Leasehold

Question 1

What are four common types of rent review for commercial leases?

Answer 1

1. Fixed increases
2. Index linked
3. Turnover rent
4. Open market

Question 2

What is alienation?

Answer 2

Right granted in a lease for a tenant to assign, sublet, or share occupation of their property.

Question 3

What does Code for Leasing Business Premises include?

Answer 3

Sets out best practices for this requires landlords to make offers in writing which include clear terms regarding matters such as the rent and length of the term, any rights to break the lease, rent review arrangements, rights to assign and repairing obligations.

Question 4

What will contract pack in assignment of an existing registered lease include?

Answer 4

• Draft contract in duplicate
• Official copies of the leasehold title and plan
• Copy of the lease of the property
• Property Information Form, Leasehold Information Form, and Fittings and Contents Form.
• Copy of the landlord’s freehold register of title and plan
• Copy of the insurance policy for the whole building
• Copy of the last three years’ service charge accounts

Question 5

When wouldn’t carry out pre-contract enquiries and searches for a lease?

Answer 5

If only a short amount on the lease may choose not to carry out all if risk doesn’t justify the cost

Question 6

How should a lease be assigned?

Answer 6

Must be via deed as transferring legal title to land. If existing registered lease is transferred should use TR1.

Question 7

What are covenants for title in assignment of a lease?

Answer 7

Covenants for title include a promise that the seller has complied with the tenant’s covenants in a lease.

Question 8

How are covenants for title in assignment of a lease relating to repair typically dealt with?

Answer 8

If the seller is in breach of repair covenants in the lease then could be liable to the buyer, however this is at odds with caveat emptor (buyer beware). Typically will amend covenants for title to exclude repair.

Question 9

What is an authorised guarantee agreement?

Answer 9

Means the outgoing tenant will act as a guarantor for their immediate successor in title. In a commercial lease as a condition of giving consent to an assignment a landlord can require the outgoing tenant to enter into this.

Question 10

What is the purpose of a licence to assign?

Answer 10

Signed by new tenant and landlord to create privity of contract between them so the landlord can hold the assignee liable for obligations in the lease.

Question 11

What happens in an underlease?

Answer 11

The tenant disposes less than their entire remaining interest. The original lease is then referred to as the headlease.

Question 12

How does a licence to assign or underlease deal with privity of contract?

Answer 12

Document signed by all parties, creates privity of contract between the assignee and the landlord = lease enforceable between the two parties.

Question 13

What is liability on covenants in leases granted before 1 January 1996?

Answer 13

On an assignment of a lease made before 1996 the original landlord and the original tenant automatically remain liable to each other under the lease for the entire lease period unless one of them expressly releases the other.

Question 14

What is liability on covenants in leases granted on or after 1 January 1996?

Answer 14

On an assignment of a lease made after 1995 tenants are automatically released from their covenants so not liable for a subsequent tenant’s breach of covenant after the assignment.

Question 15

What are 7 remedies for breach of a leasehold covenant?

Answer 15

Action in debt
Forfeiture
Commercial Rent Arrears Recovery
Pursue guarantors and/or rent deposit
Specific performance
Damages
Self-help/Jervis v Harris clause

Question 16

Under remedies for breach of a leasehold covenant what is action in debt?

Answer 16

If a commercial tenant fails to pay the agreed rent the landlord has a statutory right to take control of their goods and sell them.

Question 17

Under remedies for breach of a leasehold covenant what is forfeiture and how is it done?

Answer 17

This is the right of the landlord to end the lease early and re-enter the premises. Is not automatically available as a remedy for non-payment of rent or other breach of obligation. Must be expressly included in the terms of the lease.

If forfeiture clause is included in lease to use the landlord must serve a notice on the tenant specifying the breach requiring it to be remedied within a specified reasonable time and setting out any compensation payable to the landlord on account of the breach.

Question 18

Under remedies for breach of a leasehold covenant what is Commercial Rent Arrears Recovery?

Answer 18

Landlords have the power to enter the premises and remove and sell goods owned by a tenant defaulting on rent.

Note: can only be used on commercial premises, on pure rent not service charge or insurance, must be at least 7 days outstanding and must serve enforcement order to give 7 days’ clear notice.

Question 19

Under remedies for breach of a leasehold covenant what is pursue guarantors?

Answer 19

A guarantor is someone who agrees to pay the rent if tenant doesn’t pay it, for example a parent or close relative. If tenant doesn’t pay the landlord what is owed, they can ask the guarantor to pay instead. If the guarantor doesn’t pay, the landlord can take them to court.

