Terms of a Lease and Rent Flashcards
(23 cards)
What must a lease term be?
Determinate
What constitutes a determinate term?
a) Fixed term
b) Periodic tenancy (weekly, monthly, yearly)
What are the reasons for short leases recently being more popular?
a) Business plans drafted in 5 to 10 year cycles
b) Tenant pays less Stamp Duty Land Tax or LTT on shorter tenancy
What is the term commencement date?
The day the lease starts
Is it a problem if term commencement starts earlier than the date of the lease?
No
How do you calculate the expiry of a lease term?
A 10 year term expires 10 years after term commencement
Why is a break clause important for ending a lease?
Because without it, generally neither landlord nor tenant can bring lease to an end before end of fixed term without agreement of the other
Say there are two leases. One is 5 years. One is 10 years with a 5 year break. Which one is better?
The 10 years with 5 year break. Why? Because towards the end of the 5 years, of the first one, the tenant will start looking for other leases, whereas the other one will not feel the panic of having to do so.
What categories of rent are there?
- Short lease with market rent
- Long lease with ground rent
How is market rent paid?
Paying rent per annum, but without a premium
How is long lease with ground rent paid?
Usually will pay a premium for the lease, but literally a very low ground rent
What is the typical rent system in a commercial FRI lease?
Expressed annually, but paid quarterly
What happens if the lease is quiet on whether rent is payable in advance?
If the lease is silent, the rent is payable in arrears
What are the types of rent review?
1) Stepped rent
2) Index-linked rent
3) Turnover rent
4) Open market rent review
What is an open market rent review?
Landlord will look at market rent – usually upwards only
What happens if landlords and tenants cannot agree on open market rent review?
Valuer will decide on:
1) Comparable premises
2) Hypothetical lease
What does a valuer assume in a hypothetical lease?
- Premises is vacant
- Willing landlord and willing tenant
- Tenant has complied with covenants
- Landlord complied with covenants
- On terms of an actual lease
What are common disregards of a hypothetical lease?
- Ignores what the tenant has done voluntarily
- Goodwill attached to property
Is the assumption that tenant / landlord complied with covenants in hypothetical lease fair?
Tenants – yes. If it falls into disrepair, they shouldn’t pay less rent for it.
Landlords – no. If the lift doesn’t work, they should not benefit from it.
What happens once a new rent review is agreed upon?
It is agreed in a rent review memorandum
What happens if review happens before 5th year of lease?
Tenant may need to pay SDLT / LTT
What happens if review happens after 5th year of lease?
No extra tax is due
What happens if new rent is agreed late?
Rent can be backdated, and tenant pays difference plus interest
