Content of a Commercial Lease Flashcards

Question

re: repair covenant what is the position with a lease on the part of building?

Answer 1

T usually obliged to repair non-structural parts and LL obliged to repair structural parts and common areas, but there is usually a service charge provision so the LL can recover these costs

Answer 2

* The obligation ‘to repair’ will arise when the physical condition of the property has deteriorated in some way, albeit the property need not be kept in perfect condition, but must be fit for occupation of a reasonably minded T example o i.e. high-end office building may require higher standard of repair than a basic warehouse or scuff on a wall is likely to be general wear and tear and unlikely to breach the repair obligation.

Answer 3

renewal/replacement of part, not the whole thing. The work required will depend on the facts and the age and nature of property and lease length

Answer 4

* T may be obliged to remedy an inherent defect in the property if that is the only way to effect the repair

Answer 5

o ‘to keep a property in repair’ means ‘put’ the building in repair, so they may have to put the building into a better state than when they entered the lease o ‘to keep the property in good condition’ means T has to undertake work to keep the property in good condition, even if there is no disrepair

Answer 6

Lease of whole building > T could pay the insurance, but more common for LL to take out insurance and recover this from T as separate insurance rent (this is done with lease of part of building).

Answer 7

o LL to insure against defined risks (‘insured risks’) o T to pay insurance rent o LL to reinstate the property o Rent suspension o Termination

Answer 8

 Lease will often state a list of risks the LL must insure against i.e. fire, flood and ‘such other risks the LL may reasonably require’ the latter is to prevent LL from insuring against unlikely and expensive risks  LL should ensure the covenant is limited so that they are not liable for exclusions, limitations, conditions etc and that T must pick up shortfall  Should be insured to ‘full reinstatement value’ as this inc. cost of demolition, site clearance, professional fees etc

Answer 9

 Insurance rent will be defined in the contract but may inc.: T paying the insurance premium; any excess etc; insurance to cover LL’s loss of rent if T cannot pay due to occurrence of an insured risk  If the lease doesn’t explicitly state T needs to pick up any shortfall, the LL will need to pay this.

Answer 10

o LL must use the insurance proceeds to fix the property. T may negotiate that if reinstatement is impossible, they are paid the insurance proceeds as they have been paying the premium  May include provision that T will be liable if the policy has been vitiated / insurance proceeds withheld due to action of T

Answer 11

rent will continue to be payable, unless there is express provision to the contrary (time frame for suspension must be inc.)

Answer 12

o lease should inc. provision for termination if reinstatement is impossible as frustration can only be relied on in exceptional circumstances  May be available to LL only or T and LL

Answer 13

* If the damage has resulted from a risk which is not insured, T is liable to remedy the damage under the repair covenant

Answer 14

Alterations are often categorised & either absolute, qualified or fully qualified: o Alterations affecting structure and exterior; o Non-structural interior alterations; o Alterations affecting service media; o Demountable partitionings T can alter the premises in anyway in the absence of any alteration covenants

Answer 15

They can rely on s3 LTA 1925 procedure

Answer 16

1. T serves notice setting out improvements on LL 2. LL has 3 months to consent, object or offer to carry out the work in return for a reasonable increase in rent. 3. If LL objects, T can apply to court for authorisation to carry out the improvements 4. The court will authorise the improvements if they: o Add to the value of the property; o Are reasonable and suitable to the character of the property; and o Do not diminish the value of any other property of the LL 5. If LL does not object within 3 months and does not offer to carry out the work, then T can lawfully carry them out

Answer 17

o T is under no obligation to accept LL’s offer, but if they reject it the court cannot give T authority to do the work itself.

Answer 18

o If T withdraws their offer, LL cannot proceed with the improvements

Answer 19

The court will authorise the improvements if they: o Add to the value of the property; o Are reasonable and suitable to the character of the property; and o Do not diminish the value of any other property of the LL

Answer 20

* If s3 has been used, T can claim compensation at the end of the term for improvements that have added value to the property.

