Grant of a Lease Flashcards
(46 cards)
What are the three main types of leases commonly encountered?
- Long residential leases (e.g. 99 or 999 years) with low or nominal ground rent.
- Assured shorthold tenancies (usually 6–12 months) with market rent.
- Commercial leases (typically up to 15 years) with market rent, used for shops, offices, factories, etc.
Why might a business choose a lease over buying a freehold?
- Less capital required upfront.
- Leaseholds are not permanent, allowing flexibility.
- Some premises are only available leasehold (e.g., shops in shopping centres).
Why do institutional investors prefer full repairing and insuring (FRI) leases?
Because they shift property costs to the tenant, allowing landlords to receive rent without deductions.
What is ‘covenant strength’ and why does it matter to landlords?
It refers to the tenant’s financial reliability. Strong covenant = less risk. Landlords may request guarantors or deposits if strength is weak.
What is the legal definition of a lease?
A lease is “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” (Woodfall).
What are the essential elements of a lease?
- Exclusive possession
- Fixed or periodic term
- Proper formalities
- A reversion to the landlord
What does exclusive possession mean in leasehold law?
The tenant can exclude all others (including the landlord, subject to inspection rights) from the premises.
What formalities are required for a lease to be legal?
- Lease over 3 years: must be by deed
- Lease 3 years or less: may be oral or in writing
What is the ‘reversion’ in a lease?
The landlord’s interest in the property that returns to them after the lease ends.
What is exclusive possession?
The tenant’s right to exclude all others, including the landlord (except under limited rights like inspections).
What is a determinate term in a lease?
A lease must have a fixed or periodic term (e.g., 5 years or monthly). It generally cannot be indefinite unless an exception applies.
What are the formality rules for a lease?
- Lease over 3 years: must be made by deed
- Lease up to 3 years: may be created orally or in writing
What is the reversion in a lease context?
It is the landlord’s interest, which reverts to them upon lease expiry.
What are typical landlord objectives in lease negotiations?
- Rent without deductions (FRI lease)
- Property insured and in repair
- Control over alterations, use, and assignment
- Rent review provisions
What are typical tenant objectives in lease negotiations?
- Use property for intended business
- Reasonable term and flexibility
- Avoid unfair or overly restrictive terms
- Control rent increases
What is a ‘term commencement date’ in a lease?
The date on which the lease term officially starts; may be before, on, or after the lease completion date.
What is a reversionary lease?
A lease where the term starts after the lease is dated—commonly used to extend occupancy beyond a current lease.
How is a lease expiry date calculated?
“From and including” date: Ends the day before that date X years later.
“From” date: Starts the day after that date and ends on the same date X years later.
What is a break clause?
A clause allowing either party to end the lease early. May be landlord-only, tenant-only, or mutual. May be fixed-date or rolling.
What is a reversionary lease?
A lease that starts in the future; useful to extend letting before the current lease ends.
Why might a landlord prefer a 10-year lease with a 5-year break over a 5-year lease?
It appears more valuable on paper, may discourage tenant from breaking, and offers long-term security.
What are typical rent arrangements in commercial leases?
- Short lease with market rent (e.g., £20,000/year, paid quarterly)
- Rent due in advance, unless otherwise stated
- May include VAT, insurance rent, and service charge
How are commercial FRI lease rents usually paid?
- Annually stated (e.g., £80,000/year)
- Paid quarterly (e.g., £20,000/quarter)
- Often due in advance on quarter days (traditional or modern)
What happens if lease starts partway through a quarter?
Rent is apportioned by day so the tenant only pays for days of occupation.
