Ownership
Content
© The College of Estate Management 2001
Paper 3705V3-1
Ownership – leasehold
Contents
1. Leasehold property
2. The lease
2.1 Rent
2.2 Alterations and improvements
2.3 User
2.4 Alienation
2.5 Repairs
2.6 Rent reviews
3. Break clauses
4. Lease expiry
Summary
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1 Leasehold property
An occupier who does not own the freehold title to the property he occupies will
generally be in possession under the terms of a lease.
There are other bases of occupation, such as licence, agreement for lease and trespass.
Trespass is unlikely to be relevant to a facilities manager in his role of organising his
company’s occupation, though it might be relevant as far as managing vacant
accommodation is concerned.
Licence or agreement for a lease tend to be the result of special circumstances, such
as the need for immediate occupation or for a very short period of occupation. These
documents can be used to allow two parties to make a binding agreement which
might have to be subject to unresolved matters – such as planning issues, the
construction or improvement of the premises, alterations, gaining vacant possession,
funding arrangements, references, or even acquisition of the property. Each party
would then be in a position to rescind the letting if the outstanding matter was not
concluded.
This paper seeks to develop three issues – the three types of leases, the statutory
protection of tenants and the general lease terms – and to look at the practical aspects
as far as the facilities manager is concerned.
Accordingly we shall be looking at the lease and in particular the following elements:
1.
2.
3.
4.
5.
6.
7.
8.
Rent
User
Alterations
Alienation
Repairs
Rent reviews
Break clauses
Lease expiry.
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2 The lease
Each lease is unique; even in a multi-let property the leases for individual suites will
vary. There are a number of reasons for this:
l The leases will have been granted at different times and the clauses amended
to reflect changes in statute and case law.
l There may be a change of landlord during the letting period and the new
landlord may decide to alter certain terms of the lease to reflect his views on
the property.
l The bargaining position of the landlord and individual tenants will vary. A
landlord’s attitude towards a FT-100 company requesting certain clauses to be
changed will be different from his attitude towards a small, private company
requesting similar changes.
l The landlord’s perception of the building may change. For instance, he may
decide to redevelop the building in the next five years and will therefore grant
shorter leases or leases with break clauses for redevelopment.
It is important to distinguish between a licence and a lease. A lease when granted
confers on the occupier an interest in that property. A licence merely grants a
personal permission to occupy the property, but no interest in it.
Distinguishing between a lease and a licence can be very difficult, but the impact of
the arrangement being one and not the other is substantial. Some consequences are:
l Security of tenure applies to leases only, in particular the Landlord and Tenant
Act 1954.
l A lease can be transferred, a licence is generally personal.
l A licence will not bind a third party, such as a purchaser.
The primary test for determining whether it is a licence or a lease rests on the
question as to whether the occupier has exclusive possession. If exclusive possession
is not given then it is a licence. To complicate matters further, there have been cases
where it has been held that although there is exclusive possession the arrangement is a
licence (Street v Mountford [1985] AC 809).
Different landlords and solicitors will have different standard forms of leases, which
they will then adopt, or should adopt, for a particular property. Not only will the
wording of the clauses vary, but the layout may be radically altered. Some solicitors
adopt the format seen with the specimen lease in this module; others break the
document down into a short set of clauses in the main document, but then put all the
relevant details in various schedules attached to the lease. There is no right way; the
only requirement is that the document should work for the property.
There will still be cases, however, where the lease that is created cannot operate for
the property in question. This may be the fault of the solicitor who has not complied
with instructions, but generally it is because the instructions are at fault and the
person who has instructed the solicitor has not checked the final document.
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Specimen lease
Please refer to the specimen lease (Paper 3474) provided with these papers to serve as
an example.
This splits the lease clauses into distinct parts and uses a set of particulars for the
lease as a form of summary. It is essential to remember that a lease must be read as a
whole. The ‘text’ relating to, say, the payment of rent will not all be together, and
clauses will impact upon each other.
For example, rent payment is covered by the following:
Lease particulars
Section 1:
Definitions
Section 3:
Demise and rent
Section 4:
Tenant covenants – Clause 4.1
Section 7:
Forfeiture
Section 9:
Surety obligations
Section 10:
Rent review
The specimen lease is for a part building occupancy; accordingly it includes service
charge provisions. At 40 pages it is a short document for a multi-let property. For
‘complicated sites’ such a lease could run to 150 pages and be supported by a set of
landlord’s regulations.
Note: This specimen lease should not be used for any property you are dealing
with. You should consult a solicitor about granting any lease or licence on a
property and not try to cut corners.
2.1 Rent
The lease governs the whole relationship between landlord and tenant, but the most
important part is the payment of rent. For a landlord this is the raison d’être of his
ownership of property, as it provides the return on his investment. Without the rent,
his investment becomes a liability. For this reason a landlord will be most sensitive to
the timing of rent payments.
Rent provision
The previous section identified the wide range of clauses that affect the rent payment.
Clause 1.27 of the specimen lease defines the yearly rent, whilst Clause 3.1 sets out
the payment. This split is to ensure that the definition of what is payable will always
cover any increased rent due to a rent review.
Due dates
Under a modern lease, rent will normally be due quarterly in advance and on the
usual quarter days of 25 March, 24 June, 29 September and 25 December. There is a
number of alternative due dates and periods, and the lease will need to be checked to
ensure that the details are correct. Clause 3.1 of the specimen lease adopts the modern
quarter days.
A common misconception is that rent is only due when it is demanded. This is not the
case: rent is due on the due date whether demanded or not. If rent is not paid on the
due date, a landlord can commence action on that date. Thus for rent due on 25
March, a landlord will be able to commence action on the 25th itself, and in particular
he will be able to send the bailiff in on that day in exercise of the right of distraint.
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There is general confusion on this point. Many people will look at the lease and see a
number of clauses that deal with rent payments. One of the clauses will cover the
interest provisions for late payment, which will generally be along the following
lines:
‘. . . interest will be payable at 5 percent above National Westminster Bank plc
Base Rate if unpaid for seven days, to be calculated from the due date, if
unpaid’.
In the specimen lease this is set out in Clause 1.20 (the prescribed rate), Clause 4.1
(payment of interest), and Clause 7 (forfeiture).
This does not mean that interest does not have to be paid until 1 April (in our
example), but only that the landlord cannot charge interest unless the monies are still
outstanding on the 1st. He will be able to charge from the 25th once the 1st has
passed.