Answer 21

* s19 LTA 1927 converts a qualified covenant against making improvements to a fully qualified covenant. Effect  LL cannot unreasonably withhold consent re: qualified and fully qualified covenants to make improvements

Answer 22

* Conditions are usually contained in a separate doc called ‘licence to alter’

Answer 23

works that increase the value or usefulness of the property, even if it will reduce the LL’s reversionary interest

Answer 24

* i.e. covenants to limit/restrict the use of the property

Answer 25

* Covenant could be narrow and completely prohibit this. More common to allow the possibility to change the use but limited to a category. Might be framed as a qualified covenant for greater control.

Answer 26

o LL cannot charge a fine or increase as a condition for giving consent (unless there is structural alteration involved)

Answer 27

Umbrella term for ways an interest is created for the benefit of a 3rd party: o Assigning o Underletting o Charging o Sharing occupation o Parting with possession * T can dispose of the lease in anyway unless there is provision in the lease

Answer 28

o Assigning = transfer of existing lease to someone else  Often assignment of the whole lease (but not part) is allowed

Answer 29

o carving a sub-lease out of the headlease

Answer 30

 Desirable if T wants to dispose of part of a property or whole property for a brief time or if LL is concerned about the financial stability of the new occupier and so doesn’t agree to assignment. Risk is then with the headtenant and not the LL if the occupier defaults.

Answer 31

1. The undertenant may become the direct T, i.e.:  HT’s lease is forfeited and the undertenant successfully applies to the court for relief from forfeiture;  HT’s lease is surrendered/disclaimed by the HT’s liquidator; or  Both leases expire and the undertenant exercises their statutory right to stay in the property and apply for a new lease and the HT does not 2. The LL will have little control because the HT becomes the LL

Answer 32

mortgaging. Usually complete prohibited in case T defaults

Answer 33

i.e. allowing a 3rd party to occupy i.e. under a licence LL may allow sharing occupation where there is a group of companies, so long as a new tenancy is not created

Answer 34

catch-all term for agreements that are difficult to classify

Answer 35

* If the covenant is qualified s19 implies consent cannot be unreasonably withheld. Effect  qualified covenant becomes a fully qualified covenant

Answer 36

CoA guidelines when considering ‘reasonableness’: o Would the premises be used/occupied in an undesirable way? o LL cannot refuse on grounds which have nothing to do with the LL/T relationship and subject matter of the lease o LL does not need to prove their reasons are justified if a reasonable person might reach the same conclusion in the circumstances o LL is only bound to consider relevant interests, but it would be unreasonable not to consider detriment T would suffer by refusal

Answer 37

o Assignee had unsatisfactory references; o Longstanding breach of repair covenant by T and LL is not satisfied assignee will remedy it o Assignee would compete with LL’s business o Assigning would reduce the LL’s reversion (not be a reasonable ground if the LL has no intention of selling the reversion) o Assignee’s proposed use is detrimental/inconsistent with LL’s policy o Assignee would acquire protection under Part II LTA 1954

Answer 38

o LL refused consent to obtain advantage for themselves o There were minor breaches o Slight harm to LL outweighed prejudice to T o Withholding consent on grounds of race, sex, disability (EQA 2010)

Answer 39

* If consent is refused on the basis LL anticipates the assignee/new T will breach, the question to ask is ‘what would a reasonable LL do?’