Question 20

Under remedies for breach of a leasehold covenant what is a Rent Deposit Deed?

Answer 20

A Rent Deposit Deed is a document which is supplemental to the Lease and is something a Landlord may require so that they have an advance payment of the rent (usually between 3 and 12 months) to protect the Landlord in situations where the Tenant fails to pay rent or breaches other conditions in the Lease.

Question 21

Under remedies for breach of a leasehold covenant what is specific performance?

Answer 21

Is an equitable remedy granted at discretion of the court. Specific performance is a court action that orders the tenant to act in conformity with agreed covenants. May be available where there is contention over the existence of a covenant in the first place.

Question 22

Under remedies for breach of a leasehold covenant what is Self-help/Jervis v Harris clause?

Answer 22

This clause gives the landlord the right to enter the premises and make a repair if the tenant breaches a covenant of repair – the landlord gives the tenant notice of the work to be done – and the tenant fails to comply.

If landlord resorts to this, they may recover the costs of the repair as a debt (an action for a fixed sum is less cumbersome than an action in which the amount of damages must be proved).

Question 23

What happens to a sublease if the headlease is ended?

Answer 23

If headlease ended by expiry, notice to quit or forfeiture the general rule is that sublease will end to.

If headlease surrendered the sublease not ended but subtenant will become the tenant of the head landlord on terms of sublease.

If headlease and the landlord’s reversion merge the new owner of the combined estate will hold it subject to the sublease.

Question 24

How can a lease be terminated?

Answer 24

Effluxion of time
Surrender
Merger

Question 25

What leases are exempt from security of tenure provisions?

Answer 25

All residential leases and commercial leases of less than 6 months

Question 26

What does security of tenure give?

Answer 26

A commercial tenant a right to stay in the leased premises for an additional term unless the landlord uses one of statutory methods of terminating the lease

Question 27

Process for contracting out of security of tenure?

Answer 27

• Landlord serves warning notice on potential tenant at least 14 days before the lease completed
• The tenant signs a declaration confirming they have seen the warning and agreeing to contract out
• The lease references the warning, the tenant’s declaration and the agreement to contract out.

Question 28

Under Landlord and Tenant Act 1954 how does Tenant get a renewal lease?

Answer 28

If not contracted out the tenant can inform landlord of desire for a new lease by serving a section 26 notice.

Tenant must serve section 26 notice between 6-12 months before they wish the new tenancy to start.

Landlord has two months during which to inform the tenant whether they intend to oppose the request. If landlord unwilling to agree to a new lease they must specify one of the statutory grounds below as basis.

Question 29

Under Landlord and Tenant Act 1954 how does Landlord get a terminate the lease?

Answer 29

If not contracted out the landlord can seek to terminate the lease by serving a section 25 notice. Section 25 notice informs that they require premises back or wish to enter a new lease with the tenant.

Landlord must serve section 25 notice between 6-12 months before they wish the existing tenancy to end.

Question 30

Under Landlord and Tenant Act 1954 what are Landlord’s grounds of opposition?

Answer 30

Section 25 must be based on statutory grounds:
* Tenant’s breach of obligation (repair, persistent delays in paying rent or other substantial breach)
* If part of premises sublet the landlord requires the whole property for subsequent letting
* Availability of suitable alternative accommodation for the tenant
* Landlord intends to demolish or reconstruct the premises and cannot do so with the tenant in occupation
* Landlord intends to occupy the premises
The first two grounds are discretionary meaning even if the landlord establishes these grounds the court may decide to order a new tenancy in any event. The others are mandatory so if established the court must refuse to order a new tenancy.

Question 31

Under Landlord and Tenant Act 1954 who decides the terms terms of the new lease?

Answer 31

If the parties agree a new lease or a court orders a new lease but the parties can’t agree the terms then a court can set its terms. Maximum fixed term a court can set is 15 years.

Question 32

Under Landlord and Tenant Act 1954 what is the Availability of compensation?

Answer 32

If the landlord establishes:
* They require the whole premises for letting
* They intend to demolish the premises
* They intend to occupy the whole of the premises
The tenant is entitled to compensation. No compensation is due for any of the other grounds.

If the tenant has occupied the premises for at least 14 years (or took over business from someone and combined occupancy is at least 14 years) then compensation = twice rateable value of the holding.
If the tenant has occupied the premises for less than 14 years then compensation = rateable value of the holding.

Rateable value of the property is set by the UK government Valuation Office Agency.