Another clause will deal with the events that will allow a landlord to take proceedings
for possession, often after 14 days. Again this only covers a certain set of
circumstances: the landlord might still be able to make peaceable entry before the
expiry of the 14 days, as the clause usually covers court action only. The essential
point is that the lease has to be read as an entity, not as separate, unconnected clauses.
Landlord’s actions for recovery of rent
Why should the rent be left unpaid? Unless there is a valid dispute with the landlord it
should be paid. Even if the dispute can be substantiated, the tenant will be in a
stronger position if the rent is paid into an escrow account held by the solicitors. In
most cases rent does not get paid because of incompetence, either to set up
appropriate systems or to deal with paperwork when it is received.
1. Demands and letters.
Most landlords will issue rent demands and reminder letters before
commencing any proceedings. The time allowed by landlords between the date
when monies are due and the issuing of reminders, and then action, has
continued to shorten during the economic recession. The shorter the period, the
less the risk to the landlord of being unable to recover rent through the
insolvency of a tenant.
2. Bailiffs.
This is probably the cheapest and most effective course of action for a
landlord. As mentioned above, a bailiff can make his first visit to a property on
the date the rent is due. Thus a landlord will be minimising the delay in
obtaining payment – an important consideration when the tenant might be of
dubious financial standing. The costs incurred by the landlord are quite small,
and often he will be able to recover all the monies from the tenant under threat
of losing goods and chattels – a remedy known as ‘distraint’ or distress for
rent. The law covering this subject area is historic, sparse and far from
comprehensive, but is generally in the favour of the landlord. The repeal of
distraint as a means of debt collection has continually been considered, but has
never progressed far.
One reason why the bailiff is such an effective technique is that it is a very
public method of collecting rent. He will call during trading hours when staff,
customers and clients may be present, and the news that the tenant is having
difficulties will soon reach suppliers etc. Thus the tenant’s creditworthiness
can be harmed by the bailiff’s arrival, even if the rent is paid immediately.
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If the bailiff is not paid on the first visit, he will take ‘walking possession’ of
goods on the premises and allow the tenant so many days to pay. Failure to do
so will allow the bailiff to return, remove the goods and sell them. If goods are
removed after walking possession has been taken, the tenant is punishable by
damages fixed at twice the value of goods distrained on.
3. Legal action.
Three routes are available when solicitors have been instructed:
Letters before action. Simply further demands including the threat of
legal action. Many demands may be issued before the solicitor is
instructed, and the benefit is dubious, yet it is still a route that solicitors
will take.
Writ for arrears. In this case the writ only seeks the payment of rent,
and is issued in the court appropriate to the size of debt. As rent is
clearly defined in the lease, there are few grounds for contesting that it
is properly due. An early judgement can therefore usually be obtained,
as a tenant has no defence to non-payment. Once judgement is obtained,
it will need to be enforced. This will rest with the Court Sheriff and can
lead to the winding-up of a company or the bankrupting of an
individual.
Writ for arrears and possession. A similar process, but varying in that
the landlord is also trying to get the premises back. This method was not
widely used in the poor property market of the early 1990s with its large
amount of over-rented property. Where a landlord has property let well
below market value, or there is a redevelopment opportunity, he has a
powerful tool for improving his position by reletting or redevelopment.
4. Peaceable possession.
This is perhaps the most radical step for a landlord, and has an immediate
impact. The action is usually taken outside normal working hours, dawn being
the favoured time. The emphasis must be on peaceable, as any use of force,
linked with objection by the tenant, will invalidate the action. A locksmith will
gain entry and the premises will then be secured, preventing anyone gaining
access.
Again, failure to comply with the exclusion can lead to the imposition of
damages as a penalty. Until the liability is discharged, the tenant will be unable
to gain access. If the debt is not paid and hence possession not recovered for
six months or more, there is a general presumption that the tenant will be
unable to recover possession at all.
It should be stressed that this is not a hard and fast rule, merely a general legal
acceptance of the position, and will be liable to challenge.
As a mechanism, this tends to be used at times of a very strong property
market with the focus on under-rented property or those with development
opportunities.
All of these actions can be halted if rent is correctly paid. Systems should be put in
place to make payment on or before the due date – ideally by use of standing orders
or the like for all standard payments. A few days of lost interest is negligible
compared with the arrival of a writ on a chief executive’s desk or the arrival of a
bailiff at the same time as a client.
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The advice of a solicitor on the exact lease provisions must be sought when dealing
with any action by a landlord – and promptly: the longer the delay, the greater the
harm to the company.
The facilities manager who has surplus accommodation to dispose of may become
involved in managing property in the role of landlord, which will include the
collection of rent. Acting as landlord, he will need to ensure prompt payment, and the
routes outlined above can then be applied.
It is important to remember that a tenant who is late in paying rent is generally doing
so because of cash flow difficulties, so the quicker the rent is paid, the lower the risk
of default. But always check with your professional advisers first on any proposed
course of action.
Insurance and service charges
Insurance payments are generally reserved as additional rent. The exceptions tend to
be older leases. If insurance is reserved as rent, then a landlord is able to use the same
measures for recovery as for normal rent. The tenant can only deflect the demand for
payment if there is an error, either in the valuation of the demise or in the premium
charged. If a tenant believes that this is the case, he will have to substantiate it at the
time of the demand – ideally by providing an alternative quote from a reputable
insurance company, or a valuation from a building surveyor. In both cases it is worth
considering paying the landlord on the lower figure, as this will bring pressure to bear
on him to deal with the matter quickly.
Similarly, a service charge is usually reserved as rent, notionally providing the
landlord with the same options for recovery. However, the landlord is generally in a
weaker position here. Service charges are not fixed in a lease but vary from year to
year. This means that they are more likely to be disputed, and generally the courts
will give the benefit of any doubt to the tenant in such a matter. Bailiffs will take
instructions on service charges but will withdraw if there is any doubt cast on the
figures, and with it the distraint action.
It is important that the budget and balancing figures for a service charge are properly
checked upon receipt and not left for a long period unanswered. Equally, if the
facilities manager is acting as landlord, he must ensure that all the figures submitted
are correct and that a full and proper explanation is provided.
The simplest approach is to include the budget service charge in the standing order
covering rent. The facilities manager will then have to check two sets of figures
during the year: the budget and the balancing statements. The only additional cheques
that must then be produced are for the service charge balance and the insurance
premium. It is important for the facilities manager, in the role of landlord, to try to
develop a relationship with tenants to minimise the disputes and friction between
landlord and tenant.
