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Leasing & Letting Flashcards

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1
Q

What is the LTA 1954 and what are the key elements?

A

Legislation that governs the rights of tenants and landlords in relation to commercial leases
- Security of tenure: The Act provides business tenants with security of tenure, meaning that if their lease expires, they generally have the right to request a new lease on the same terms
- Grounds for opposing lease renewal:
——> if landlord wants to occupy themselves or redevelop.
——>tenant not fulfil obligations such as paying rent

  • LTA does not apply to leases less than 6 months or that are expressly agreed to be outside of the act (contracted out)
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2
Q

What is the benefit to the tenant of being contracted within the act?

A

Provides stability for long-term business operations for the tenant
—–> more likley to invest into the unit, both emotionally and phisically

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3
Q

How do you agree a lease outside of the act?

A

S38A of the Act sets out procedure:
* No compensation payable at end of lease
* LL must serve notice – ‘health warning’ – that proposed lease not protected

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4
Q

What is a Tenancy at Will and why might it be used?

A

An agreement for occupation that either party can terminate at any time

Issued if terms of new lease not agreed to avoid statutory protection

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5
Q

Why might a letting be contracted outside of the act?

(s30-LTA1954)

A
  • Landlord wants to occupy or redevelop at end of the lease
  • Landlord wants future flexibility
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6
Q

What happens at expiry of 1954 Act lease?

A

Section 25 = Notice served by landlord
- Requires landlords to serve notice if they wish to terminate the tenancy (on statutory grounds s30) or offer new terms for renewal
6-12 months prior to expiry

Section 26 = Notice served by tenant (new tenancy)
- Tenants can serve notice requesting a new tenancy, along with their proposed terms for the new lease.

Section 27 = tenant does not wish to renew tenancy

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7
Q

What is the LTA 1985 and what are the key elements?

A

Primarily addresses the rights and responsibilities of landlords and tenants in residential tenancies
- Landlord’s duty to provide tenant with right to a safe, liveable space.
- Landlord entry - Unless emergency (flood or fire), entry is only permitted at a reasonable time and 24hr written notice
- Empowers tenants: knowing their landlord’s identity, challenging exorbitant rent increases, deposit safeguarded by govt. scheme

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8
Q

What is the process of agreeing a new lease?

A
  • Meet on site with prospective tenant
  • DD check on financial covenant (&AML)
  • Agree HoTs in line with “Code for Leasing Business Premises (2020)” - Subject to Contract
  • Instruct lawyers whether AFL or Lease (AFL in LL works being undertaken)
  • Exchange contracts (legally binding)
  • Complete (they move in)
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9
Q

How is Code for Leasing Business Premises (2020) structured?

A

Part 1: Introduction
Part 2: Mandatory Requirements
- Constructive/collaborative lease negotiations
- When not represented by RICS member or profesisonal, other party must advise of COLBP (2020) & recommend to seek professional advice
- Agreement must be recorded in HoTs saying ‘SUBJECT TO CONTRACT’ & summarise min on key lease aspects
Part 3: Lease negotiation & best practice
- Details on key lease terms
Part 4A: Template HoTs/checklist
Part 4B: Guide for landlords and tenants

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10
Q

What are Mandatory Requirements under CFLBP (2020)

A
  • Lease negs to be constructive/collaborative
  • When represented by non-RICS member, other party must advise of COLBP (2020) & recommend to seek professional advice
  • Agreement must be recorded in HoTs saying ‘subject to contract’ & summarise min on key lease aspects
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11
Q

What is a license

A

A license grants permission to occupy without exclusive possession, creating a personal right, not an interest in the land

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12
Q

What is an AFL?

A

preliminary agreement between a landlord and a tenant that outlines the intention to enter into a lease agreement in the future.

typically conidtions to be met first

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13
Q

Pros and cons of a licence?

A

Pro: offers more flexibility
con: offers less protection for the user

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14
Q

Main differences between lease and license

A

Lease
- A lease grants exclusive possession of a property for a fixed term, providing the tenant with a legal interest in the land.
- Lease can be assigned
- Cannot be terminated (unless break clause)

License
- permits use of the property for a specific purpose without exclusive possession or legal interest
- Cannot be assigned
- Can usually revoked at any time

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15
Q

How do you negotiate leases ethically?

A

Negotiations should aim to produce letting terms that achieve a fair balance between the parties (considering respective commercial interest)
—–»> Achieved through transparency & not unreasonably withholding information i.e integrity

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16
Q

What is an alienation clause?

