Grant of a Lease

Question 1

What type of lease would institutional investors want property to have?

Answer 1

Full repairing and insuring lease

Question 2

What are the three essentials of a lease?

Answer 2

Certainty of term
exclusive possession
correct formalities complied with

Question 3

How will a professional surveyor conduct a rent review?

Answer 3

Consider other rates in comparable premises

analyse via the hypothetical lease

Question 4

Can a lease term commencement date be earlier than the lease is dated?

Answer 4

Yes

Question 5

When should you count from if the term of a lease is ‘from and including’ a date when calculating expiry of a lease?

Answer 5

The term will expire on the day before that day

Question 6

When should you count from if the term of a lease is ‘from’ a date when calculating expiry of a lease?

Answer 6

Term starts the day after that day and so it expires on that day of the year in the relevant year

Question 7

How is rent usually expressed in a FRI lease?

Answer 7

Expressed as a yearly figure, payable quarterly

Question 8

When is rent usually due in commercial leases?

Answer 8

In advance on the quarter day - lease should state if rent is payable in advance or in arrears

Question 9

What is the default position re VAT

Answer 9

Lease needs to be explicit if it is exclusive of VAT

Question 10

What assumptions are common in the hypothetical lease?

Answer 10

• Premises are vacant and available
• Willing landlord and willing tenants
• Tenant has complied with obligations

Question 11

What are some common disregards in the hypothetical lease?

Answer 11

• Ignore what a tenant has done voluntarily – e.g. enhancements
• Goodwill – e.g. if a premises is popular
• If property has fallen into disrepair - disregarded

Question 12

What is a rent review memorandum and what should be contained in it?

Answer 12

A document summarising and explaining the new rate of rent after a rent review, which is signed by both parties and kept alongside the lease for future reference

Question 13

When might a rent review trigger an increase in SLDT / LTT?

Answer 13

If a rent review is calculated before the 5th anniversary of the term commencement date - SDLT is calculated on first 5 years’ rent

Question 14

What can happen if a new rate of rent is only agreed some time after the rent review date in the lease?

Answer 14

Rent will be backdated to the time of the review, plus interest of a rate set out in the lease

Question 15

Who created the Code for Leasing Business Premises?

Answer 15

Royal Institute of Chartered Surveyors

Question 16

What commercial tenancies are not subject to the Code for Leasing Business Premises?

Answer 16

Tenancies of 6 months or less

Question 17

What are the mandatory requirements of the Code, and when should they be followed?

Answer 17

Unless exceptional circumstances:

• Lease negotiations should be approached in a constructive and collaborative manner
• Unrepresented party must be told about the Code and told to seek professional advice
• Landlord / letting agent is responsible for ensuring that heads of terms compliant with the Code are agreed before the draft lease is circulated

Question 18

What areas must be covered in the heads of terms of a lease?

Answer 18

• Extent of premises
• Length of term
• Break rights
• Rent
• Rent review / basis for rent review
• Repairing obligation
• Rights to assign or underlet
• Permitted use
• alterations

Question 19

What is identified in the Code as good practice?

Answer 19

Heads of terms should define the demise, prove a lease plan, and refer to all rights a tenant will need

Heads of terms should be clear about the length of term / any break rights

Clearly state initial rent, payment intervals, VAT, rent-free period, and rent review

Landlord must get any consents to grant the lease

Tenant’s repairing obligation should be appropriate to the length of the term and the condition of the premises

Question 20

What should be included in a lease if a tenant gives a qualified repairing obligation?

Answer 20

A schedule of condition for clarity

Question 21

What should be included in a lease if a premises is newly built?

Answer 21

protections for the tenant against any inherent construction defects

Question 22

What should a lease say should happen is premises become damaged by an insured risk?

Answer 22

Rent would be suspended

Question 23

What should a landlord’s solicitor do before exchange of a lease?

Answer 23

Take instructions
Prepare draft lease
Deduce title. respond to any queries
Answer pre-contract enquiries
Once agreed, engross agreement for lease, signature, send counterpart to tenant’s solicitor

Question 24

When will there be an agreement for lease

Answer 24

Often when there will be a long delay between signing and occupation - e.g. newly built shopping centre

• Will be needed if parties want to commit to completing the lease but a) are not ready or b) there are conditions which need to be satisfied

Question 25

What should a tenant's solicitor do before exchange of a lease?

Answer 25

Take instructions Review draft lease and agreement for lease and amend as required Investigate title Raise any pre-contract enquiries or searches Arrange for tenant to sign counterpart lease

Question 26

Who's solicitor should investigate title?

Answer 26

Tenant's

Question 27

Which enquiries should a tenant's solicitor raise?

Answer 27

CPSE1 enquiries, and also CPSE3

Question 28

Who sends who the completion statement? What should be on the completion statement?

Answer 28

Landlord's solicitor prepares it Apportions rent, insurance, service charge on a daily basis Pre-completion searches documents - OS1

Question 29

If a lease is not registrable, what kind of search can be carried out to check that the landlord can grant the lease?

Answer 29

OS3

Question 30

What must happen do on completion?

Answer 30

Send completion money Agree over phone to complete and date executed leases Both send completed original and counterpart to each other

Question 31

What must a tenant do after completion?

Answer 31

Submit SDLT / LTT return and pay appropriate tax, and register lease if needed

Question 32

When does a lease need to be registered?

Answer 32

7 years +

Question 33

When can a lease be noted against a landlord's title?

Answer 33

3 years +

Question 34

What is the procedure for registering a lease?

Answer 34

OS1 or OS2 search should have been carried out before completion to ensure the 30 day priority period tenant's solicitor will apply to register the lease using form AP1 (registered or form FR1 (unregistered) If landlord's freehold land is charged, consent from the lender will also be needed

Question 35

Who is responsible for the repair of a premises?

Answer 35

Lease of a whole - tenant will always be responsible for the interior / exterior and structural repair Lease of a part - responsible for the part, with the landlord responsible for the whole, recovered via service charge

Question 36

What will the repairing covenant be in an FRI lease? Why can this be onerous?

Answer 36

Keep premises in good repair If T gets it in a bad state, must fix it

Question 37

What is an important limit to a repairing obligation?

Answer 37

Tenant can choose whether to repair or replace an item - if premises are so damaged that they must be fundamentally rebuilt – this becomes renewal and not repair – and a tenant would not be responsible for this

Question 38

Who is responsible for insuring a property?

Answer 38

Commercial landlord will organise insurance policy - cost of insuring will be recovered from a tenant under an FRI

Question 39

What is a common exception in insurance policies where they will not pay out?

Answer 39

If a tenant has been negligent