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2.2 Alterations and improvements
As with so many areas of landlord and tenant law, you must look at what the lease
states and how this is affected by statute and case law.
Statute and the lease
The principal statute is the Landlord and Tenant Act 1927, which does not refer to
alterations but deals with improvements. The principal provision is s.19(2) which
provides that:
l Consent for alterations cannot be unreasonably withheld if the lease allows for
alterations by consent.
l Improvements to property authorised by the landlord may be compensatable at
the end of the lease.
The specimen lease covers the subject in three clauses: 4.9 – the alterations provision;
4.18 – the position on planning applications; and 4.8 – the need to yield up at the end
of the lease.
Clause 4.9 is a fairly open clause for a multi-let property.
First, it prohibits demolition and works that affect the external appearance of the
property. This is to prevent tenants changing the appearance of a property by, say,
putting in tinted glass which would contrast with the rest of the property. If the effect
was great enough it could reduce the property’s capital value and/or saleability.
Secondly, Clause 4.9 allows internal, non-structural work with consent. This allows
the tenant to install demountable partitions. Indeed, a number of leases exempt a
tenant from having to seek landlord’s consent to their installation; but this relaxation
cannot apply in the case of a multi-let building. The landlord will probably be the
relevant competent party for compliance with the terms of the Fire Certificate, and
any changes to the internal layout may affect the certificate. If the tenant has the
whole of a building, then the responsibility rests with him, not with the landlord.
The second part of the alterations clause sets out some of the procedural aspects for
the tenant’s application for consent.
Clause 4.18 (the planning clause) is the second point of control by a landlord. Clause
4.18.1 prohibits a tenant from making a planning application without approval. This
will arise for certain categories of work or changes of use.
Clause 4.8 is the third point of control. It contains the yield-up provisions, which give
the landlord the right to have the property reinstated to its original condition.
2.3 User
The user clause in a lease will generally fall into one of three categories:
l Open
l Qualified
l Restricted.
The Landlord and Tenant Act 1927 covers the landlord’s control of the user clause.
This Act provides that where the lease requires landlord’s consent, no premium or
increased rent may be charged. It does, however, allow the landlord to recover his
costs and any diminution in value of the property that may result. Usually the tenant’s
solicitor will ensure there is a clause in the lease providing that the landlord’s consent
cannot be unreasonably withheld.
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The more restrictive the user clause, the more difficult it will be for a tenant to
dispose of his interest, by either assignment or subletting. However, the benefit of the
restrictive user to the tenant will generally be to reduce the rent at review and renewal
compared with identical premises, but with a wider user clause.
The Use Classes Orders set out in the Town and Country Planning legislation are
often used as a shorthand by solicitors. The order may cover a number of definitions
and be seen as a safe way of defining the user. This is not necessarily the case,
however, as once the relevant Order is referred to, it will always be fixed to that
clause. Thus reference to offices in Class II of the 1973 Order did not change to Class
B1 of the 1987 Order when that replaced the old Class II of 1973.
Lease provisions
The specimen lease deals with use in Clause 4.14. The specimen allows a number of
scenarios to be developed, but, as usual for lease provision, it not only tells you what
can be carried out in the property, but it specifically excludes certain categories.
Modern leases will exclude, for example, hairdressing, funeral parlours etc; older
leases will cover more exotic uses such as blood-boiling, tallow-making, hoofrendering – uses which are virtually extinct today.
One overriding element in many leases of commercial property is the prohibition on
people sleeping in the property, with its suggestion of residential use. This stems from
the risk of the person claiming some form of protection under the Rent Acts.
2.4 Alienation
Alienation is the process whereby a tenant ‘disposes’ of his direct interest in the
property but retains a residual liability for the lease. The extent of that liability differs
according to the two methods of disposal:
l Assignment
l Subletting.
Each, which has its own benefits and disadvantages, is covered below. First, however,
a note about general covenants.
General covenants
It is usual to find a covenant against assignment and subletting in a lease. This
covenant might be an absolute bar; for example:
‘. . . not to assign, sublet or part with possession of the premises’.
Or the covenant might be a qualified one, subject to consent; for example:
‘. . . not to assign or sublet without the consent of the landlord’.
Modern leases usually have a qualified covenant. Absolute covenants will rarely be
accepted by tenants, except for very short term leases, and it is rare for a landlord to
grant a lease preventing alienation, as this will adversely affect the rent at review.
Under the provisions of the Landlord and Tenant Act 1927, consent under a qualified
clause cannot be unreasonably withheld. This was bolstered by the Landlord and
Tenant Act 1988, which provides that a tenant can seek damages if consent to an
assignment is unreasonably withheld or delayed by the landlord.
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Clause 4.12 of the specimen lease deals with alienation. This clause follows the
general principle set out above, in that it prohibits parting with possession before
referring to specific exclusions of the prohibition.
1 Assignment
Lease terms
Clauses 4.12.2 to 4.12.6 of the specimen lease deal with assignment. These clauses
allow the tenant to assign the whole of the premises but provide that the landlord can
refuse consent in certain circumstances. It should be noted that the terms of clause
4.12.5(a) are very broad. Any assignee who did not improve the covenant strength of
the lease could be rejected by the landlord.
In these circumstances a tenant could argue that the landlord was unreasonable in the
way in which he dealt with the matter. He may wish to take the landlord to court to
challenge the grounds of refusal and to claim that the incoming tenant would not
diminish the reversionary value. However, the immediate benefit to the tenant will be
limited: the prospective assignee is unlikely to wait for the matter to be determined,
as it is likely to take at least a year to get to court.
Clause 4.12.6 deals with the elements arising from the Landlord and Tenant
(Covenants) Act 1995.
2 Subletting
In contrast to the assignment of a lease, with a subletting the original tenant remains
in control. A new interest is created (‘the subtenant’) and the original tenant becomes
a landlord while remaining a tenant under the original lease. The subtenant then pays
rent to the original tenant, in the latter’s role as landlord, and the original tenant pays
rent to his landlord. Clearly the original tenant is more involved in dealing with the
property than in the case of assignment, in terms of rent payments, collection, and the
general management of the property.
Lease clause
Clause 4.12 has a number of interesting provisions regarding subletting.
First, the subtenant is required to covenant directly with the superior landlord to
perform the covenants of the head lease. In essence, the subtenant is saying that he
will comply with the sublease and the head lease. The intention is that the superior
landlord can then enforce covenants against the subtenant if problems arise with the
tenant.
