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SQE 1 - Property practice > Structure and content of a lease > Flashcards

Structure and content of a lease Flashcards

1
Q

What is a lease?

A

An estate in land granted by a landlord to a tenant whereby exclusive possession of a property is given to the tenant for a certain term

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2
Q

What is a FRI lease?

A

A full repairing and insuring lease that requires the tenant to be responsible for the costs of repairing and insuring the premises

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3
Q

What is an institutionally acceptable lease?

A

A lease that is granted on acceptable FRI terms, such that it would be suitable as an investment for an institutional investor

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4
Q

What repairing obligation should always be excluded from a lease for a tenant?

A

The responsibility for damage caused by an insured risk

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5
Q

What is the key to ascertaining the extent of the tenant’s repairing obligations?

A

The definition of the premises within the lease - are they taking a lease of a whole building or part of the building

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6
Q

How should a tenant seek to qualify the wording of the repairing covenant?

A
  • avoid an obligation to ‘put the property into repair’ as this will mean the tenant will be under a positive obligation
  • avoid an obligation to keep the property in ‘good condition’ as this goes further than remedying disrepair
  • exclude liability for wear and tear
  • exclude liability for historic contamination
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7
Q

Who insures the property?

A

The landlord at the expense of the tenant

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8
Q

What are typical insured risks?

A
  • fire
  • explosion
  • lightning
  • flood
  • storm
  • burst or overflowing water pipes
  • impact from vehicles/aircraft
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9
Q

What will the tenant’s concerns be?

A
  • the property is fully insured against damage or destruction by a comprehensive list of insured risks
  • the landlord is under an obligation to repair or reinstate in the event of such damage
  • they will not have to pay rent when the premises are unsuitable for use or occupation after such damage
  • they have the option to break the lease if reinstatement is delayed
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10
Q

What is rent suspension?

A

A provision in the lease that the tenant’s obligation to pay annual rent or a fair proportion of it will be suspended when the premises are damaged or destroyed by an insured risk, to the extent they are unsuitable or unfit for occupation

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11
Q

What should the lease provide regarding termination for repair?

A

That the landlord will be able to terminate the lease should the repair become impossible or impractical. Also the tenant should have the right to terminate following the end of the rent suspension if the premises have not been repaired

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12
Q

In a typical commercial lease of the whole property what alteration covenants are likely?

A
  • an absolute covenant against structural and exterior alterations
  • a qualified or fully qualified covenant against internal, non-structural alterations and changes to service media
  • no consent being requires for some very minor additions
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13
Q

What is an absolute covenant?

A

It provides that such action is not permitted under any circumstances. The only way around is to ask the landlord, get a deed of variation of the lease or to proceed and risk forfeiture of the lease

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14
Q

What is a qualified covenant?

A

Provides that such action is permitted but with the landlord’s prior consent

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15
Q

What is a full qualified covenant?

A

Provides that such action is permitted but with the landlord’s prior consent and that such consent is not to be unreasonably withheld

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16
Q

What happens if works are required to comply with the Equality Act 2010?

A

An absolute covenant will be statutorily modified to become fully qualified

17
Q

If no structural alteration is involved what cannot be a condition of giving consent by the landlord?

A

A fine or increased rent

18
Q

What is a typical clause relating to user and planning?

A

It will specify a use and allow diversification within a specific use class or classes

19
Q

What is the most common form of rent review?

A

An open market rent review which is when rent is reviewed on the hypothetical open market rental value of the premises at the time of review, considering stated assumptions and disregards - rent can only be higher than the rent previously payable

20
Q

What are the typical assumptions for rent reviews?

A
  • the property is to be let with vacant possession
  • the lease will be on the same terms, excluding the rent, but including the rent review provisions
  • the term will be equal to the unexpired residue of the term
  • the tenant has complied with its covenants
  • that the property has been reinstated if it has been damaged or destroyed
21
Q

What are the typical disregards for rent reviews?

A
  • the tenant’s occupation
  • the goodwill of the tenant
  • the effect of voluntary improvements by the tenant
22
Q

What does alienation concern?

A

Dealing with the tenant’s interest under the lease

23
Q

What does a typical alienation clause need to deal with?

A
  • assignment
  • underletting/subletting
  • charging/mortgaging
  • sharing occupation
  • parting with or sharing possession or holding the lease on trust for another
24
Q

What does assignment mean?

A

The transfer of an existing lease by the existing tenant to another tenant

25
Q

What does underletting/subletting mean?

A

The grant of a further lease carved out of an existing lease which may comprise of the whole or part of the premises but for a shorter term than the existing lease. The existing lease becomes the headlease and the further lease is an underlease/sublease

26
Q

What is sharing occupation?

A

It would include a licence where exclusive possession is not given

27
Q

What is parting with or sharing possession?

A

It would include both formal as well as informal assignment and underletting or other arrangements with the same effect

28
Q

What does s19(1)(a) LTA 1927 provide?

A

It provides that a qualified covenant is automatically upgraded to a fully qualified covenant - applies to covenants against assignment, underletting, charging, or parting with possession in all leases

29
Q

What does s19(1A) LTA 1927 provide?

A

Allows parties to specify circumstances and conditions to proposed assignments - typically include AGA and guarantors - and that compliance with such circumstances and conditions would be reasonable and the landlord would not be unreasonable in withholding consent if they were not complied with - only applies to qualified covenants against assignment in new leases

30
Q

What does s1 LTA 1988 provide?

A

For a qualified covenant the landlord must, within a reasonable time of a written application:
- give consent, unless it is reasonable not to do so
- give written notice of the decision, specifying any conditions to the consent or reasons for withholding it - applies to qualified covenants against assignment, underletting, charging, or parting with possession in all leases

31
Q

Why might a tenant want to underlease?

A
  • may dispose of the whole or part of a property on a temporary basis
  • in a rising market they may be able to profit from the rent
  • they will not be liable under an AGA and will be able to take control in the event of default by the under tenant
  • in a falling market they may be able to recover some of their costs by making some return on the property
32
Q

What conditions will an alienation clause provide for underletting?

A
  • underlease on same terms as the headlease
  • the rent is not less than the rent payable under the headlease, payable at the same times and subject to review
  • the underlease will be excluded from the provisions of Part II LTA 1954
  • no further underleases
  • undertenant enter into a direct covenant with the head landlord to observe and perform the tenant covenants in both leases except pay rent in the headlease
33
Q

What are the three main options for the term of a lease?

A
  1. fixed term - any fixed period
  2. periodic tenancy - week to week or month to month etc
  3. tenancy at will - tenancy can be determined by either party at any time
34
Q

What is the primary aim for the Code For Leasing Business Premises?

A

To improve the lease negotiation process by making it fairer and more constructive for commercial tenants - it contains mandatory principles and statements of best practice

SQE 1 - Property practice (10 decks)

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