Property Law 6

Question 1

What is the definition of a lease?

Answer 1

“the grant of a right to the EXCLUSIVE POSSESSION of land for a DETERMINATE TERM LESS THAN that which THE GRANTOR HAS HIMSELF in the land.

Question 2

What are the essential ingredients of a lease?

Answer 2

• Exclusive possession
• If over 3 years requires a deed
• If under 3 years can be in writing or oral
• Fixed term or periodic tenancy
• The reversion (the property reverts to the LL after the lease comes to an end).

Question 3

What is the “term commencement date”?

Answer 3

The date on which the lease term starts

NOTE: the term commencement date can be earlier or later than the lease is dated.

Question 4

What is a commencement date that starts after the lease is dated called?

Answer 4

a reversionary lease

Question 5

If the term of a lease is “from and including” a certain day of the year, when does the term expire?

Answer 5

The day before that day of the year

E.g. a term of 10 years from and including 1 April 2010 would end on 31 March 2020.

Question 6

If the term of a lease is “from “ a certain day of the year, when does the term expire?

Answer 6

The day of that day of the year

E.g. a term of 10 years from 1 April 2010 would start on 2 April 2010 and end on 1 April 2020.

Question 7

If a lease is silent as to whether rent is payable in advance or arrears, which method is used?

Answer 7

Rent will be payable in arrears.

Question 8

What are the four types of rent review?

Answer 8

• Stepped rent - increase by set amount
• Index-linked rent - increased by reference to an index
• Turnover rent - calculated by the tenant’s turnover
• Open market rent - MV

Question 9

When thinking about MV, What assumptions are there on a hypothetical lease?

Answer 9

• the tenant has complied with covenants
• the landlord has complied with all its covenants
• on the conditions as the actual lease
• same term as lease
• if damaged/destroyed, the premises have been repaired or rebuilt

Question 10

What disregards are there on a hypothetical lease?

Answer 10

• the effect of the tenants occupation
• goodwill attached to business
• tenants improvements

Question 11

What happens after the rent review is complete?

Answer 11

The new rent is documented in a “rent review memorandum”

Question 12

What are the risks of a rent review before the first 5 year anniversary?

Answer 12

SDLT may be due may be due as its calculated by the first 5 years of rent

Question 13

What is the purpose of the Code for Leasing Business Premises?

Answer 13

“improve the quality and fairness of negotiations on lease terms”
AND
“promote the issue of comprehensive heads of terms that should make the legal drafting process more efficient”

Question 14

Who does the Code for Leasing Business Premises apply to?

Answer 14

RICS regulated individuals

Question 15

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

Answer 15

• Lease negotiations must be approached in a constructive and collaborative manner.
• An unrepresented party must be advised of the existence of the code.
• The landlord is responsible for ensuring that the heads of terms compliant with the code are agreed before the draft lease is circulated

Question 16

What areas MUST be covered by the heads of terms under the Code for Leasing Business Premises?

Answer 16

• extent of the premises
• length of term and break rights
• rent and rent review
• repairing obligation
• rights to assign or underlet the lease
• permitted use of the property
• rights to alter the property and obligation to put the property back in its original state.

Question 17

What areas are GOOD PRACTICE to cover in the heads of terms under the Code for Leasing Business Premises?

Answer 17

• all the rights the tenant will need for its use of the premises
• How rent will be reviewed and when rent is payable.
• Advise of limits to repairing obligation
• Suspend rent if buidling is damaged

Question 18

When can a RICS member depart from the GOOD PRACTICE elements of the Code for Leasing Business Premises?

Answer 18

A strong reason to do so.

Question 19

What are the stages of a grant of lease?

Answer 19

• Pre-exchange (not common)
• exchange (not common)
• Pre completion
• Completion
• Post completion

Question 20

What are the steps required of the Landlord’s solicitor pre-exchange?

Answer 20

• Take instructions
• prepare draft lease and, if relevant, agreement for lease
• DEDUCE title and respond to any queries on title
• Answer pre-contract enquiries
• Once agreed, print the agreement for lease, obtain LL’s signature, and send counterpart to tenant’s solicitor.

Question 21

What are the steps required of the Tenant’s solicitor pre-exchange?

Answer 21

• Take instructions
• Review draft lease and agreement for lease and amend as required
• INVESTIGATE title and raise queries
• Raise pre-contract enquiries and searches
• Arrange for tenant to sign counterpart lease.

Question 22

Which enquiries will the tenant’s solicitor raise?

Answer 22

CPSE1 (as a buyer would in a commercial transaction)
CPSE3 (which are specific to a lease)

Question 23

If a contract is used, what is the process for exchange and what does the contract normally cover?

Answer 23

• LL’s Sols and T’s Sols exchange as for a freehold property (usually using Law Societ B)
• No deposit is usually payable
• The agreement will likely set out conditions to be met for the lease to start (e.g. property being built)
• agreement will normally have a draft of the lease annexed.

Question 24

What are the steps required of the Landlord’s solicitor pre-completion?

Answer 24

• Prepare original and counterpart lease, obtain LL’s signature and sent to counterpart for T’s signature.
• Prepare and send the completion statement detailing money due on completion

Question 25

What does the Code for Leasing Business Premises apply to?

Answer 25

commercial lettings except short tenancies of 6 months or less.

Question 26

Delete

Answer 26

commercial lettings except short tenancies of 6 months or less.

Question 27

What are the steps required of the Tenant’s solicitor pre-completion?

Answer 27

• arrange for T to sign counterpart lease
• Obtain funds from client needed to complete as per completion statement
• raise pre-completion searches

Question 28

What searches are carried out at the pre-completion stage?

Answer 28

• OS1 with a lease of whole,
• OS2 with lease of part.

If the lease is not registerable then:
- OS3 (this does not give priority)

Question 29

What happens on completion?

Answer 29

• T’s Sols send L’s Sols the completion monies
• LL and T’s solicitor agree to complete and then date the executed leases
• LL and T’s Sols send the completed original and counterpart to each other.

Question 30

What happens post completion?

Answer 30

• LL’s Sols sends a summary of main provisions of lease to client
• T’s Sols arrange and submit SDLT and pay
• T’s Sols registers Lease if necissary

Question 31

Where are the repairing obligations set out? And what are the types?

Answer 31

as a tenants covenant in the lease.

• They may be full - i.e. repair the whole building into a good state, or
• They may be qualified - i.e. maintain the standard the building is already in

NOTE: should also check definition of premises to see the extent of the obligation

Question 32

Who is generally responsible for the insurance of a building?

Answer 32

• the commercial LL

Question 33

Which repairing obligation is used in an FRI?

Answer 33

Always a full repairing obligation

Question 34

Who is responsible for insurance under an FRI

Answer 34

The landlord

Question 35

Who is responsible for repairing the exterior?

Answer 35

If a part of a building- LL

If a whole of a building - Tenant

Question 36

Does the Landlord recover the insurance from the Tenant?

Answer 36

Yes - through ‘insurance rent’.