Landlord and Tenant pt 2

Question 1

What is a lease?

Answer 1

It is a contract between two or more parties that creates a legal interest in land and buildings. Registered on LR

Question 2

There are several legal tests to establish if a document is a lease or not. For a document to be a lease, it must:

Answer 2

o Be for a fixed period of time
o Grant exclusive occupation
o Be at a rent

Question 3

What are the key features of leases to look for?

Answer 3

o Demise – the agreed property to be let

o Parties – details of who the LL and the tenant is

o Rent – what is the commencing rent and when does it start/ quarterly etc.

o Lease Term

o Rent Review – nature, basis an frequency of any review of the rent during the term

o Repairing Liability – sets out who is responsible for the repair of the property during the term. i.e. fully repairing or internal repairing

o User clause – what can the property be used for. Not to be confused with PP use.

o Alienation – governs the ability of the tenant to grant a sublease all or part of their leasehold interest or assignment where it is sold in its entirety.

Question 4

What is security of tenure?

Answer 4

The Landlord and Tenants act 1954 protects business tenants at the end of their tenancy by giving qualifying business tenants the right to renew their lease on the same terms as before unless the landlord has reasonable grounds to oppose a renewal or the tenant as willingly opted out of this right.

Question 5

When may tenancies not be protected by the Act?

Answer 5

o The lease is not a business tenancy
o The tenancy is a tenancy at will
o The lease is a service tenancy
o The tenancy is for a term not exceeding 6 months (with no right to renew conveyed) and that the tenant has not been in continual occupation for more than 12 months
o The lease is contracted out of the security of tenure provisions within sections 24-28 of the Landlord and Tenant Act 1954. This needs to be done in a prescribed manner and prior to the commencement of the lease.

Question 6

What is the process of taking a lease Outside the Act?

Answer 6

Contracting out

1 The landlord serves a written warning notice on the proposed tenant confirming the statutory rights that the tenant is about to sign away. A copy of the lease/agreement for lease to be entered into is usually attached to this warning notice.

2. The tenant then makes a formal declaration confirming that it has read and understood the warning notice.
3. The parties then enter into the relevant lease, which must have the details of the warning notice and the tenant’s declaration.

Question 7

How would know whether a lease was Inside or Outside the Act?

Answer 7

The lease will clearly state whether it is inside or outside the provisions of section 24-28 of the Landlord and Tenant Act 1954 Part II.

Question 8

Where are the ground of opposition of a new lease set out?

Answer 8

Part 2 Section 30 of the act.

Question 9

Under section 30(1) what are the grounds for opposing a new lease?

Answer 9

a) failure to repair
b) persistent delay in paying rent
c) other substantial breaches by the tenant
d) suitable alternative accommodation is offered
e) subletting of part
f) landlord intends to redevelop/demolish
g) landlord intends to occupy

Question 10

Which are the no-fault grounds?

Answer 10

Part 2 – Section 30

e. Where the tenant has a sublease of part and the landlord is the superior landlord of the whole and the landlord intends to re-let the whole for substantially more than the aggregate of the rent obtainable on re-lettings of part;
f. If the landlord has a firm and settled intention and a reasonable prospect of achieving that intention to reconstruct, redevelop or demolish the premises. If the landlord proves that intention, the court has no discretion and they must refuse to grant a new tenancy. This can only be satisfied if the landlord requires possession of the premises to carry out the Works.
g. If the landlord intends to occupy the premises itself. The landlord can only rely on this if it has owned the premises for more than 5 years

Question 11

Under which grounds is the tenant entitled to compensation?

Answer 11

A tenant is entitled to statutory compensation from a landlord where a landlord opposes renewal on grounds (e), (f) or (g) only. (part 2 section 30)

Question 12

What are the compensation levels?

Answer 12

1x the rateable value of the property or, where the tenant has been in occupation for 14 years or more, at 2x the rateable value.

Question 13

What is privity of contract and why was the 1995 Act brought in?

