Granting of Leases and Underleases Flashcards
(152 cards)
1
Q
What are the disadvantages for a landlord in granting a lease instead of selling the freehold?
A
The tenant may prove unreliable and not pay rent
The tenant may not take care of the premises
Income and capital are not guaranteed and depend on the property market
These factors can lead to depreciation of the landlord’s investment.
2
Q
What are the advantages for a landlord in renting out property instead of selling it?
A
Positive covenants can be enforced
Landlord retains a capital interest in the freehold
Control over management of the building
Ability to recover expenditure through service charges
Steady income from market rent
Retaining control helps preserve the capital value.
3
Q
What is a common reason for commercial tenants to prefer leasing?
A
Leases are flexible and allow for easier relocation at the end of the term
Tenants can negotiate break clauses
No capital outlay tied up in the premises
Tenants may pay a premium at lease start but avoid significant upfront costs.
4
Q
What is a typical structure of a commercial lease?
A
Prescribed clauses
Commencement
Interpretation
Grant of the lease
Ancillary rights
Rights excepted and reserved
Annual rent
Rent review
Tenant’s covenants
Landlord’s covenants
Landlord’s right to enter
Re-entry and forfeiture
The structure can vary based on property type and party priorities.
5
Q
What are prescribed clauses in a lease?
A
Standard set of clauses required for leases dated on or after 19 June 2006
Summary of important details for Land Registry registration
Aims to streamline the registration process.
6
Q
What types of tenancy options exist for commercial leases?
A
Fixed term
Periodic tenancy
Tenancy at will
Each type offers different levels of security and flexibility for tenants.
7
Q
What is an absolute covenant in leasehold agreements?
A
The tenant cannot carry out the stated action under any circumstances
The landlord has total discretion over such prohibitions.
8
Q
What is a qualified covenant in leasehold agreements?
A
Allows the tenant to carry out the stated action only with landlord’s consent
Provides some flexibility for tenants while maintaining landlord control.
9
Q
What is a fully qualified covenant in leasehold agreements?
A
Allows the tenant to carry out the stated action with landlord’s consent, which cannot be withheld unreasonably
Strikes a balance between tenant flexibility and landlord control.
10
Q
What is a full repairing and insuring (FRI) lease?
A
The tenant is responsible for all repairs and insurance, providing a clear rental stream for the landlord
This type of lease is preferred by institutional investors.
11
Q
What does a repairing covenant entail?
A
Tenant must repair disrepair, but the property need not be in perfect condition
The covenant does not require the tenant to return a property that is wholly different from the one leased.
12
Q
What does a repairing covenant not oblige the tenant to do?
A
To give back a property that is ‘wholly different’ from that leased
This is based on the ruling in Lurcott v Wakeley [1911].
13
Q
What can a repairing covenant obligate the tenant to remedy?
A
An inherent defect in the design and/or construction of the building
This is referenced in Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980].
14
Q
What does a covenant to ‘keep’ a building in repair imply?
A
It also means to ‘put’ it into repair, possibly to a better state than when leased.
15
Q
How does a covenant to ‘keep the property in good condition’ compare to a plain repair covenant?
A
It is more onerous and may require works even without actual disrepair
As established in Welsh v Greenwich LBC [2000].
16
Q
What is the obligation of the tenant regarding repairs if disrepair is caused by an Insured Risk?
A
The tenant is not liable to repair the property unless certain conditions are met.
17
Q
What is the purpose of landlord’s insurance in a lease?
A
To insure the property against damage by risks like fire and flood.
18
Q
What should the property be insured for?
A
Its ‘full reinstatement value’
This includes costs for demolition, site clearance, professional fees, and inflation.
19
Q
What does the term ‘Insurance Rent’ refer to?
A
The cost of the premium for the insurance of the property and loss of annual rent.
20
Q
What might a landlord’s covenant to reinstate the property include?
A
Using insurance proceeds to reinstate the property.
21
Q
What happens to rent payments if the property is unfit for occupation due to damage?