Answer 40

S19(1)(a) TLA 1927 allows T & LL to agree conditions and circumstances where it would not be unreasonable for consent to be withheld

Answer 41

Assignment  assignor gives an AGA Underletting  terms of underlease mirror headlease; annual rent is at least as high as headlease and rent is reviewed on the same terms; underletting excludes Part II LTA 1954; further underletting prohibited * If new T does not comply with conditions, the headlease and sub-lease can be forfeited

Answer 42

 Current T is up to date with rent  Assignee/new T has sufficient finances to comply with covenants

Answer 43

they should make a written application to LL

Answer 44

LL must within a reasonable time: o Give consent, except where it is reasonable not to give consent; and o Serve on written notice of its decision T, which must include:  If consent is given subject to conditions, the conditions; or  If consent is refused, the reasons why

Answer 45

Lease will state annual rent and T’s covenant to pay it. Lease should confirm: o How and when rent is payable; o if it is payable in advance (if silent on the matter, then rent is deemed to be paid in arrears); o how instalments are apportioned; o VAT; o rent review

Answer 46

only if there is a rent review clause and then in accordance with this

Answer 47

1. Fixed 2. Index-linked 3. Tenant’s receipts 4. Open market (most common)

Answer 48

the rent will increase to a set amount on a specific date

Answer 49

rent review is linked to external index, such as RPI Often inc. a ‘cap & collar’ to limit the increase & ensure a minimum increase

Answer 50

review is linked to T’s receipts from use of the property i.e. turnover, profit, or sum from sub-letting Pro  tracks T’s financial health. Con  if T’s business doesn’t perform, cannot increase rent

Answer 51

rent is adjusted at regular intervals by reference to open market rental value of the premises

Answer 52

* Valuer will determine a fair market rent at the date of the review based on the reality of the situation (i.e. the physical property & terms of the lease) and hypothetical assumptions & disregards stated in the lease

Answer 53

o There is a LL and T prepared to grant and take the lease; o There is vacant possession; o The terms of the hypothetical lease mirror the current lease (not inc. rent); o The duration of the hypothetical lease o T has complied with all their obligations o If the property has been destroyed/damaged, that is has been full restored

Answer 54

this could match the terms of the original lease or the unexpired term (+ inc. minimum term to avoid unrealistic assumptions when close to expiry)

Answer 55

o T’s occupation o Goodwill generated by T’s business o T’s voluntary improvements, whether they increase or decrease property value

Answer 56

disregarded to avoid any argument by the LL that T would pay more rent to avoid relocating;

Answer 57

i.e. regular customers, good reputation)  disregarded so LL cannot argue T should pay more rent on this basis

Answer 58

whether they increase or decrease property value (i.e. not repair work to comply with contract)

Answer 59

o Whether the clause is upward-only (i.e. rent stays the same or increases) or upward-downward o Frequency of review o Procedure for agreement o Provision for independent determination in the event parties cannot agree

Answer 60

usually every 3 – 5 years

Answer 61

i.e. formal notice and counter-notices or informal negotiations through specialist valuers (latter more common these days), when these discussions take place (i.e. before or after review)

Answer 62

most LLs and their solicitors are not RICS members so this is irrelevant

Answer 63

* Royal Institute of Chartered Surveyors (RICS) has made a code to redress imbalances between LLs and Ts

Answer 64

* RICS members must follow mandatory parts and need justifiable reasons to depart from the best practice statements

Answer 65

o Failure to comply can lead to disciplinary action & support a negligence claim

Answer 66

o Negotiations should be approached in a collaborative and constructive way o Any party not represented by RICs or other property professional must be informed of the code and encouraged to get professional advice o The transaction must be recorded in writing, subject to contract and summarise specified details (as a minimum), i.e.: identity and extent of premises (inc. special rights granted); length of term (inc. renewal and break rights); amount of rent, frequency, review; liability for insurance premiums; ability to assign, underlet etc; repairing, permitted use, alterations

Answer 67

the lease should: o Define the property, inc. a lease plan, grant T all rights for intended use o State the length of term and break provisions o Inc. standard provisions re: assignment of whole and underlet of whole/part o Inc. appropriate repair obligations to length and condition of lease o Controls on alterations should be no more restrictive than necessary to protect property value

Content of a Commercial Lease Flashcards

(91 cards)