A

transfer of a tenant’s interest in the leased property to another party. This can include: underletting/sub-letting and assigning.

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17
Q

What is:

  1. Underletting/subletting
  2. Assigning
A

Underletting/sublet:
- Tenant leases out part or all of the property to another party, but the original tenant remains responsible for the lease obligations to the landlord

Assigning:
- Transfer of all the lease obligations from the original tenant to a new tenant

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18
Q

What is the difference between third party rights and collateral warranties?

A

Whilst they both achieve the same goal of giving direct recourse, with third party rights, nothing needs to be signed by the warrantor

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19
Q

What is an Agreement for Lease and what is its purpose?

A

A legal contract between a landlord and tenant outlining the terms and conditions for a lease to be granted in the future, often subject to certain conditions being met

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20
Q

What are the pros/cons of pre-letting?

A

Pros:
- Allows tenant to have bespoke unit designed to their needs (especially important with HRB)

Cons
- lengthy process, complex and risk if developer or contractor does not perform

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21
Q

What documents would be required under an AFL

A
  • Lease (in pre-agreed form) to be executed once PC achieved
  • Specification & plans of approved scheme
  • Collatteral Warranties/TPR - any tenant taking FRI lease will want
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22
Q

What is a License for Alteration (LFA)?

A

A legal agreement that permits a tenant to make alterations or improvements to a property

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23
Q

What is a management agreement?

A

Contract between two parties where the managing agent is given the authority to oversee and manage certain aspects of the property or business on behalf of the property owner or client.

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24
Q

What are the levels of fit out?

A

Shell & Core – shell ready for fit out
CAT A – HVAC, lighting, raised floors
CAT B – Partition walls, branding etc (ready for occupation)

