apply to court under s146(2) LPA 1925

- For relief against forfeiture to have the lease reinstated

49
Q

What should be included in s146 notice

A
  • Specify breach
  • Require T to remedy the breach
  • Tells about the availability to remedy the compensation
50
Q

Explain forfeiture?

A
  • LL may be able to forefeit lease / remove tenant
  • Other remedies - depend on specific breach / circumstances

Circumstances
• Non - payment of rent
• Breach of repairing covenant
• Other breaches

51
Q

NON PAYMENT OF RENT: explain FORFEITURE as a remedy?

A
  • Check FFT clause
  • Check within time periods
  • S146 LPA notice serve
  • FFT = easier remedy to go for in this breach
    S146(11) LPA 1925
52
Q

NON PAYMENT OF RENT: explain action for damages as a remedy?

A
  • Can only issue proceedings for rent recovery
  • That was due 6 yr prior to issuing proceedings
  • S19 Limitation Act 1980
53
Q

NON PAYMENT OF RENT: explain CRAR (Commercial Rent Arrears Recovery) as a remedy?

A
  • LL can seize goods to the value of the sum that is owed
  • 7 clear days notice on tenants served before seizing goods
  • Following service of notice - enforcement agent can take control of goods
  • Can be used to recover rent / VAT / interest
  • Limited to 6 years arrears of the actual rent only.
  • Cannot be exercised if the rent has been forfeited.
54
Q

NON PAYMENT OF RENT: explain security as a remedy?

A
  • Rent deposit
  • LL can draw on this to cover up the arrears
  • Guarantor / former tenant
55
Q

What is a self help clause for the landlord?

A
  • Jervis v Harris clause
  • Should always be kept in commercially
  • The word “debt” is what demonstrates that this is a Jervis v Harris clause.
  • Benefit of debt - any sum that is claimed is not subject to same limitations / requirements
  • Imposes a ceiling on damages - only claim the amount that was lost. If the money is reclaimed as a debt - can recover what you choose.
  • Debt&raquo_space; not subject to s18 LTA
56
Q

When can specific performance to force the tenant to comply with its repairing obligations come into effect?

A
  • Is available in principle
  • According to the case of Rainbow Estates v Tokenhold
  • This is a discretionary remedy + more likely to be obtained in exceptional situation
57
Q

What happened in the case of Rainbow Estates v Tokenhold?

A
  • Specific performance order to force tenant to comply with repairing obligations is available in principle
  • This is a discretionary remedy and is more likely to be obtained in exceptional circumstances.
58
Q

Will a tenant have to pay rent if they are unable to occupy bc of damage due to flooding?

A
  • As long as tenant has not breached insurance policy, rent will be suspended where damage caused by an Insured Risk occurs and makes premises unfit for occupation and use
  • Will be suspended for 3 years
  • Or until the Premises are fit for occupation and use
  • See the particular clause

Property Law & Practice (6 decks)

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