Second, the terms of the sublease require the rent to be the higher of that under the
lease and the open market value. This protects the landlord against a potential drop in
rent if the immediate lessee becomes insolvent, and helps him maintain a valuation of
the property that might be higher than the actual value.
Third, Clause 4.12.10(a) requires the sublease to be excluded from the provisions of
the Landlord and Tenant Act 1954 (ss.24–28) – sections that allow a tenant to obtain
renewal of the lease. By seeking to exclude these sections, the landlord provides
himself with a stronger negotiating position at expiry. If the subtenant is deprived of
the protection of the 1954 Act, the tenant will not have protection either, because one
of the 1954 Act’s essential requirements for protection is that the tenant under the
lease should be in occupation.
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2.5 Repairs
There are two types of repairing provisions in leases:
l FRI: Full repairing and insuring.
l IRI: Internal repairing and insuring.
Variations do exist and occasionally you may come across leases which put very little
onus on the tenant to repair. In the main, however, leases granted over the last 20–30
years put the liability for repair on the tenant’s shoulders. Indeed, most leases are FRI
in nature, even if the responsibility for repair for parts of the property rests with the
landlord, since the landlord usually recovers all his costs from the tenants in the
service charge.
The underlying premise of the repairing obligation is that the tenant will maintain the
property in the condition in which it was let, although he may have to put it into good
repair to begin with. Whether this is a fair approach is open to debate, but it underpins
the investment value of property and is therefore a very important area. There has
been a substantial amount of case law on the subject and some of the more important
points are raised below.
The repairing provisions in a lease, which will be drafted in a variety of ways, contain
clauses dealing with:
l Extent of the tenant’s responsibility – generally the whole property demise or
just the interior.
l Standard of repair.
l Delivering up of the property at the end of the term.
l Details of redecoration and the frequency with which it is to be carried out.
l Landlord’s right to inspect and carry out the works if the tenant fails to do so.
l Tenant’s liability to pay landlord’s costs in the preparation of a Schedule of
Dilapidations, detailing the condition of the premises.
These individual elements are considered in more detail below.
Legal parameters
Where the demise is the entire property, the major difference between the FRI and the
IRI repairing provision is:
l The FRI lease will include responsibility for the total, including the exterior
and structure.
l The IRI lease, as its name implies, will be limited to the interior and the
landlord will probably be responsible for the exterior and structure.
There are many combinations of responsibility, however, and it should not
automatically be assumed that because the tenant is not responsible for the exterior,
the landlord is; the lease may be silent on the point and no one will be liable.
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If the tenant is wholly responsible, the burden imposed can be very great. The only
limit is that the tenant will not have to provide something that is totally different.
However, even here there is a caveat following the decision in Ravenseft Properties
Ltd v Davstone Holdings Ltd (1980). In this case the tenant was found to be
responsible for the repair of what was an inherent defect, rectification of which would
produce an improvement to the property. The wording of the repairing covenant can
also place the tenant under an obligation to put the property into repair, as well as
maintain it in upgraded condition to the end of the lease.
Standard of repair
The standard of repair required will depend upon the exact wording of the lease
clauses. The property may be subject to a schedule of condition which will specify its
exact condition at the time of granting the lease. This schedule may be used as the
basis upon which either the landlord or the tenant is to undertake the appropriate
works to deal with the defects specified; or it may limit the extent of tenant liability.
Clause 4.4 of the specimen lease covers the repairing obligations. Here the tenant is to
covenant to put as well as keep the property in good repair. This is a positive
obligation to get the property into repair.
Deliver up
The delivering up of the property at the expiry of the lease is generally geared to
dilapidations, an issue which is examined in more detail elsewhere. The yield-up
provisions are in Clause 4.8.
Redecoration
Redecoration can be the subject of lengthy lease clauses, especially if the property
forms part of a prestigious building such as a shopping centre. The landlord may try
to impose on the tenant detailed requirements for colour schemes for the interior and
exterior. The redecoration clause will generally define the cycle of redecoration for
the interior and, if the tenant is responsible, the exterior.
Older leases tended to adopt a five-yearly cycle for the exterior and a seven-yearly
cycle for the interior. Modern leases tend to shorten the dates, particularly the internal
cycle. Modern buildings have less exterior paintwork, with windows of aluminium or
plastic, and the only areas that need attention are in exposed places, such as the tank
housing or fire escapes. The interior, on the other hand, has become a more attractive
environment, generally at the expense of durability of finishes. The effects of wear
and tear are that much greater on the interior, and cycles of three years are not
unknown, especially for the ‘common areas’.
The specimen lease is for a multi-let property and Clause 4.5 covers only the interior,
with a three-year redecoration cycle.
Landlord’s remedies
The lease will allow the landlord to enter to inspect the premises on reasonable
notice. In most cases this will be a relatively informal approach, becoming more
formal if the landlord has reason to suspect that the terms of the lease are being
breached.
The landlord’s ability to enforce the repairing covenants often rests on whether he can
enter the premises and carry out the work himself. Having done the work, the
landlord will then seek to recover his costs from the tenant in the same way as for
rent.
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The most radical step the landlord can take is to seek possession of the property
through action for forfeiture. In this he is fettered by s.146 of the Law of Property Act
1925. This provides that, before any action for forfeiture, the landlord must serve
notice specifying the breach and providing the tenant with a reasonable period of time
in which to carry out the works. The emphasis is on ‘reasonable’: if a reasonable
period is not allowed, the notice will be invalidated. The facilities manager who
receives such a notice should seek the advice of a building surveyor and solicitor
straight away. However, the notice should provide sufficient time for him to deal with
the repairs before the expiry of the time limit, assuming due diligence, and he should
have had advance warning of the landlord’s actions by the inspections that have been
carried out.
Under the Leasehold Property (Repairs) Act 1938, where a lease for a term of seven
years or more has still got three or more years to expiry, the landlord is restricted in
his rights to forfeit or to sue for damages; (this does not apply to internal repairing or
decorating clauses).
One option for a landlord is to enter the premises and carry out the repairs himself.
This must be expressly provided for in the lease, which is the case for most modern
leases. The procedure is to serve notice on the tenant giving a reasonable time for the
repairs to be undertaken. If the tenant fails to do the work the landlord can then enter,
carry out the repairs and recover the cost from the tenant.
Where the lease specifies that the money is recoverable as a debt, the landlord can
then sue for the work as a debt, not as a breach of the repairing obligation. In this way
the landlord is able to circumvent the constraints of the 1938 Act. The case that
determined this approach was Jervis v Harris (1996) 2 WLR 220, CA.