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25
When would an AfL commonly be used?
- LL works prior to tenant occupation - The tenant needs planning permission - LL needs to remove existing occupier prior to granting lease
26
What is zoning?
Used for comparison of retail properties – rationale that rental value of a property reduces away from street.
27
# Level 2 (high street retailer low rent) How was it different leasing on the high street vs the water?
High street strategy to find big-name, high-street brands elsewhere e.g specsavers, H&B. Over water less footfall but better atmosphere and views – pub unit etc.
28
# Level 2 (high street retailer low rent) How did the retail agents look into their current lease agreements?
Co-star or land registry
29
# Team Keane Watersports (2) Why did you not do a license for the charity?
Licenses tend to be for shorter periods. As the charity was a long-term stakeholder and the storage unts were not being used otherwise, a year lease deemed appropriate.
30
# Church F&B Unit (3) Why was the leasing & Letting market poor for F&B?
* Cost of living crisis = people less willing to spend discretionarily * Rising costs for businesses due to energy costs (wars), service charges etc * LOCATED IN in a new development that not yet matured
31
# Church F&B Unit (3) What if the client had insisted on doing F&B?
Although advising against it, I would seek to find if the client would concede on business plan ERVs etc to try and find an operator.
32
# Church F&B Unit (3) Were there any other options you considered with the church outside of temporary use?
* Discussing with the client whether they’d be willing to consider an alternate long-term use, * or whether the business plan rents or incentives could be lowered to attract more interest.
33
# Church F&B Unit (3) What may be some difficulties leasing the church?
* Agreeing repairing responsibilities for the tenant - unlikely agree FRI lease BUT internal condition schedule * Achieving listed building consents if operator wanted further changes ---->>> could request that thes undertaken by tenant
34
# Church F&B Unit (3) What were the necessary licenses to obtain with the church?
* Listed building consent * Bat license (protected species) * Planning Permission
35
# Church F&B Unit (3) What would a management agreement in a church look like?
1. **Parties Involved**: -----> Client & F&B Operator (Manager) 2. **Scope of the Temporary F&B Use**: -----> Duration, Type & hours of operation 3. **Revenue and Financial Arrangements**: -----> Payment Model (revenue sharing, payment terms etc) – i.e % of profits shared if above break even, but equally subsidies may be required. 4. **Operational Responsibilities**: -----> Who is responsible for day-to-day operations -----> Who obtains Licensing and Permits (alcohol) -----> Cleaning and Maintenance Best advantage of management agreement = offers flexibility!
36
# Church F&B Unit (3) Why would you not consider a license?
* Would not solve the problem as essentially halfway between management agreement and lease. * License typically >6 months * Lease they would invest, management agreement we would invest, and with a license they would have a right to use but who would invest?
37
# Church F&B Unit (3) Would the church be liable for business rates?
Yes liable, but only when occupied. If it is vacant, certain relief available.
38
# Pub Unit Right to Purchase (3) Why was the proposed price below business plan?
* Market has become worse, so yields have risen, decreasing capital value for the church. * If market improved, the low price would still be locked in so the operator would be getting a great deal -----> but the power would also be in their hands not to purchase if they didn’t want to.
39
# Pub Unit Right to Purchase (3) How did prohibiting assignment and underletting benefit the client?
Whilst unable to control if they exercise their right to purchase, would: - demonstrate that they were serious about running this themselves - avoid the risk of them bringing in a poor standard operator, which would detract from the development. This got something in return.
40
# Pub Unit Right to Purchase (3) How did you calculate the purchase price for the unit?
- In the business plan the ERV was divided by the yield - Then incentives for rent free and capital contribution were deducted, along with purchasers’ costs to give a net investment value. -------> - However, their proposed purchase price was based on HoTs rent which was under market value - The yields had moved out since the business plan, further worsening the value against business plan - Their value also didn’t account for the capital contribution of £600k, though there was a clawback if they did not purchase
41
What are some of the key terms of the lease that must be recorded & sumarised as a minimum (MANDATORY AS PER COLBP 2020) - 'subject to contract'
1. Identity and extent of premises 2. Rent, frequency of payment (excl. BR?) 3. Length of term and whether in / out of 1954 Act 4. Breaks / rent review frequency 5. Rent free / cap con 6. Alienation 7. Repairing obligations ..... **Full list can be found in Pt. 2 Section 1 COLBP**
42
Best practice for Assigning, Subletting, Charging, and Sharing
* The lease should allow tenants to assign or sublet the premises with the landlord’s consent (not to be unreasonably withheld). * It should also allow for sharing with related companies and provide flexibility for franchised tenants. LANDLORDS CAN IMPOSE STRICTER PROVISIONS WHERE JUSTIFIED BY PARTICULAR CIRCUMSTANCES (WHERE A TENANT'S BUSINESS OR BRAND MAY AFFECT THE CHARACTER OR VALUE OF ANY TURNOVER RENT)
43
Best practice for Repairs
* Specify tenant responsibilities for repairs based on the premises' condition and lease length. * If applicable, a schedule of condition should be agreed upon to outline the state of the property at the start of the lease.
44
Best practice for Change of Use, Alterations, and Fit-out
* Define what changes of use or alterations require landlord consent. * Leases should not unreasonably restrict internal non-structural alterations, but landlords may require approval for significant changes.
45
Best practice for Insurance and Damage
* Landlords should insure the property and provide the tenant with details. * Rent should be suspended if the premises are damaged, and either party should be allowed to terminate the lease if the property becomes unusable due to damage.
46
Best practice for Energy Performance Certificates (EPCs)
The lease should clarify which party is responsible for obtaining any necessary EPCs and ensure the process is handled reasonably.
47
Best practice for Landlord’s Title
