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Leaseholds Flashcards

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1
Q

What is the primary focus of this course regarding leases?

A

Commercial leases

Residential leases are also discussed but are not the primary focus.

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2
Q

What is a common duration for residential long leases?

A

99 or 999 years

These leases often have very low rents.

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3
Q

What type of tenancy is common for letting out houses and flats on a short-term basis?

A

Assured shorthold tenancies

Typically for six or twelve months.

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4
Q

What is a typical duration for commercial leases?

A

Up to 15 years

Commercial leases usually require market rent.

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5
Q

What are some advantages of leasehold from a tenant’s perspective?

A
  • No need to spend capital
  • Flexibility to leave at the end of the lease
  • Some premises are only available as leasehold
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6
Q

Who are the common types of commercial landlords?

A
  • Private investors
  • Institutional investors
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7
Q

What is a full repairing and insuring (FRI) lease?

A

A lease where tenants cover property costs, and landlords receive clear rent.

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8
Q

What is covenant strength in commercial leasing?

A

The tenant’s ability to comply with lease obligations and have recoverable assets.

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9
Q

What does asset management in commercial property involve?

A
  • Granting leases
  • Considering tenant applications
  • Advising on breaches
  • Managing end-of-lease issues
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10
Q

What is the definition of a lease according to Woodfall’s Law of Landlord and Tenant?

A

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.

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11
Q

What is an essential ingredient of a lease that distinguishes it from a licence?

A

Exclusive possession

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12
Q

What is the term commencement date in a lease?

A

The date on which the lease term starts.

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13
Q

What are the landlord’s primary objectives in negotiating a lease?

A
  • Ensure premises are insured
  • Keep premises in repair
  • Control occupancy
  • Manage alterations
  • Increase rent in line with market
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14
Q

What do tenants typically want in a lease?

A
  • Use premises for intended purpose
  • Satisfactory contractual term
  • Flexibility in circumstances
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15
Q

What is a break clause in a lease?

A

A provision allowing either party to terminate the lease before the end of the fixed term.

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16
Q

How can the expiry of a lease term be calculated?

A

It depends on how the term is defined in the lease.

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17
Q

What is the difference between a landlord break clause and a tenant break clause?

A

A landlord break clause allows only the landlord to terminate, while a tenant break clause allows only the tenant.

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18
Q

What is the difference between market rent and ground rent?

A

Market rent is typically for short leases, while ground rent is associated with long leases.

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19
Q

What is the reversion in the context of a lease?

A

The interest that the landlord holds subject to the lease.

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20
Q

What is a typical commercial lease duration?

A

3, 5, 10, or 15 years

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21
Q

What is the significance of a 20-year lease with no break clause for a landlord?

A

It ensures a long period of uninterrupted rent.

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22
Q

What is the tenant’s concern regarding a 20-year lease with no break clause?

A

It represents a long commitment with uncertain future.

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23
Q

In lease negotiations, what might institutional landlords insist on?

A

A full repairing and insuring (FRI) lease.

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24
Q

What is the typical duration of a commercial lease?

A

Up to 15 or 20 years

Most commercial leases are short leases.