Landlord’s repairs
The final area to consider under repairs is the effect of the landlord carrying out
repairs in a multi-let property.
Where the tenant does not have responsibility, it is usual for the landlord to maintain
the areas excluded from the tenant’s liability, although, as mentioned earlier, the lease
must be explicit for a party to have a liability.
In multi-let buildings the landlord is often responsible for the fabric and structure of
the building, together with the internal common areas. Where there is a consistent
expenditure, such as for the cleaning and maintenance of staircases, the cost of the
work will be met by the tenants via their contributions to a service charge. If the
expenditure is more irregular, the recovery of costs might similarly be irregular. From
a tenant’s point of view this is not ideal: most tenants are better able to deal with
regular payments than with widely varying rates. The use of sinking funds has
developed to even out the cash flow of running a property.
In Clause 11.1 of the specimen lease, the landlord covenants with the tenant to keep
the common parts in good repair if the tenant has paid the service charge.
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2.6 Rent reviews
An investor, by definition, is prepared to pay a capital sum in exchange for income
and for capital and income growth. In the case of property, the income is the rent paid
by the occupier for the use of the property. For the tenant this is just part of his
overall ‘production costs’.
As part of his investment the investor will want to see his return at least remain in line
with the value of money. In other words, he does not want to see the rent payable
become less valuable due to inflation, and ideally he wants to see the return exceed
the level of inflation and, with it, standard interest rates.
Rent reviews were introduced in the 1960s to reflect the high levels of inflation and
the erosion of the return to the investor. The mechanism that has developed in the UK
is to fix the rent at the review dates with reference to the market value of the property
at that time. The creation of this hypothetical scenario has resulted in a considerable
amount of case law, as the parties to the lease have sought to maximise/minimise the
effects of the review.
The body of information to be understood is substantial, and it is not the intention in
this paper to examine the subject in detail. However, the facilities manager needs to
know about certain elements of the subject so that he can make the appropriate
response to events, as a wrong action can lead to a costly mistake that could last for
the rest of the lease term. These areas are:
l
l
l
l
Notices
Review timetable
Third party referrals
Instructing specialists.
Notices
The terms of review clauses in leases vary considerably, from three or four lines to
pages of instructions for assessing the value, which may include a whole lease that is
to be valued. Likewise, notice provisions of leases also vary in detail. Some leases do
not even provide for a notice mechanism. Others may include a detailed timetable and
specify the form that notices and counter-notices are to take. There is no standard
format: leases on the same property granted at the same time can have minor but
significant differences.
Increasingly leases require the landlord to serve a notice to initiate the review process.
This notice may include the amount of new rent that the landlord is seeking; it may
require a counter-notice; and there may be a timetable to meet if the review is to be
opposed. The specimen lease does not require the service of a notice.
There can be no generalisation on the subject because no clause is the same.
However, the House of Lords in United Scientific Holdings Limited v Burnley
Borough Council (1974) determined that the presumption for a rent review was that
‘time is not of the essence’. In other words, failure to adhere to a timetable for the
review does not defeat the review. This presumption does not apply, however, if there
is a contraindication in the lease, or if there is a presumption in the surrounding
circumstances, or if there is an interrelationship with other lease clauses. The most
common example of the last is a break clause linked to the settlement of the review
itself.
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Assumptions
The review provision often refers to the terms of a hypothetical lease. This is to
prevent problems arising when surveyors have to look at all the terms of the actual
lease. Clauses 10.2–10.4 of the specimen lease cover this.
Review timetable
The lease may or may not set out the timetable for dealing with the review – which,
as we have seen in the section above, can vary in length and complexity. Most leases
do not have a strict timetable that makes the review time of the essence of the
contract. However, many have a timetable for the mechanics of the review – such as
the earliest date when the landlord can serve a notice on the tenant, whether the notice
has to include the new rent, or whether the tenant has to serve a counter-notice, and
the form of that counter-notice.
The solicitor and surveyor will need to advise on the timetable of the review to ensure
compliance with the requirements. Again, having advance notice of an impending
review will give the professional team the opportunity of looking at the options and
the wording of the review clause at leisure, rather than in response to a last-minute
notification of the review and the counter-notice time. This greater awareness will
benefit not only the professional team but also the facilities manager, who will appear
in control of the event. By programming the review procedure early, the surveyor will
be able to provide a prior estimate of the rental level likely to be set, which has
obvious advantages for budgeting of costs for properties.
The specimen lease follows the modern trend of not setting a fixed timescale for
individual events, to avoid problems when the timetable is not being adhered to.
Third party referrals
If negotiations between surveyors fail to resolve the review, the rent review clause
will invariably provide a procedure for a third party to determine the rent. The two
options that exist are arbitrator and independent expert.
The procedure for the appointment of the third party is generally set out in the review
clause. The most common approach, if the parties are unable to agree on a suitable
person, is to refer the matter to the President of the Royal Institution of Chartered
Surveyors. The lease will specify directly or indirectly the type of third party to be
appointed, and the President will then choose a suitable member from the panel of
experts in that particular field.
The parties may object to a particular third party because of perceived conflicts of
interest or queries over his competence. The person invited must declare any
perceived conflict, as any subsequent disclosure of an interest could lead to litigation
by the parties to set aside an award.
What is the difference between the two options?
An expert will have specialised knowledge of the type of property and its location.
He will be able to determine from his own knowledge the value attributable to the
property. In the main, an expert will take submissions from the surveyors acting to
bring to his attention any relevant facts which will affect the rental value.
An arbitrator will probably have significant experience in the locality and for the
type of property in question, but this is not essential. The principal difference is that
the arbitrator has to hear the parties and must make his judgement based on the
evidence put before him by the parties. He must not use any other information. In that
respect the arbitrator acts in a quasi-judicial manner.
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Which is the best approach? The difference between the two has narrowed in recent
years. There are arguments that the expert will be anticipating the future trend of the
market and will be more up to date than an arbitrator, who has to rely on evidence of
completed deals rather than the ‘tone’ of the market.
The specimen lease covers this in Clause 10.5. As you will see, the wording gives the
drafter the option of expert or arbitrator, depending upon instructions from the
surveyor who will be negotiating the original lease terms.
The provisions of the Arbitration Act 1996 resolve a number of problems, including:
1. The appointment of a further arbitrator, if the appointed one becomes infirm or
dies.
