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Property Pratice > Structure And Content Of A Lease > Flashcards

Structure And Content Of A Lease Flashcards

1
Q

What is the advantages of owning a leasehold

A

Landlords can rent it out rather than selling it.

Positive covenants can be easily enforced

Landlord retain capital interest in freehold, which is an asset

Landlord can retain control over management of building

Commercial tenants have a good reason.- flexible, short term, Easy to move.

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2
Q

What are the disadvantages of owning a leasehold property?

A

Depreciating value, the landlord owns the property

No visible return on rent

Landlord will retain control

Repairing obligations

Landlord point of view: tenant may be unreliable, not pay rent, not take care.

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3
Q

What are prescribed clauses?

A

Leases that are dated on or after 2006 which are registered, are COMPULSORY registrable, and must contain prescribed clauses.

Summary of the important details in the leaes anda bring together in one place. Saves time for land registry

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4
Q

What are ancillary rights?

A

Gives tenant rights over other land, to enable them to USE the leased property (right to roads, car parking spaces, areas for loading)

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5
Q

What is a fixed term leaes?

A

Fixed period can be weeks, months or years.

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6
Q

What was the normal fixed lease period for commercial leases?

A

25 years

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7
Q

What are periodic leases?

A

Not granted for a fixed period, but continue indefinitely from one period to another.

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8
Q

What is a tenancy at will?

A

Where the tenant occupies the property with the permission of the landlord on the terms that the tenancy may be terminated by EITHER party at any time.

Indefinite

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9
Q

What are the 3 types of leasehold covenants?

A

Absolute
Qualfiied
Fully qualified

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10
Q

What is the full repairing and insuring lease?

A

FRI, means that the landlord gets a “clear: rental stream (all profit) and does not have to dip into it to pay for repairs, maintenance and insurance contributions.

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11
Q

What is meant by “repair” ?

A

There must be DISREPAIR first, before tenant can be in breach of covenant to repair.

If brand new, it will obviously deteriorate, doesnt have to be in PRISTINE repair - only put into such state as renders it fit for occupation of a reasonably minded tenant

Works for renewal or improvement go BEYOND REPAIR.

A repairing covenant does NOT oblige the tenant to give back to the landlord a property that is WHOLY DIFFERENT.

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12
Q

Who has the burden of insuring a leasehold property?

A

If lettinghte whole, the tenant can be responsible.

Howeer, more common to adopt practice used with multi-occupation, where landlord takes out insurance, with cost passed to tenant as a a separate insurance rent

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13
Q

What are insured risks?

A

Inclusive list of risks which the landlord must insure against.

It is common for list of risks to conclude with “such other risks as the landlord May reasonable require”, therefore protecting against new risks arising.

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14
Q

What are the covenants in terms of insruance?

A

Landlord covenant to insure property against defined risks

Tenants covenants to pay for the insurance policy

Covenant by landlord to reinstate the property

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15
Q

What is the tenants covenant to pay for insruance policy?

A

Pay a sum served as rent (insurance rent)

Includes the Premium for buildings insurance policy, during any period where the tenant is unable to use the building following the occurrence of an insured ris.

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16
Q

What is the covenant by the landlord to reinstate the property?

A

Expressed as a covenant, to use the insurance proceeds to reinstate the property.

May be a provision to deal with situation where reinstatement is impossible. Insruance monies to be retained by landlord, and pass over to tenant who has been paying g premiums, or shared.

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17
Q

What is rent suspension?

A

Rent will continue to be payable even if the prperty is rendered unusable.

Tenant should ensure that leaes provides for payment of lease to be SUSPENDED during any period that the property cannot be occupied following damage of insured risk

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18
Q

Can a leasehold be terminated if the building is totally destroyed?

A

The doctrine of frustration will ONLY apply in exceptional circumstances, therefore the leaes often gives the landlrod right to terminate the leaes should reinstatement be impossible. .

Rent suspension is time-limited, therefore termination could be the best thing.

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19
Q

Can tenants make alterations to the property in a leasehold?

A

Landlords may worry, may not be done well or decrease value, or not comply with planning or building requirements.

In the absence of alterations covenant, the tenant would be able to make ANY CHANGES it wants, so a landlord try’s to restrict this.

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20
Q

What are the 4 examples of alteration clauses made to a leasehold property?

A

Alterations affecting the structure and exterior of building
Non-structural interior alterations
Alterations affecting service media (heat,, lighting, communications systems)
Demountable partiioning

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21
Q

What do absolute covenants restrict against alterations?

A

Al of it, but it is common for a lease to contain this in relation to structural and exterior alterations ONL.

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22
Q

What does s3 of LPA allow tenants of buisiness premises to do with an absolute covenant?

A

Enable it to carry out “Improvements” even where there is a lease with absolute prohibition.

A tenant who wants to carry out improvements can serve a notice on the landlord. The landlrod has 3 months to object, and if not, can carry it out.

23
Q

What is the time limit on objection from the landlrod for s 3 LTA?

A

3 months

24
Q

What section allows qualified covenants to change to fully qualified?

A

S 19(2) LTA , term is implied into qualified covenant against making “improvements” that the landlrod cannot unreasonably withhold its consent.

25
Q

Can a tenant get compensation for improvements to a leasehold?

A

A tenant which had obtained prior authorisation, is entitled to claim comepnsation for improvements at the end of the term .

26
Q

Why may a landlord want to restrict the use of a leasehold?

A

Retail purposes - balance of shops. Key nature of centre, prevent competition etc.

27
Q

Is there a statutory implication that athe landlrods consent cannot be unreasonable with Change of use?

A

NO, there is NO statutory implication that the landlrods consent cannot be unreasonably withheld for user covenants, but the landlord CANNOT chagre a fine or increase rent as a condition of giving consent.