A
Payment of rent may be suspended until reinstatement
This is subject to the conditions of the insurance policy.
22
Q
What is the doctrine of frustration in the context of lease termination?
A
It applies only in exceptional circumstances if the building is totally destroyed.
23
Q
What must a tenant ensure regarding the lease if the property is damaged?
A
That the lease provides for rent suspension during unoccupancy due to damage.
24
Q
What can a tenant do if the property has not been reinstated after the rent suspension period?
A
The tenant may terminate the lease.
25
What is the landlord's obligation if reinstatement is impossible?
To terminate the lease.
26
In a lease, who typically has the right to terminate if reinstatement is impractical?
The landlord, unless stated otherwise in the lease.
27
What does the interplay between landlord's insurance covenants and tenant's repair covenant imply?
If the landlord insures to full reinstatement value, they can use insurance proceeds for reinstatement.
28
What happens if damage is caused by something not covered by the insurance policy?
The tenant will be liable to repair the property under the repairing covenant.
29
What is a typical clause related to insurance rent in a lease?
The tenant shall pay the insurance rent on demand.
30
What should the insurance provisions in a lease typically include?
A landlord's covenant to insure against defined risks.
31
What risks are commonly included in the definition of 'Insured Risks'?
Fire, explosion, storm, flood, and other specified risks.
32
What is the tenant's obligation regarding any costs incurred for insurance valuation?
To pay any costs that the landlord incurs for obtaining a valuation.
33
What is a common limitation in landlord's insurance obligations?
It may be subject to exclusions, limitations, and conditions from the insurers.
34
What damage is primarily affecting the property according to the facts?
The damage only seems to affect the first floor
## Footnote
This implies that a fair proportion of the rent may still be payable.
35
Under what clause can the landlord claim the balance under the loss of rent insurance policy?
Clause 20.3
## Footnote
This clause indicates that the tenant has paid for the insurance coverage.
36
Can the tenant terminate the lease due to the damage at this stage?
No
## Footnote
The tenant's right to terminate arises only if the property is not reinstated within three years after the damage.
37
What does Clause 20.6 entitle the landlord to do?
Terminate the lease on notice if it is impossible or impractical to reinstate the property
## Footnote
This is unlikely given the circumstances presented.
38
What condition allows the tenant to terminate the lease?
If the property has not been reinstated to be fit for occupation and use within three years
## Footnote
This is related to the expiration of the rent suspension period.
39
Who will retain the insurance proceeds if the lease is terminated?
The landlord
## Footnote
This applies regardless of which party terminates the lease.
40
Who is responsible for reinstating the property if the tenant failed to lock the shop door?
The tenant
## Footnote
This responsibility is due to the breach of a condition in the insurance policy.
41
What does Clause 10.1 require the tenant to do?
Keep the property in repair
## Footnote
This is a standard obligation for tenants in lease agreements.
42
What is an Insured Risk according to Clause 10.2?
Malicious damage
## Footnote
This includes damage caused by external malicious actions.
43
What happens if the insurance policy is vitiated due to the tenant's actions?
The tenant will be liable to repair the property
## Footnote
This includes situations where the tenant or their employee caused the damage.
44
Is the tenant required to pay rent while the works are being done?
Yes
## Footnote
The rent suspension only applies if the damage was caused by a risk the landlord was obliged to insure.
45
What does Clause 20.5 state regarding rent suspension?
It only applies if the property is damaged or destroyed by a risk against which the landlord is obliged to insure
## Footnote
This indicates limitations on rent suspension.
46
Can the tenant use the damage to terminate the lease according to Clause 20.7?
No
## Footnote
The tenant's termination rights are limited to specific conditions outlined in the lease.
47
What concerns do landlords have regarding tenant alterations?
Mess, disruption, quality of work, decrease in property value, compliance with planning or building control requirements
## Footnote
These concerns can affect future tenants as well.
48
What is the purpose of alterations clauses in leases?
To restrict the extent to which a tenant can make alterations
## Footnote
Landlords aim to maintain control while allowing some flexibility.
