Structure & Content of a Lease

Question 1

What are the options for the term of a lease?

Answer 1

Fixed: comes to automatic end without having to serve notice

Periodic: runs until either party decides to terminate by serving notice (length of one period, or 6 months for yearly tenancy)

At will: can be terminated by either party at any time

Question 2

What are the 3 categories of leasehold covenant?

Answer 2

1. Absolute Covenant: tenant absolutely cannot carry out stated action
2. Qualified Covenant: tenant can carry out stated action with landlord’s consent
3. Fully Qualified Covenant: tenant can carry out stated action with landlord’s consent & landlord cannot withhold consent unreasonably

Question 3

What is the difference between a Qualified Covenant & a Fully Qualified Covenant?

Answer 3

Qualified: can only do it if obtain landlord’s consent

Fully Qualified: can only do it if obtain landlord’s consent & landlord cannot withhold consent unreasonably

Question 4

When will a tenant be obliged to repair under a covenant to repair?

Answer 4

When there is disrepair ie. physical condition of property has deteriorated

(nb. not obliged to give back ‘wholly different’ property, but can be obliged to remedy inherent defect if that is only way to effect repair)

Question 5

What is the standard of repair in a lease covenant to repair?

Answer 5

Judged with regard to age & nature of property ⇒ should be fit for occupation such that a reasonably-minded tenant would be likely to take up tenancy

Question 6

What is the extra burden where a repair covenant is to:

• ‘Keep in repair’
• ‘Keep the property in condition’?

Answer 6

‘Keep in repair’ = put into repair, even if that means putting it into a better state than when they entered into the lease

‘Keep property in condition’ = carrying out work where no actual disrepair

Question 7

What are the 3 insurance related covenants in a lease?

Answer 7

1. Covenant by landlord to insure property against defined risks
2. Covenant by tenant to pay for insurance policy (premium for building’s insurance policy + loss of rent insurance)
3. Covenant by landlord to use insurance proceeds to reinstate the property (where damage is caused by an insured risk)

Question 8

Why is it important to have a rent suspension provision & termination provision in the insurance clause of a lease?

Answer 8

Because unless stated otherwise, rent will continue to be payable even if property unusable & no right of termination except in exceptional circs

→ Rent suspension: tenant should ensure lease provides for suspension if property cannot be occupied following damage by insured risk

→ Termination: usually gives landlord right to terminate if reinstatement impossible (tenant should try ensure they have same right)

Question 9

What are the different types of alterations that most alterations clauses make distinctions between?

Answer 9

Structural & exterior

v

Non-structural interior

v

Alterations affecting service media (heating, lighting, comms)

v

Demountable partitioning (usually allowed with no consent required)

Question 10

If there is an absolute covenant against alterations, can a tenant carry out improvements? (s3 LTA)

Answer 10

A tenant of business premises can carry out improvements even if lease contains absolute prohibition:

i. Tenant serves notice on landlord of proposals ➜ L has 3 months to object

ii. If object, T can apply to court for authorisation to make the improvements

• Court may authorise if adds to letting value, are reasonable & suitable to character of property, do not diminish value of any property of L
• T can then apply for compensation once lease ends if improvements have increased letting value

iii. Alternatively, landlord can offer to carry out works itself in return for reasonable increase in rent

Question 11

Under s3 LTA, where a business tenant has carried out improvements, when can they apply for compensation?

Answer 11

If obtained court authorisation to make the improvements, can apply for compensation once lease ends if the improvements have increased the letting value

Question 12

What is a licence to alter?

Answer 12

Sets out the conditions required for the landlord’s consent as part of a qualified alteration covenant

Question 13

What is the effect of s19 LTA on a qualified covenant on improvements?

Answer 13

It upgrades it into a fully qualified covenant, ie. L cannot unreasonably withhold consent

Nb. works will be an improvement if they increase value / usefulness of property to the tenant

Question 14

What kinds of covenant might there be in a lease in relation to use & planning?

Answer 14

Covenant by T to use property for restricted single purpose (may put off a tenant, depress rent on rent review) or covenant that allows changing use within Use Classes Order

Nb. L cannot charge fine or increased rent as condition of giving consent (provided no structural alteration involved)

Question 15

What is ‘alienation’?

Answer 15

Generic term for different ways of creating an interest in property for benefit of third party ⇨ includes:

• Assignment (transferring lease to someone else)
• Underletting (subletting)
• Charging (mortgaging)
• Sharing occupation with a TP
• Parting with possession

Question 16

What is the effect of s19(1)(a) LTA 1927 on a qualified covenant against alienation?