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25
What is a market rent also known as?
Rack rent ## Footnote Market rent is typically associated with short commercial leases.
26
What type of payment does a commercial tenant usually not pay upon the grant of a lease?
Premium ## Footnote A premium is a lump sum that is not commonly charged for commercial leases.
27
What is a long residential lease typically measured in?
99 or 999 years ## Footnote Long residential leases often require a premium payment to the landlord.
28
What is the typical ground rent imposed on long residential leases?
A low sum (e.g., £150 per annum) ## Footnote Ground rents have been restricted to peppercorn rents since June 2022.
29
How is rent usually expressed in a commercial FRI lease?
As a yearly figure, payable quarterly ## Footnote For example, £80,000 per annum.
30
What are the traditional quarter days for rent payment?
25 December to 24 March, 25 March to 23 June, 24 June to 28 September, 29 September to 24 December ## Footnote These dates are based on religious festivals.
31
What happens if the lease does not specify if rent is payable in advance?
The rent is payable in arrears ## Footnote This is more common in residential long leases.
32
What are the different types of rent review in commercial leases?
* Stepped rent * Turnover rent * Index-linked rent * Open market rent ## Footnote Each type has different mechanisms for determining rent increases.
33
What is an 'upwards only' rent review?
A rent review where the rent can only increase ## Footnote If market rents have fallen, the rent stays the same.
34
What is the purpose of a rent review memorandum?
To document the new rent agreed or determined by a valuer ## Footnote This document is signed by both landlord and tenant.
35
What does the Code for Leasing Business Premises aim to improve?
Quality and fairness of negotiations on lease terms ## Footnote It promotes comprehensive heads of terms for efficiency.
36
What are the mandatory requirements of the Code?
* Constructive and collaborative negotiation * Advise unrepresented parties about the Code * Ensure heads of terms compliant with the Code are agreed ## Footnote These must be followed by RICS members and regulated firms.
37
What should heads of terms specify regarding rent?
* Initial rent * Frequency of payment * Rent review basis ## Footnote This includes whether VAT will be charged.
38
True or False: The Code applies to all commercial lettings without exceptions.
False ## Footnote There are exceptions, such as tenancies of 6 months or less.
39
What must a landlord obtain before granting a lease?
Any necessary consent ## Footnote This may include consent from a superior landlord or mortgagee.
40
What type of repairing obligation should a tenant have?
Appropriate to the length of the term and condition of the premises ## Footnote For example, a tenant on a short tenancy should not have a full repairing obligation on dilapidated premises.
41
What should happen to rent if the premises are damaged by an insured risk?
Rent should be suspended ## Footnote This applies unless the damage is due to the tenant's actions.
42
What is the primary aim of the Code?
To make commercial lease negotiations fairer and more transparent ## Footnote The Code applies to RICS members and RICS regulated firms.
43
Who does the Code not apply to?
Clients, property professionals, or legal advisers who are not regulated by the RICS ## Footnote However, solicitors should be familiar with the Code as landlord clients or their agents may be bound by it.
44
What must RICS members follow in lease negotiations?
Mandatory requirements concerning the manner of negotiation and the content of the heads of terms ## Footnote Statements of good practice must also be followed unless there are strong reasons not to.
45
What are the three main stages of the grant of lease transactions?
* Pre-exchange * Pre-completion * Post-completion ## Footnote If there is no exchange, only pre-completion and post-completion stages are needed.
46
What tasks does the landlord's solicitor perform during the pre-exchange stage?
* Take instructions * Prepare draft lease and agreement for lease * Deduce title and respond to queries * Answer pre-contract enquiries * Engross agreement for lease ## Footnote Engross means to print a copy for signature on good quality paper.
47
What is the tenant's solicitor responsible for during the pre-exchange stage?
* Take instructions * Review and amend draft lease * Investigate title and raise queries * Raise pre-contract enquiries and searches * Arrange for tenant to sign counterpart lease
48
What is an agreement for lease?
A document needed when parties want to commit to completing the lease but are not yet ready or have conditions to satisfy ## Footnote Example: A developer signing retailers up to an agreement for lease before a shopping centre is completed.
49
What is the purpose of CPSE1 and CPSE3 enquiries?
To investigate the landlord's title and raise specific queries regarding the lease grant ## Footnote CPSE1 is general, whereas CPSE3 is specific to lease grants.
50
What happens during the exchange of an agreement for lease?
* Solicitors exchange documents * No deposit is usually payable * Conditions for completion are outlined * Draft lease is annexed ## Footnote The agreement for lease is only exchanged once the terms of the lease are agreed.
51
What tasks does the landlord's solicitor perform during the pre-completion stage?
* Prepare original and counterpart lease * Obtain landlord's signature * Prepare completion statement
52
What does the tenant's solicitor do during the pre-completion stage?
* Arrange for tenant to sign counterpart lease * Obtain funds for completion * Raise pre-completion searches
53
What is a completion statement?
A statement detailing the money due on completion, including apportioned rent, service charge, and insurance rent
54
What are the steps involved in the completion of a lease?
* Tenant's solicitor sends completion monies * Solicitors agree to complete over the phone * Completed leases are exchanged
55
What tasks does the landlord's solicitor perform post-completion?
Send summary of main provisions of lease to client
56
What does the tenant's solicitor do post-completion?
* Arrange to submit SDLT or LTT return * Pay SDLT or LTT if necessary * Register lease if necessary
57
In a lease of whole, who is responsible for repairs?
The tenant is responsible for repairing the whole building ## Footnote This includes both interior and exterior repairs.
58
In a lease of part, who is responsible for the repair of common areas?
The landlord is responsible for common areas, which are maintained and costs recovered through service charges.
59
What is a full repairing obligation in a lease?
An obligation to keep the premises in good repair, meaning the tenant must repair if they are not in good condition
60
What is a qualified repairing obligation?
An obligation to keep the premises in good repair but not to improve beyond the initial state as evidenced by a Schedule of Condition
61
What are inherent and structural defects?
Defects in a newly constructed property that may not be visible initially and should be excluded from the tenant's repairing obligation
62
Who is responsible for insuring the building in a commercial lease?
The landlord is responsible for insuring the building and recovers costs from the tenant
63
What are some typical insured risks in a lease?
* Fire * Explosion * Lightning * Flood * Riot * Malicious damage ## Footnote This list can be expanded by the landlord.
64
In a lease of part, how is the insurance cost handled?
The landlord insures the whole and each tenant reimburses a proportionate part of the insurance premium
65
What is the significance of a full repairing obligation for a tenant?
It extends to putting the premises into repair if they are not, which can be onerous
66
Who insures the building in a typical lease agreement?
The landlord ## Footnote The landlord also recovers the whole cost from the tenant.
67
What is the tenant responsible for in a lease of part?
Repairing the demise ## Footnote The demise will be defined in detail.
68
What does the landlord maintain in a lease of part?
Common areas ## Footnote The landlord recovers a proportionate part of the cost from each tenant.
69
What is a full repairing obligation?
An obligation to keep the premises in repair and to put them into repair if they are not ## Footnote It is typically expressed as such in lease agreements.
70
How is a qualified repairing obligation defined?
Limits the tenant’s obligation to keeping the premises in the same state of repair as at the beginning of the lease term
71
What type of obligation does an FRI lease contain?
Full repairing obligation ## Footnote It does not contain a qualified repairing obligation.
72
Is the tenant responsible for damage caused by insured risks?
No, except in limited circumstances

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