49
What is an absolute covenant in the context of alterations?
A covenant against all types of alterations, commonly for structural and exterior changes
## Footnote
Tenants may have limited rights under this type of covenant.
50
What does Section 3 of the Landlord and Tenant Act 1927 allow tenants to do?
Carry out improvements despite an absolute prohibition
## Footnote
This process involves notifying the landlord and may require court authorization.
51
What must a landlord do if they receive a notice for proposed improvements under Section 3?
Object within three months
## Footnote
If they do not object, the tenant may proceed with the improvements.
52
What is a qualified covenant against alterations?
Prohibits alterations without the landlord’s prior consent
## Footnote
This often includes conditions about the nature of the alterations.
53
What does Section 19(2) of the Landlord and Tenant Act 1927 imply?
Landlords cannot unreasonably withhold consent for improvements
## Footnote
This protects the tenant's ability to make beneficial changes.
54
What type of alterations usually do not require landlord consent?
Demountable partitioning
## Footnote
This type of alteration typically has minimal impact on the property.
55
What is required for internal, non-structural alterations according to the lease?
Landlord's consent, necessary consents from authorities, and compliance with specific conditions
## Footnote
This ensures that alterations are properly managed.
56
Can a tenant claim compensation for improvements at the end of the term?
Yes, if prior authorization was obtained
## Footnote
Claims must be made within statutory time limits.
57
What might a landlord want to restrict regarding the use of the property?
To maintain balance among shops, prevent competition, or control the nature of the shopping center
## Footnote
This can influence the types of businesses allowed.
58
What is an example of a narrow user clause?
Not to use the Premises other than as a restaurant
## Footnote
This restricts diversification and may impact future tenants.
59
What can a landlord include to impose greater control over property use?
A qualified covenant
## Footnote
This allows for landlord approval of changes to use.
60
Are landlords allowed to charge a fee for consent to user changes?
No, they cannot charge a fine or increased rent
## Footnote
This is provided no structural alteration is involved.
61
What is alienation in the context of property?
A term that includes different ways of creating an interest in the property
## Footnote
This can include subletting or assignment of the lease.
62
What is required to change the use of a property?
Planning permission must be obtained and covenants affecting title must be considered
## Footnote
The landlord may retain control by imposing a tenant's covenant against applying for planning consents without permission.
63
What does alienation refer to in property law?
Alienation includes various ways of creating an interest in the property for a third party, such as:
* assignment
* underletting
* charging
* sharing occupation
* parting with possession
64
What is an assignment in the context of a lease?
An assignment is the transfer of the lease to someone else, where the original tenant disposes of their interest.
65
What is an underlease?
An underlease is a lease created by a tenant allowing someone else to occupy the property, which must be for a shorter term than the headlease.
66
What is the 'strength of covenant'?
The tenant's ability to pay rent and perform the covenants in the lease.
67
What is a headlease?
The original lease granted from the landlord to the tenant.
68
What is the purpose of a fully qualified covenant against assignment?
To protect the landlord from undesirable use or occupation of the premises.
69
What does Section 19(1)(a) of the Landlord and Tenant Act 1927 imply?
It implies that consent to assign a lease shall not be unreasonably withheld.
70
What are the guidelines for a landlord's reasonableness in withholding consent?
A landlord cannot refuse consent based on grounds unrelated to the landlord-tenant relationship and must consider relevant interests.
71
Fill in the blank: A tenant may not assign part of a lease without _______.
landlord's consent
72
True or False: A tenant can freely assign their lease without any restrictions.
False
73
What must a landlord provide if consent to assignment is withheld?
Written notice specifying the reasons for withholding consent.
74
What is an authorized guarantee agreement (AGA)?
An agreement where the assignor guarantees the performance of the assignee's obligations under the lease.
75
What is a typical reason for a landlord to withhold consent to an assignment?
If the proposed assignee has unsatisfactory references.
76
What does the Equality Act 2010 prohibit in the context of property assignments?
Discrimination based on race, sex, or disability.
77
What is parting with possession?