2. The determination by the courts of questions of law that might arise.
3. Compelling witnesses by subpoena to give evidence.
4. Award of costs.
5. Control of misconduct or unfairness.
The Arbitration Act also allowed a challenge to be made for serious irregularity
within 28 days of the award and enables appeal on a point of law.
Instructing specialists
The subject of rent reviews is very specialised and it is important to choose the right
specialist to act on the company’s behalf. One individual will not necessarily deal
with all reviews, as the surveyor’s expertise, for example, might be restricted to one
location or one type of property. The rule of ‘horses for courses’ applies here, as it
does elsewhere.
Generally the best means of identifying a suitable surveyor to act is by personal
recommendation, and as many views as possible should be sought.
Similarly, the role of the solicitor is important. If the review clause is complex and/or
the amount of money involved is great, a specialist solicitor or barrister will be
needed: and again personal recommendation is essential.
The fees the professional team charge will depend upon the market conditions at the
time. During the recession of the early 1990s the level of fees charged by surveyors
fell dramatically as the amount of available review work fell away. Legal fees were
not affected to the same extent, and the costs of counsel probably increased during the
same period. The correct level depends upon the level of expertise required.
When the review has been settled, it will need to be documented by a rent review
memorandum, which will be prepared by the landlord’s solicitors and, when signed,
attached to the lease.
A final point to bear in mind is that modern leases tend to include provision for the
landlord to charge interest on any catch-up rent if the review is settled after the
review date. This may be 2–4 percent above base rate. It is there to discourage tenants
from delaying the review process in order to hold on to the backdated rent for as long
as possible. The inclusion or exclusion of a clause of this type will be instrumental in
determining the rent review tactics.
Full consideration is given to the subject in The Handbook of Rent Reviews, published
by Sweet & Maxwell, which is the definitive book on the subject.
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3 Break clauses
Break options tend to be linked to redevelopment proposals by the landlord, or are
optional breaks for the tenant. The latter became more common during the recession,
although the benefit to a tenant of a break option tends to be an increase in rental
value.
In many ways a break clause has to operate on the same basis as the normal procedure
for the service of notices under the 1954 Act. If a landlord is exercising his break
option for redevelopment or refurbishment, he must serve the notice in the form
specified in the lease, but must also comply with the 1954 Act procedure. He will
have to serve a s.25 notice objecting to renewal. The landlord will have to prove his
case in court if the tenant does not accept that the notices are valid.
There is still uncertainty as to whether a tenant will have to serve a s.26 notice on the
landlord to operate a break option. This has not been the case in the past, but the
validity of the approach has been questioned. An important point mentioned in the
section on rent reviews was the linking of rent reviews and break options, which can
make the review time of the essence. Whilst break options at the time of review have
certain advantages, it is simpler to keep the two separate to avoid any problems.
It is important to consider the wording of the break clause, not only to avoid the
problem of the linking to the rent review, but also to ensure that the wording will
actually allow the break to operate. The wording of the break can be very open or
very restrictive. The former approach requires little more than the notice to be
correctly served within the prescribed timetable for it to be valid. The latter will
include payment of all monies, often even though the sums have not been demanded,
and most difficult of all is compliance with the repairing obligation. In such cases the
tenant has to undertake works to put the premises into repair but the landlord has not
had to agree or disagree to the specification – it becomes very difficult to ensure full
compliance and breaks have been held to be invalid because of this ‘failure’. Recent
cases do seem to suggest a change here in that the courts are regarding silence or acts
to frustrate the break as inequitable.
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4 Lease expiry
Under the normal law of contract, a lease ends on the expiry date and the tenant must
give up possession. However, protection is given to business tenants in England and
Wales by the Landlord and Tenant Act 1954 (as amended). Under s.24, a business
lease continues on the old terms unless brought to an end by a formal notice. This
gives the tenant the opportunity to claim a new lease, provided that the procedure is
observed and the parties have not contracted out of the Act by agreement of the
County Court when the lease was granted.
There are a number of qualifying parameters that must be met for a tenant to be
allowed to renew. The landlord is able to raise certain grounds of objection, including
persistent late payment of rent and breaches of lease obligations, but more commonly
that he needs the premises for refurbishment or redevelopment. In each case it is for
the landlord to prove his case.
The case law on lease renewals is extensive and for a detailed grasp of the subject you
are referred to Sweet & Maxwell’s Handbook of Business Tenancies. The facilities
manager generally does not need a detailed knowledge of the subject, just a grasp of
the salient points. However, if the brief for the facilities manager includes property
and there is considerable activity, a full understanding will be needed.
Increasingly, with changes to the length of leases and increased flexibility, landlords
have sought to limit the effect of such changes on them. Following the decision in
O’May and Others v City of London Real Property Co Ltd (1980), lease terms for a
lease with rights of renewal under the Landlord and Tenant Act 1954 will be
perpetuated in new leases. Where ss.24 to 28 of the 1954 Act are excluded when a
tenancy is granted, a tenant will have no rights of renewal. To do this, a court order is
needed at the time the lease is granted, and care is needed to ensure matters are dealt
with in the correct order. However, once excluded at the time of expiry, the landlord
is not impeded in his rights of regaining possession or in ‘holding the tenant to
ransom’.
The renewal process can be a complex one and expensive in terms of professional
fees and management time. It should be remembered, however, that it will determine
the costs and operation of a property, often for 25 years.
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Summary
This paper has only scratched the surface of the subject. However, this should not be
a disincentive to understand it. There are some areas with which a facilities manager
is likely to deal on a daily basis and for which he will need a clear understanding of
the issues. Others, such as lease renewals and rent reviews, occur less frequently and
the facilities manager’s involvement is likely to be considerably less. However, he
must grasp the essential points of these less frequent events. Perhaps the two most
important are: be prepared and decide in advance on the team who will work with
you on the matter. Equally, the more mundane matters can have a major effect on less
frequent events, such as reviews.
SELF-ASSESSMENT QUESTIONS
1. What effects may flow from late payment of rent?
2. In what circumstances can a landlord prevent a tenant from improving or altering
the premises held on a lease?
3. Identify three categories of user clause. Which would you advocate when letting
surplus space?
4. Identify two types of restriction on alienation.
5. How full is a full repairing obligation?
Paper 3705V3-1
Ownership – leasehold
Contents
1. Leasehold property
2. The lease
2.1 Rent
2.2 Alterations and improvements
2.3 User
2.4 Alienation
2.5 Repairs
2.6 Rent reviews
3. Break clauses
4. Lease expiry
Summary
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1 Leasehold property
An occupier who does not own the freehold title to the property he occupies will
generally be in possession under the terms of a lease.