Answer 13

In the past a Tenant who is the original Tenant under a commercial lease has always been responsible for the rent and other covenants in the lease throughout the length of the lease, even after he has transferred it to someone else. This was called ‘Privity of Contract’.

However from the 1st Jan 1996 if a lease is assigned then the obligations fall only to the assignee and are not pasted on the original tenant.

Question 14

Be able to discuss the relevant sections/concept from the 1995 Act.
What is an AGA?

Answer 14

The introduction of Authorised Guarantee Agreements, within the Landlord and Tenant (Covenants) Act 1995. Allow landlords, in appropriate circumstances, or where expressed by the lease itself, to require the assigning tenant to act as guarantor for their assignee, as a form of protection.

Question 15

Can a landlord unreasonably withhold consent to assign on the basis of covenant strength?

Answer 15

Can a landlord unreasonably withhold consent to assign on the basis of covenant strength?

Question 16

How does the 1927 Landlord and Tenant Act work?

Answer 16

If a tenant proposes to carry out any works of improvement to business premises, it may serve on the landlord notice of such intention, together with a specification and plan of the proposed works, and the landlord has three months in which to object (section 3(1), LTA 1927). If no objection is received, the tenant is entitled to go ahead and carry out the works.

Question 17

Please explain compensation under the 1927 L and T Act?

Answer 17

o The person entitled to the compensation is the tenant in possession.
o Improvements which carry the entitlement to compensation are those which ‘add to the letting value of the holding’. Not the tenant’s own fixtures and fittings.
o A claim for compensation will only arise where the tenant (or its predecessors) served a valid notice of its intention to carry out improvements in accordance with section 3 of the 1927 Act and either no objection was raised by the landlord or if there has been an objection by the landlord, court authorisation was obtained.
o The maximum amount of compensation will be the net addition to the value of the holding as a whole or a direct result of the improvement or the reasonable cost of carrying out the improvement at the termination of the tenancy whichever is the lesser sum.
o Parties cannot contract out of the compensation provisions. Compensation rarely arises in business leases because most leases have an obligation for the tenant to yield up the premises in the same condition as at the start of the tenancy.

Question 18

What are the landlord’s, and tenant’s, rights in the event of forfeiture?

Answer 18

Forfeiture allows a landlord either to peaceably re-enter a property or to apply to the court to retake possession of their property following a breach of the lease by the tenant

Question 19

What notices are there under the 54 Act in regard to a lease renewal?

Answer 19

S.25 (Landlords Notice)
S.26 (Tenant’s Notice) and
S.27 (Notice to Quit)

Question 20

Be able to describe varying types of rent review machinery, basis of value etc

Answer 20

Turnover Rent
Index linked RR
Fixed Rent increases
Open market RR

Question 21

What are the typical assumptions for a rent review?

Answer 21

1. Property available to let on open market by willing T & L for term if yrs as stated
2. Property is fit and available for immediate occupation
3. All covenants observed by L & T
4. Property may be used for purpose set out in lease.

Question 22

If taking on a new rent review what’s the first thing you look for before triggering the review?

Answer 22

A rent review can be triggered up to six months before the review date and at any point afterwards.

Question 23

What is the difference between an expert and an arbitrator?

Answer 23

o Unlike arbitrators, experts have no power to compel disclosure of documents or attendance of witnesses.
o Experts have to set out a written statement for his decision and why he came to it.
o Whilst an expert may take account of the parties’ representations, it is not legally obliged to do so.
o Experts are however liable in damages for any losses caused by their negligence. Unless clearly set out in the lease there is also no procedure to determine who pays the expert’s fees.
o Arbitration is more costly and lengthy and more like court proceedings where parties appear before an arbitrator to speak. Quasi-judicial approach and the arbitrator is bound by the 1990 Arbitration 1996 Act.
o Arbitrators can only use the information supplied to them by both parties.
o Arbitrators assessment of rent must lie between the evidence/ figures put forward.
o With an arbitrator there is a limited right to appeal and provided they haven’t acted in bad faith they are not liable for negligence.

Question 24

If the lease allows, when might a landlord prefer an expert/arbitrator?