A term covering assignment and underletting, including informal arrangements.
78
What is a common reason for a tenant to choose underletting over assignment?
To retain the ability to regain possession of the property in the future.
79
What is a landlord's reversionary interest?
The interest that the landlord retains in the property after the lease expires.
80
When is a landlord entitled to refuse consent based on financial considerations?
If the assignee is not of sufficient financial standing to comply with the lease covenants.
81
What must be true for an underlease to be valid?
The term of the underlease must be shorter than the headlease.
82
What is underletting in the context of property leasing?
Underletting is when a tenant leases part or all of their leased property to another party while retaining their original lease agreement with the landlord.
83
Why might a tenant choose to underlet rather than assign their lease?
A tenant may underlet to retain control over the property, especially if they are concerned about the financial strength of the proposed new occupier or if they want to keep the option to reclaim the property in the future.
84
What is an AGA in property leasing?
An AGA, or Authorised Guarantee Agreement, is a guarantee provided by the outgoing tenant to the landlord that the incoming tenant will fulfill the lease obligations.
85
True or False: If a tenant assigns their lease and the assignee defaults, the original tenant is still liable for that default.
True.
86
What could happen if a headtenant's lease is forfeited?
The undertenant may successfully apply to court for relief from forfeiture, potentially becoming the direct tenant of the landlord.
87
List two main concerns a landlord has regarding underletting.
* The landlord might end up with the undertenant as their direct tenant
* The landlord has limited control over the property since the undertenant will occupy it.
88
What is a common restriction landlords impose on underletting?
Landlords often impose a requirement for tenant consent to underlet and may prohibit underletting of part of the property.
89
Fill in the blank: Underletting must not violate _______ in Part II of the Landlord and Tenant Act 1954.
sections 24-28.
90
What is the significance of the RICS Code for leasing business premises?
The RICS Code aims to improve fairness and quality in lease negotiations and is mandatory for RICS members.
91
What must landlords ensure before sending a draft lease to the tenant's solicitor?
Landlords must ensure that heads of terms containing specified provisions are agreed.
92
List three specified details that must be included in the transaction terms.
* Identity and extent of the premises
* Length of term including renewal or break rights
* Amount of rent and frequency of payments
93
What is a key objective of the RICS Code published in 2019?
To improve the quality and fairness of lease negotiations.
94
True or False: Compliance with the RICS Code is mandatory for landlords.
False.
95
What does the Landlord and Tenant Act 1927 imply regarding consent to underlet?
Consent must not be unreasonably withheld.
96
What is a direct covenant in the context of underletting?
A direct covenant is a contractual agreement where the undertenant agrees to perform the tenant's obligations under both the underlease and the headlease.
97
What is a potential problem for headtenants and undertenants in falling rental markets?
The headlease rent might be higher than the market rent, making it difficult to find tenants for an assignment.
98
What is the role of the landlord's consent in the underletting process?
The tenant must obtain the landlord's consent, and the landlord can impose conditions that must be met for consent to be granted.
99
List two common conditions that may be imposed on underletting.
* The terms of the underlease must mirror the terms of the headlease
* The annual rent reserved by the underlease must be at least as high as that of the headlease.
100
What is the key document governing the relationship between landlord and tenant?
The lease/underlease
## Footnote
It governs the day-to-day relationship between the landlord and the tenant.
101
What is the negotiation process for drafting a lease?
A balancing act between the landlord's desire for control and the tenant's desire for unrestricted use
## Footnote
The landlord's solicitor drafts the lease, which is then amended by the tenant's solicitor.
102
What is an agreement for lease?
A contract that binds one or both parties into a transaction prior to the actual granting of a lease
## Footnote
Useful when there is a delay between agreeing the lease and granting it.
103
Under what circumstances is an agreement for lease typically used?
* The landlord is constructing the property
* The landlord is carrying out works at the tenant's request
* The tenant is doing major works prior to lease grant
* The landlord requires lender consent
* The landlord is negotiating a surrender with a current tenant
* The tenant needs planning permission
## Footnote
These situations necessitate a legally enforceable commitment.