Answer 16

Upgrades any qualified covenant against alienation without landlord’s consent into a fully qualified covenant (ie. landlord’s consent cannot be unreasonably withheld)

(Nb. L can recover costs reasonably incurred in giving consent)

Question 17

What is set out in s19(1A) LTA 27 & what type of alienation does it apply to?

Answer 17

For assignment provisions in new commercial leases only

Allows agreement in advance of the conditions & circumstances in which it would be reasonable to withhold consent

Question 18

What is the difference between s19(1)(a) LTA 27 & s19(1A) LTA 27?

Answer 18

s19(1)(a): upgrades any qualified covenant against alienation without L’s consent into a fully qualified cov

s19(1A): applies to assignment in new commercial leases only - allows agreement of conditions & circumstances in which reasonable to withhold

Big A for BIG ASSIGNMENT

Question 19

If a tenant has made a written application for consent for alienation, what is the time limit for the landlord to reply?

Answer 19

Must respond within ‘reasonable time’ (28 days)

1. Giving consent (unless reasonable to withhold) and
2. Serving written notice of decision, specifying any conditions or the reasons for withholding consent

Question 20

Is unsatisfactory references of proposed assignee a reasonable reason for withholding consent?

Answer 20

Yes

Question 21

Is long-standing & extensive breach of repair covenant (where L not satisfied assignee would be able to remedy) a reasonable reason for withholding consent?

Answer 21

Yes

Not reasonable if only minor breaches

Question 22

Is minor breaches of repair covenant by assignor a reasonable reason for withholding consent?

Answer 22

No

Question 23

Is it reasonable for the landlord to withhold consent where the assignment would reduce the value of their reversion?

Answer 23

Yes

Nb. not reasonable if L has no intention of selling

Question 24

Is it reasonable for a landlord to withhold consent if the proposed assignee’s intended use is inconsistent with the landlord’s ‘tenant mix’ policy?

Answer 24

Yes

(Tenant mix = eg. grouping of particular types of shops in shopping centre)

Question 25

If there is no express provision in the lease, is rent deemed to be payable in advance or in arrears?

Answer 25

Arrears

Question 26

What is open market rent review?

Answer 26

Rent assessed at regular intervals (usually 3-5 years) during term based on what rent would be if property leased on open market

Question 27

What is index-linked rent review & turnover rent review?

Answer 27

Index-linked: rent linked to external index so altered in line with inflation (usually has limit on increase but also minimum increase)
Downside: indexes don’t track property prices specifically

Turnover: rent linked to success of tenant’s business (eg. through their revenue)
Downside: L suffers if T’s business is down

Question 28

An open market rent review considers what the hypothetical tenant would pay for a hypothetical lease on the basis of certain assumptions & disregarding other facts.

What are common assumptions?

Answer 28

i. Property available with vacant possession

ii. Same provisions as real lease (aside from rent payable)

iii. Lease has term of [x] years (original term or time left of actual term)

iv. Tenant has complied with their obligations in the lease

v. If property has been destroyed or damaged, has been fully restored

Question 29

An open market rent review considers what the hypothetical tenant would pay for a hypothetical lease on the basis of certain assumptions & disregarding other facts.

What are 3 common disregards?

Answer 29

Any goodwill bulit up by tenant

Any voluntary improvements made by tenant

That tenant is in occupation

Question 30

Will the landlord’s right to rent review be affected if they are late doing it?

Answer 30

No - time is not of essence in rent reviews (unless expressly stated in lease)

Question 31

What is the Code for Leasing Business Premises?

Answer 31

Code produced by Royal Institute of Chartered Surveyors - all RICS members must comply (landlords, non-Rics members not bound, but solicitor may be open to allegation of improper conduct/negligence if don’t follow)

Some mandatory & some good pr

Question 32

What are the 3 mandatory requirements of the Code for Leasing Business Premises?

Answer 32

1. Lease negotiations must be conducted in constructive & collaborative manner
2. Any party not represented must be told about code & advised to get professional advice
3. Transaction terms must be recorded in writing , summarising the specified provisions:
   a. Identity & extent of premises
   b. Length of term & any renewal / break rights
   c. Rent & rent review
   d. Insurance
   e. Assignment rights
   f. Repair, permitted use & alterations obligations