28
Q

What are examples of alienation

A

Assignment

Underletting(subletting)

Charting (mortgaging)

Sharing occupation

Parting with possession (covers all)

29
Q

Is assignment allowed inc ommercial leases?

A

Usually allow assignment of WHOLE property, but not part, as many properties are unsuitable for legal and physical sub-division.

30
Q

What does s 19(1)(a) LTA imply into assignment covenants?

A

Implies into any qualified covenant that it be deemed to be subject to a provisio that such consent s NOT to be unreasonably withhold, therefore convert from qualified to fully qualified

31
Q

What does s 19(1A) TPA allow?

A

Allows for landlord and tenant to agree in advance conditions adn circumstnaces in which it woudl not be unreasonable for the landlord to refuse consent.

Usual, is to contain an AGA

32
Q

What is s 1 LTA1988?

A

Where there is a qualified covenant on assignment and the tenant has made a written application for consent, the landlord MUST within a reasonable time:

  1. Give consent, except when reasonable not
  2. serve on tenant written notice of its decision,

If consent - wth conditions
If no consent- reasons for withholding it

33
Q

What are guidelines of reasonableness for withholding consent for assignment?

A

Not entitled to refuse its consent on grounds which have NOTHING to do with relationship or subject matter

Must be conclusions that might be reached by a reasonable person in circumstnaces.

Can reject on the grounds of puropse for which proposed assignee intends to USE premise

Landlord is generally BOUND to consider its own interests, however it would be UNREASONABLY for landlord not to consider detriment which would suffer by tenant if consent was refused

34
Q

What are examples of situations where consent has been held REASONABLY?

A

Where references were unsatisfactory
Where long-standing breach by assignor
Where assignee would compete
Wehre assigne would reduce value of reversion
Where proposed assignee intends to carry on a use detrimental to premises
Where assigne would acquire protection under part II LTA

35
Q

What are 3 situations where consent has been UNREASOABLLY held for assignment?

A

In attempt to obtain self advantage
Minor breach of repair covenants
Where premise has been on market for 18 months, rent was significant and slight harm would be OUTWEIGHTED by prejudice to tenant

36
Q

What is underletting?

A

When there is a leaes created by someone who is already a tenant.

2 leases in existence at once

37
Q

Reasons for an underlease

A

If property is temporary surplus to requirements. Rather than having it empty, tenant wants to cut losses and rent it out

If they dont need t for a certain time period

38
Q

Why may the landlord be concerned about underletting?

A

It is possible that the landlord may end up with the undertenant as their DIRECT tenant. This can occur if lease is forfeited etc.

Although headtenant will remain liable to landlrod for performance of covenants, it is the undertenant in relatity that will be in control and have physical control.

39
Q

What are common conditions of the underletting?

A

Terms mirror the headlease
Annal rent reserved is as leases as high as headlease

Any underletting must EXCLUDE Part II of LTA, which gives business tenants the statutory right to stay on the property and renew leaes

Undetenant enters direc covenant with landlord to perform tenants covenants

40
Q

When is rent payable?

A

Usual quarter days - 25 march, 24 June, 29 September, 25 December

41
Q

What is a review of the rent?

A

Rent cannot change unless there are express provisions to that effect.

42
Q

What are the 4 types of rent review?

A

Fixed increase

Index-linked

Tenants receipts

Open market rent review

43
Q

What is fixed increase rent review?

A

Rent will increase to a set amount.

Benefits of certainty and simplicity, but difficult to predict

44
Q

What is a index-linked rent review?

A

Rent is linked to an external index - such as Retail Price Index.

Allow rent to be altered in line with inflation. However, this doesnt track the property market specifically, therefore may be discrepancies

45
Q

What is a tenants receipts rent review?

A

This is linked to the tenants receipts from its use of property. Linked to tenants turnover, but also others such as profits or sums of sublet.

Advantage - tracks tenants actual financial health and gives landlord incentive to do it.

46
Q

What is open market rent review?

A

Rent is adjusted at regular intervals during the term by reference to the open market renewal value of the premises at the time of the review

Most common form of rent review/

47
Q

What are the common assumptions when determining open market value?

A

By a willing landlord and willing tenant

With vacant possession

On terms of THIS lease

For a term of … years

On the assumption that the tenant has fully complied with obligations in leaes

On assuming that if the property ahs been destroyed or damages, it has been RESTORED

48
Q

What are the common DISREGARDS when working out open market rent review?

A

Any effect on rent that the tenant has been in occupation of property

Any goodwill attached to property bby reason of any business

Any effect on rent attributable to any physical improvement to the property carried out by tenant.

49
Q

What is the process for determination of an open market rent review?

A

Level of rent - usually onwards only. Stay the same or increase.

Frequency of review - every 3-5 years

Instigating the review - negotiate before review.

Independent determination

50
Q

What is the Code for Leasing Business Premises?

A

Government tried to address tenants concern of finding an assignee willing to take on a risk, if market becomes more favourable and tenants can get better terms for new lease, by introducing the voluntary code of practice

51
Q

What does the voluntary code of practice introduce?

A

Fairness and flexibility, but:

  • giving tenants a choice of leasing terms
  • relaxation of alienation provisions
  • restrictions should be imposed only where necessary to protect landlrods interest
52
Q

What is the RICS code?

A

Royal institute of chartered surveyors

Improve qualify and fairness of leaes negotiations. Negligence claim against surveyor if do not comply.

53
Q

What are the mandatory requirements int eh RICS Code?

A

Lease negotiations must be approached in constructive and collaborative manner r

Any party not represented must be advised on existence of code

Transactions must be in writing

Property Pratice (10 decks)

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