104
What documents does the landlord's solicitor provide to the tenant's solicitor?
* Draft agreement for lease (if applicable)
* Draft lease/underlease
* Evidence of the freehold/headlease title
* Copies of relevant planning consents
* Evidence of lender’s consent (if applicable)
## Footnote
These documents are crucial for the tenant's solicitor's inquiries.
105
What is the purpose of the landlord's investigation of title?
To ensure the client can grant the lease and to anticipate any title problems
## Footnote
It is essential to check for restrictions, especially if the property is mortgaged.
106
What is the general law regarding deduction of freehold title?
A tenant is entitled to call for deduction of freehold title only if the lease is for more than seven years
## Footnote
This applies unless there is an agreement for lease requiring it.
107
What are the key provisions in a licence to underlet?
* Consent of the head-landlord
* Direct covenant from the undertenant to the head-landlord
* Obligation for headtenant to pay head-landlord's approval costs
## Footnote
This document ensures that all parties are legally bound in the underletting process.
108
What happens during the completion of a lease?
* The landlord receives the executed counterpart lease
* Any premium payable for the grant
* An apportioned sum for rent payable in advance
## Footnote
The landlord must provide the executed lease and relevant documents to the tenant.
109
What is SDLT and when is it charged?
Stamp Duty Land Tax, charged on the grant of a lease based on the premium and rent
## Footnote
SDLT is calculated using the Net Present Value (NPV) of the rent.
110
How is the Net Present Value (NPV) of rent calculated?
Total rent over the lease term discounted by 3.5% per annum
## Footnote
This accounts for the lower value of future payments.
111
What is the registration status of a legal lease for seven years or less?
It cannot be registered with its own title at the Land Registry
## Footnote
Such leases take effect as an overriding interest under the Land Registration Act 2002.
112
What happens if a lease exceeds seven years?
It is registrable in its own right
## Footnote
This includes the requirement to follow specific registration protocols.
113
What is typically included in the final agreed form of the lease/underlease?
The attached lease/underlease must include indemnity against future breaches affecting the title
## Footnote
This protects the tenant from potential issues related to the title.
114
What is the maximum term for a legal lease to be registered with its own title at the Land Registry?
Seven years
## Footnote
A legal lease for seven years or less cannot be registered with its own title.
115
In registered land, how does a legal lease for seven years or less take effect?
As an overriding interest under the Land Registration Act 2002
## Footnote
This applies regardless of whether the tenant is in actual occupation of the land.
116
What is required for leases of over three years to be noted against the landlord's title?
They must be noted voluntarily
## Footnote
This is applicable in registered land.
117
What happens to a lease for a term exceeding seven years after its completion?
It is registrable in its own right
## Footnote
This applies irrespective of whether the freehold title is registered.
118
What must a tenant do if the freehold is unregistered after the grant of a lease for over seven years?
Make an application for first registration within two months of completion
## Footnote
This is necessary to register the leasehold title.
119
What type of title may be classed on first registration?
Absolute leasehold, possessory, qualified, or good leasehold title
## Footnote
The type of title depends on the circumstances of the leasehold interest.
120
Under what condition is good leasehold title awarded?
When the Registrar is satisfied the title is sound but cannot guarantee against defects in the freehold title
## Footnote
This often occurs when the freehold reversion is unregistered.
121
What may good leasehold title be regarded as?
A title defect
## Footnote
This may complicate selling or mortgaging the lease.
122
True or False: A legal lease for a term of exactly seven years must be registered with its own title at the Land Registry.
False
## Footnote
A lease for seven years or less cannot be registered with its own title.
123
What is the VAT treatment for a tenant who has been granted a lease with a premium?
SDLT is charged on the VAT-inclusive amounts of the rent and the premium
## Footnote
This applies when the landlord has opted to tax the property.
124
What is the implication of the proposed landlord having registered leasehold title?
No need to deduce the freehold title
## Footnote
The proposed landlord's lease is registered with absolute leasehold title.