The landlord is responsible for ensuring they have the necessary authority to grant the lease and must act in accordance with any covenants that affect the property.
48
What must rental deposits be?
- perosnal to the client - Interest to the tenant - top up mechanism for rental uplifts - typically 2 references, previous LL reference, 3 years audited accounts
49
What is an alienation clause?
**Alienation refers to the transfer of a tenant's interest in the leased property to another party**. This can include: underletting/sub-letting and assigning.
50
What is dilapidations clause?
Outlines the **tenant's obligations regarding the physical state of the leased property, particularly at the end of the lease term** Importance: At the end of the lease, the landlord may issue a schedule of dilapidations to request repairs. If the tenant has not fulfilled their obligations, they may be required to pay for the repairs.
51
What is yield up?
Refers to the tenant’s obligation to return the property to the landlord in a specified condition at the end of the lease
52
What is permitted use?
* The permitted use clause defines what type of business or activity the tenant can conduct in the leased premises. * It may specify a certain type of business, such as a retail shop, office, or restaurant. * This clause ensures that the tenant's use of the property aligns with the landlord's intentions, as well as with zoning and planning laws.
53
What is forfeiture clause?
Gives the landlord the right to terminate the lease if the tenant breaches certain terms, such as not paying rent or failing to maintain the property.
54
What is quiet enjoyment?
**Guarantees** the tenant’s right to use and enjoy the property **without interference** from the landlord or third parties.
55
What is an easement?
* Permanent right and receives capital payment * 'Right of way' * Can be obtained following continuous and uninterrupted use <20 years
56
What is a wayleave?
* Temporary right with annual payment (e.g electricity)
57
Rent Reviews
Rent Reviews * Normally UURR to market rent * Or, can be indexed Assumes: * Property available to let on open market * Property is fit and available for immediate occupation and use * All covenants observed by L&T * Property may be used for purpose set out in lease
58
What is the difference between Headline and Effective rent?
Headline = rent as stipulated in lease Effective rent = accounts for incentives
59
What is an FRI lease? What is an IRI Lease? What about 'effective'
* tenant is responsible for all repairs and insurance costs of the property, including the structure, exterior, and interior * tenant is responsible for repairs and insurance limited to the internal parts of the property they occupy
60
What are CPSEs?
Commercial Property Standard Enquiries Set of standardised questions used in UK commercial property transactions to gather information about the property from the seller to the buyer - Fire Safety - Physical Condition - Defects E.g "are there any known defects int he property?"
61
What is an Assured Shorthold Tenancy? Wnhat is recent news regarding them?
Private tenancy agreement in England and Wales, where a landlord can regain possession of the property after a set period/fixed terms LL can give 2 months notice to evict Renters Rights Bill (2025) will: 1. Abolish s21 (no fault) eviction notices - 2 month 2. Improve pet rights in rented households 3. Offer more protection regarding rent increase
62
Name other key legislation relating to commercial L&L in the UK
**Law of Property Act 1925** Governs how leases are created, assigned, and enforced in England and Wales. **Landlord and Tenant (Covenants) Act 1995** Governs the transfer of lease obligations when a lease is assigned (e.g. new tenant takes on liabilities unless the lease says otherwise).
63
What does the RICS Code for Leasing Business Premises (2020) cover?
Aims to: - improve quality and fairness of negotiations on lease terms - and to promote the issue of **comprehensive heads of terms** that should make the legal drafting process more efficient
64
How is insurance treated in leases typically?
Governed by the lease, however, typically: Responsibility of landlord to arrange and recharge tenant (BRVA).
65
What to do if building is empty:
- Tell BI insurers it is empty - Tell LPA for rates - Undertake H&S assessment
66
When is rent typically paid?
Rent paid quarterly in advance
67
What are rent arrears?
Money owed that hasn’t been paid
68
What are the 4 main options for LL to deal with tenant not paying rent
1. Serve repair notice 2. Forfeit the lease 3. Serve interim schedule 4. Do the works and charge the tenant
69
What is covered by the Leasehold Property Repairs Act (1938)
Applies to leases granted for term of 7 years or more & more than 3 years until lease expiry – protects tenants against onerous interim schedules of dilaps
70
What is a schedule of condition?
- Limit the tenant’s repairing obligation in respect of the agreed items of disrepair for duration of the lease - Agreed by negotiation between tenant and landlord prior to lease - Must be carefully recorded
71
What are user clauses?
- Relate to planning use of the property and/or how it can be used - Restrictive user clause can depress market rent (i.e restriction on hours of working for offices)
72
Wht are sections 25, 26 and 27 of the 1954 Act – at expiry of the lease?
- **Section 25 = Notice served by landlord** -----> requires landlords to serve notice if they wish to terminate the tenancy (on statutory grounds s30) or offer new terms for renewal -----> 6-12 months prior to expiry - **Section 26 = Notice served by tenant** -----> tenants can serve notice requesting a new tenancy, along with their proposed terms for the new lease. - **Section 27 = tenant does not wish to renew tenancy**
73
How can you protect against a new asignee performing poorly?
Use an AGA (Authorised guarantee agreement) -> guarantee from previous tenant that incpoming tenant will fulfil all lease obligations
74
Which is more beneficial for LL: sublet or assign?
sublet - as relationship with original tenant is still there, therefore likley less risky
75
Are HoTs legally binding?
No --> however, if there is exclusivity clause, cannot negotiation with other parties during specified period. OFTEN LEGALLY BINDING
76
What is exclusive possession?
tenant's legal right to occupy a property and exclude others from entering without permission
77
What must is required for it to be classed a 'lease' (5) What if over 3 years lease?
1. Parties 2. Leased subject 3. Rent 4. Duration 5. Exclusive possession Lease of 3 years or more must be signed as deed (signed and witnessed)

Technical & Optional Competencies (10 decks)

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