There are other bases of occupation, such as licence, agreement for lease and trespass.
Trespass is unlikely to be relevant to a facilities manager in his role of organising his
company’s occupation, though it might be relevant as far as managing vacant
accommodation is concerned.
Licence or agreement for a lease tend to be the result of special circumstances, such
as the need for immediate occupation or for a very short period of occupation. These
documents can be used to allow two parties to make a binding agreement which
might have to be subject to unresolved matters – such as planning issues, the
construction or improvement of the premises, alterations, gaining vacant possession,
funding arrangements, references, or even acquisition of the property. Each party
would then be in a position to rescind the letting if the outstanding matter was not
concluded.
This paper seeks to develop three issues – the three types of leases, the statutory
protection of tenants and the general lease terms – and to look at the practical aspects
as far as the facilities manager is concerned.
Accordingly we shall be looking at the lease and in particular the following elements:
1.
2.
3.
4.
5.
6.
7.
8.
Rent
User
Alterations
Alienation
Repairs
Rent reviews
Break clauses
Lease expiry.
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2 The lease
Each lease is unique; even in a multi-let property the leases for individual suites will
vary. There are a number of reasons for this:
l The leases will have been granted at different times and the clauses amended
to reflect changes in statute and case law.
l There may be a change of landlord during the letting period and the new
landlord may decide to alter certain terms of the lease to reflect his views on
the property.
l The bargaining position of the landlord and individual tenants will vary. A
landlord’s attitude towards a FT-100 company requesting certain clauses to be
changed will be different from his attitude towards a small, private company
requesting similar changes.
l The landlord’s perception of the building may change. For instance, he may
decide to redevelop the building in the next five years and will therefore grant
shorter leases or leases with break clauses for redevelopment.
It is important to distinguish between a licence and a lease. A lease when granted
confers on the occupier an interest in that property. A licence merely grants a
personal permission to occupy the property, but no interest in it.
Distinguishing between a lease and a licence can be very difficult, but the impact of
the arrangement being one and not the other is substantial. Some consequences are:
l Security of tenure applies to leases only, in particular the Landlord and Tenant
Act 1954.
l A lease can be transferred, a licence is generally personal.
l A licence will not bind a third party, such as a purchaser.
The primary test for determining whether it is a licence or a lease rests on the
question as to whether the occupier has exclusive possession. If exclusive possession
is not given then it is a licence. To complicate matters further, there have been cases
where it has been held that although there is exclusive possession the arrangement is a
licence (Street v Mountford [1985] AC 809).
Different landlords and solicitors will have different standard forms of leases, which
they will then adopt, or should adopt, for a particular property. Not only will the
wording of the clauses vary, but the layout may be radically altered. Some solicitors
adopt the format seen with the specimen lease in this module; others break the
document down into a short set of clauses in the main document, but then put all the
relevant details in various schedules attached to the lease. There is no right way; the
only requirement is that the document should work for the property.
There will still be cases, however, where the lease that is created cannot operate for
the property in question. This may be the fault of the solicitor who has not complied
with instructions, but generally it is because the instructions are at fault and the
person who has instructed the solicitor has not checked the final document.
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Specimen lease
Please refer to the specimen lease (Paper 3474) provided with these papers to serve as
an example.
This splits the lease clauses into distinct parts and uses a set of particulars for the
lease as a form of summary. It is essential to remember that a lease must be read as a
whole. The ‘text’ relating to, say, the payment of rent will not all be together, and
clauses will impact upon each other.
For example, rent payment is covered by the following:
Lease particulars
Section 1:
Definitions
Section 3:
Demise and rent
Section 4:
Tenant covenants – Clause 4.1
Section 7:
Forfeiture
Section 9:
Surety obligations
Section 10:
Rent review
The specimen lease is for a part building occupancy; accordingly it includes service
charge provisions. At 40 pages it is a short document for a multi-let property. For
‘complicated sites’ such a lease could run to 150 pages and be supported by a set of
landlord’s regulations.
Note: This specimen lease should not be used for any property you are dealing
with. You should consult a solicitor about granting any lease or licence on a
property and not try to cut corners.
2.1 Rent
The lease governs the whole relationship between landlord and tenant, but the most
important part is the payment of rent. For a landlord this is the raison d’être of his
ownership of property, as it provides the return on his investment. Without the rent,
his investment becomes a liability. For this reason a landlord will be most sensitive to
the timing of rent payments.
Rent provision
The previous section identified the wide range of clauses that affect the rent payment.
Clause 1.27 of the specimen lease defines the yearly rent, whilst Clause 3.1 sets out
the payment. This split is to ensure that the definition of what is payable will always
cover any increased rent due to a rent review.
Due dates
Under a modern lease, rent will normally be due quarterly in advance and on the
usual quarter days of 25 March, 24 June, 29 September and 25 December. There is a
number of alternative due dates and periods, and the lease will need to be checked to
ensure that the details are correct. Clause 3.1 of the specimen lease adopts the modern
quarter days.
A common misconception is that rent is only due when it is demanded. This is not the
case: rent is due on the due date whether demanded or not. If rent is not paid on the
due date, a landlord can commence action on that date. Thus for rent due on 25
March, a landlord will be able to commence action on the 25th itself, and in particular
he will be able to send the bailiff in on that day in exercise of the right of distraint.
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There is general confusion on this point. Many people will look at the lease and see a
number of clauses that deal with rent payments. One of the clauses will cover the
interest provisions for late payment, which will generally be along the following
lines:
‘. . . interest will be payable at 5 percent above National Westminster Bank plc
Base Rate if unpaid for seven days, to be calculated from the due date, if
unpaid’.
In the specimen lease this is set out in Clause 1.20 (the prescribed rate), Clause 4.1
(payment of interest), and Clause 7 (forfeiture).
This does not mean that interest does not have to be paid until 1 April (in our
example), but only that the landlord cannot charge interest unless the monies are still
outstanding on the 1st. He will be able to charge from the 25th once the 1st has
passed.
Another clause will deal with the events that will allow a landlord to take proceedings
for possession, often after 14 days. Again this only covers a certain set of
circumstances: the landlord might still be able to make peaceable entry before the
expiry of the 14 days, as the clause usually covers court action only. The essential
point is that the lease has to be read as an entity, not as separate, unconnected clauses.