Answer 24

• If there is a lot more at stake/ the rent review clause is complex/ the property is unique parties may prefer arbitration.
• An expert appointment may be more appropriate for lower value leases or where there are unlikely to be difficult valuation issues.

Question 25

Can you sue an expert or arbitrator?

Answer 25

You can sue an expert if negligent however not an Arbitrator.

Question 26

How does recovery of fees vary between experts and arbitrators?

Answer 26

• Arbitration - In arbitration, the tribunal usually has jurisdiction to allocate the parties’ costs, with the general rule being that costs follow the event.
• Expert, however, has no power to award costs unless his instructions or the terms of the contract provide for it.

Question 27

What RICS guidance are you aware of in respect of experts and arbitrators?

Answer 27

• Guidance Note - Surveyors acting as arbitrators in commercial property rent reviews. 9th Edition 2013
• Guidance Note - Independent expert determination 1st edition, December 2016

Question 28

What is the difference between and absolute and a qualified covenant?

Answer 28

• An absolute covenant is an absolute bar/prohibition against doing something. E.g. A covenant not to assign the lease.
• A qualified covenant requires the landlord’s consent. A covenant to assign the lease without the landlord’s consent is an example of a qualified covenant against assignment

Question 29

What advantage does PACT offer over other ADR methods?

Answer 29

Professional Arbitration on Court Terms (PACT) is a joint initiative set up by RICS and the Law Society as a form of alternative dispute resolution (ADR) for lease renewal disputes.

• The advantages are:
• The parties can control the procedure e.g. decisions can be made on a documents only basis or after an informal hearing
• The parties can control the timing
• There will be no delays caused by court office backlogs or unproductive calls with the court office to establish what is going on.
• Delays in the court lists will be avoided.
• The Parties can choose their own Third Party or in the absence of agreement the Law Society or RICS can appoint from a panel of specialists.
• The Third Party will be a specialist in their field.
• Overall costs should be considerably less in most cases due to the shorter timetable, simpler procedure and by avoiding a full court hearing.
• The Third Party can take legal advice if required.

Question 30

What is the difference between a lease and a licence?

Answer 30

A lease is the grant of legal interest in land which gives exclusive possession for a fixed period of time. A licence is merely a personal permission granting licence to occupy or do something on someone else’s property.

Question 31

What is an advocate?

Answer 31

Applies to evidence given to arbitrator or independent expert hearings where advocate represents client
Duty to act in best interest of client but also act with integrity.

Question 32

What is independent expert (8 points)?

Answer 32

1. Has detailed knowledge of the market
2. Appointed by RICS but not bound by judicial rules
3. Can have own opinion
4. Bound by terms of lease
5. No judicial function
6. Can’t appeal against decision
7. Good if there is a lack of market comps.
8. No power to order disclosure

Question 33

What’s a section 26 notice? And how does it work?

Answer 33

Refers to section 26 of the L&T Act 1954 when the tenant is requesting new tenancy at the end of its lease.

This notice must be served not more than 12 and not less than 6 months before the end of the lease. The Section 26 Notice cannot be sent if the landlord has already sent a section 25 notice.

Question 34

Where would you find a break option in a lease?

Answer 34

Lease particulars

Question 35

What is a s.146 notice?

Answer 35

The landlord must serve a section 146 notice on the tenant before it forfeits the lease for a breach of a covenant, unless the breach is non-payment of rent.

Question 36

What is the rough cost of building industrial, residential and office

Answer 36

Industrial - £600 per meter squared
Office - £1200 per meter squared
Residential - £1200 per meter squared

Question 37

How do you initiate a Lease Renewal?

Answer 37

To give by not less than six months’ notice but not more than 12 months’ notice. This is done by the landlord serving a section 25 notice or the tenant serving a section 26 request, setting out the proposed terms of the new lease. The notice and request must
be in prescribed forms. These time limits will apply even where the contractual lease term has expired and the tenant is holding over.

Question 38

What are the landlord’s, and tenant’s, rights in the event of forfeiture?

Answer 38

Forfeiture allows a landlord either to peaceably re-enter a property or to apply to the court to retake possession of their property following a breach of the lease by the tenant.