125
Fill in the blank: A legal lease for _______ or less cannot be registered with its own title.
Seven years
126
What must the proposed landlord do if the superior landlord's title is unregistered?
Generally, they do not need to deduce title to the freehold
## Footnote
This is because the proposed landlord's lease is registered with absolute leasehold title.
127
True or False: An undertenant can call for the freehold title when the headlease is registered.
False
## Footnote
The general law allows this only when the headlease is unregistered.
128
129
What is a 'self-help' remedy in the context of leases?
A contractual remedy allowing the landlord to recover the cost of repairs as a debt rather than a damages claim
## Footnote
This helps landlords avoid statutory limitations on pursuing damages claims imposed by the 1927 and 1938 Acts.
130
Which case approved the use of self-help clauses?
Jervis v Harris [1996]
## Footnote
This case established the legal framework for self-help remedies in landlord-tenant agreements.
131
What does a typical self-help clause allow a landlord to do?
Enter the property to check compliance with the tenant’s repair covenant
## Footnote
This includes serving notice for required works if there is a breach.
132
What happens if a tenant fails to start the required work after receiving notice?
The landlord may enter, carry out the works, and recover the cost from the tenant as a debt
## Footnote
This process converts a claim for damages into a claim for debt.
133
Fill in the blank: A self-help clause allows landlords to avoid _______ on recoverability.
statutory restrictions
## Footnote
This is due to the conversion of damages claims into debt claims.
134
What is the benefit of converting a damages claim into a debt claim for landlords?
It allows landlords to avoid statutory limitations on pursuing damages claims
## Footnote
This enhances the landlord's ability to recover costs effectively.
135
136
What is the term for the automatic termination of a fixed-term lease when the contractual term ends?
Effluxion of time
## Footnote
No notice is needed for this termination method.
137
How is a periodic tenancy determined?
By the appropriate period’s notice to quit given by the landlord or tenant
## Footnote
For example, a yearly tenancy requires at least half a year’s notice.
138
What is required for a landlord to serve a notice to quit on a tenant with a monthly tenancy?
The notice must be at least one month long and must expire at the end of a completed month.
139
What is surrender in the context of leases?
When the tenant yields up the lease to the landlord who accepts the surrender.
140
What legal requirement must be met for a surrender to be valid?
Surrender must be by deed as per LPA 1925, s 52.
141
What is merger in lease terms?
When the tenant acquires the immediate reversion to the lease.
142
What happens to the lease when it merges with the reversion?
The lease is automatically extinguished.
143
Which Act alters the common law methods of lease termination?
The 1954 Act.
144
Under what conditions does the 1954 Act apply to a tenancy?
When the property is occupied by the tenant for business purposes.
145
What types of tenancies are excluded from the protection of the 1954 Act?
* Tenancies at will
* Fixed-term tenancies not exceeding six months
* Certain types of business leases (agricultural holdings, etc.)
* Fixed-term tenancies contracted out of the 1954 Act
146
What must a landlord provide to a tenant to contract out of the 1954 Act?
A statutory notice warning the tenant of the lack of security of tenure.
147
What rights does a tenant have under the 1954 Act regarding termination?
The tenancy shall not come to an end unless terminated according to the provisions of the Act.
148
What are the seven methods of termination under the 1954 Act?
* By service of a landlord’s notice under s 25
* By service of a tenant’s request for a new tenancy under s 26
* Forfeiture
* Surrender
* Notice to quit for periodic tenancy
* Three months’ written notice from the tenant for fixed-term lease under s 27
* Ceasing to be in occupation for business purposes at the end of the lease under s 27(1A)
149
True or False: A landlord can serve a notice to quit on a tenant in a periodic tenancy under the 1954 Act.
False
150
What is the primary purpose of the 1954 Act?
To afford security of tenure to business tenants.
151
What must a tenant do to terminate a tenancy under the 1954 Act?
Serve a s 27 notice or move out.
152
What can a landlord do if there are no grounds for forfeiture and the tenant will not agree to surrender?
Terminate the tenancy only under s 25.