Question 39

What 3 notices are there under the 54 Act in regard to a lease renewal?

Answer 39

S.25 (Landlords Notice)
S.26 (Tenant’s Notice)
S.27 (Notice to Quit)

Question 40

Be able to describe varying types of rent review machinery, basis of value etc.

Answer 40

Turnover Rent
Index linked
Fixed Rent increases
Open market RR

Question 41

What are the typical assumptions for a rent review?

Answer 41

1. Property available to let on open market by willing T & L for term if yrs as stated
2. Property is fit and available for immediate occupation
3. All covenants observed by L & T
4. Property may be used for purpose set out in lease.

Question 42

If taking on a new rent review what’s the first thing you look for before triggering the review?

Answer 42

Comparable rental evidence.

A rent review can be triggered up to six months before the review date and at any point afterwards.

Question 43

What is the difference between an expert and an arbitrator?

Answer 43

o Unlike arbitrators, experts have no power to compel disclosure of documents or attendance of witnesses.
o Experts have to set out a written statement for his decision and why he came to it.
o Whilst an expert may take account of the parties’ representations, it is not legally obliged to do so.
o Experts are however liable in damages for any losses caused by their negligence. Unless clearly set out in the lease there is also no procedure to determine who pays the expert’s fees.
o Arbitration is more costly and lengthy and more like court proceedings where parties appear before an arbitrator to speak. Quasi-judicial approach and the arbitrator is bound by the 1990 Arbitration 1996 Act.
o Arbitrators can only use the information supplied to them by both parties.
o Arbitrators assessment of rent must lie between the evidence/ figures put forward.
o With an arbitrator there is a limited right to appeal and provided they haven’t acted in bad faith they are not liable for negligence.

Question 44

What is a Calderbank letter and why or when is it used?

Answer 44

A letter containing a settlement offer and written “without prejudice save as to costs”, that is with the express reservation of the right to refer the letter to the court on the question of costs if the offer is not accepted.

Question 45

What is the law regarding alienation?

Answer 45

• If the lease contains no provisions dealing with alienation, the tenant will be free to deal with it as it wishes. However, this is very rare.
• LL consent must be obtained but does not make this subject to a requirement that it must not be unreasonably withheld, then the landlord is free to withhold its consent whether reasonable or not
• More commonly for the lease to state that where the landlord’s consent is required, such consent must not be “unreasonably withheld”. What constitutes consent being “unreasonably withheld” is usually a question of the circumstances in each individual case. If the landlord is required not to unreasonably withhold its consent but does not respond to a tenant’s formal application for consent within a reasonable time, that can be deemed to be an unreasonable withholding of consent.

Question 46

What legal principle was established in Jervis v Harris (1996)

Answer 46

A Lease which contains a properly drafted Jervis v Harris clause, grants the Landlord a right to first serve notice on a Tenant, specifying any breaches of covenants relating to the condition of a property.
If the Tenant then fails to proceed with remedying the breaches and/or to remedy the breaches identified in the notice within a specified period, (as set out in the Jervis v Harris clause – usually within 2-3 months), the clause grants a right for the Landlord to enter the property to carry out the works and to then recover the costs in doing so from the tenant, as a ‘debt’.

Question 47

What legal principle was established in Franses v Cavendish (2017)

Answer 47

Under the landlord and tenant act of 1954 the tenant is provided with protection that it is granted a new lease upon expiry it can oppose the lease on a number of grounds under section 30 one being that:

f) landlord intends to redevelop/demolish

The LL said he was going to go extensive refurbishment all of which pointless and commercially unusable works with the sole intention to get the tenant out. Fulling the requirements of the act that the work had to be substantial and disruptive enough for the removal of the tenant. However the works must pass the test that the LL would carry the works out regardless of whether the tenant is in occupation or not.

It is important because the Court will now seek to go behind the scheme of works and examine the nature of the Landlord’s intention and the court will seek of the works have a wider commercial purpose. So LLs now seeking possession must prove the works would be carried out regardless.