Landlord’s actions for recovery of rent
Why should the rent be left unpaid? Unless there is a valid dispute with the landlord it
should be paid. Even if the dispute can be substantiated, the tenant will be in a
stronger position if the rent is paid into an escrow account held by the solicitors. In
most cases rent does not get paid because of incompetence, either to set up
appropriate systems or to deal with paperwork when it is received.
1. Demands and letters.
Most landlords will issue rent demands and reminder letters before
commencing any proceedings. The time allowed by landlords between the date
when monies are due and the issuing of reminders, and then action, has
continued to shorten during the economic recession. The shorter the period, the
less the risk to the landlord of being unable to recover rent through the
insolvency of a tenant.
2. Bailiffs.
This is probably the cheapest and most effective course of action for a
landlord. As mentioned above, a bailiff can make his first visit to a property on
the date the rent is due. Thus a landlord will be minimising the delay in
obtaining payment – an important consideration when the tenant might be of
dubious financial standing. The costs incurred by the landlord are quite small,
and often he will be able to recover all the monies from the tenant under threat
of losing goods and chattels – a remedy known as ‘distraint’ or distress for
rent. The law covering this subject area is historic, sparse and far from
comprehensive, but is generally in the favour of the landlord. The repeal of
distraint as a means of debt collection has continually been considered, but has
never progressed far.
One reason why the bailiff is such an effective technique is that it is a very
public method of collecting rent. He will call during trading hours when staff,
customers and clients may be present, and the news that the tenant is having
difficulties will soon reach suppliers etc. Thus the tenant’s creditworthiness
can be harmed by the bailiff’s arrival, even if the rent is paid immediately.
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If the bailiff is not paid on the first visit, he will take ‘walking possession’ of
goods on the premises and allow the tenant so many days to pay. Failure to do
so will allow the bailiff to return, remove the goods and sell them. If goods are
removed after walking possession has been taken, the tenant is punishable by
damages fixed at twice the value of goods distrained on.
3. Legal action.
Three routes are available when solicitors have been instructed:
Letters before action. Simply further demands including the threat of
legal action. Many demands may be issued before the solicitor is
instructed, and the benefit is dubious, yet it is still a route that solicitors
will take.
Writ for arrears. In this case the writ only seeks the payment of rent,
and is issued in the court appropriate to the size of debt. As rent is
clearly defined in the lease, there are few grounds for contesting that it
is properly due. An early judgement can therefore usually be obtained,
as a tenant has no defence to non-payment. Once judgement is obtained,
it will need to be enforced. This will rest with the Court Sheriff and can
lead to the winding-up of a company or the bankrupting of an
individual.
Writ for arrears and possession. A similar process, but varying in that
the landlord is also trying to get the premises back. This method was not
widely used in the poor property market of the early 1990s with its large
amount of over-rented property. Where a landlord has property let well
below market value, or there is a redevelopment opportunity, he has a
powerful tool for improving his position by reletting or redevelopment.
4. Peaceable possession.
This is perhaps the most radical step for a landlord, and has an immediate
impact. The action is usually taken outside normal working hours, dawn being
the favoured time. The emphasis must be on peaceable, as any use of force,
linked with objection by the tenant, will invalidate the action. A locksmith will
gain entry and the premises will then be secured, preventing anyone gaining
access.
Again, failure to comply with the exclusion can lead to the imposition of
damages as a penalty. Until the liability is discharged, the tenant will be unable
to gain access. If the debt is not paid and hence possession not recovered for
six months or more, there is a general presumption that the tenant will be
unable to recover possession at all.
It should be stressed that this is not a hard and fast rule, merely a general legal
acceptance of the position, and will be liable to challenge.
As a mechanism, this tends to be used at times of a very strong property
market with the focus on under-rented property or those with development
opportunities.
All of these actions can be halted if rent is correctly paid. Systems should be put in
place to make payment on or before the due date – ideally by use of standing orders
or the like for all standard payments. A few days of lost interest is negligible
compared with the arrival of a writ on a chief executive’s desk or the arrival of a
bailiff at the same time as a client.
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The advice of a solicitor on the exact lease provisions must be sought when dealing
with any action by a landlord – and promptly: the longer the delay, the greater the
harm to the company.
The facilities manager who has surplus accommodation to dispose of may become
involved in managing property in the role of landlord, which will include the
collection of rent. Acting as landlord, he will need to ensure prompt payment, and the
routes outlined above can then be applied.
It is important to remember that a tenant who is late in paying rent is generally doing
so because of cash flow difficulties, so the quicker the rent is paid, the lower the risk
of default. But always check with your professional advisers first on any proposed
course of action.
Insurance and service charges
Insurance payments are generally reserved as additional rent. The exceptions tend to
be older leases. If insurance is reserved as rent, then a landlord is able to use the same
measures for recovery as for normal rent. The tenant can only deflect the demand for
payment if there is an error, either in the valuation of the demise or in the premium
charged. If a tenant believes that this is the case, he will have to substantiate it at the
time of the demand – ideally by providing an alternative quote from a reputable
insurance company, or a valuation from a building surveyor. In both cases it is worth
considering paying the landlord on the lower figure, as this will bring pressure to bear
on him to deal with the matter quickly.
Similarly, a service charge is usually reserved as rent, notionally providing the
landlord with the same options for recovery. However, the landlord is generally in a
weaker position here. Service charges are not fixed in a lease but vary from year to
year. This means that they are more likely to be disputed, and generally the courts
will give the benefit of any doubt to the tenant in such a matter. Bailiffs will take
instructions on service charges but will withdraw if there is any doubt cast on the
figures, and with it the distraint action.
It is important that the budget and balancing figures for a service charge are properly
checked upon receipt and not left for a long period unanswered. Equally, if the
facilities manager is acting as landlord, he must ensure that all the figures submitted
are correct and that a full and proper explanation is provided.
The simplest approach is to include the budget service charge in the standing order
covering rent. The facilities manager will then have to check two sets of figures
during the year: the budget and the balancing statements. The only additional cheques
that must then be produced are for the service charge balance and the insurance
premium. It is important for the facilities manager, in the role of landlord, to try to
develop a relationship with tenants to minimise the disputes and friction between
landlord and tenant.
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2.2 Alterations and improvements
As with so many areas of landlord and tenant law, you must look at what the lease
states and how this is affected by statute and case law.
Statute and the lease
The principal statute is the Landlord and Tenant Act 1927, which does not refer to
alterations but deals with improvements. The principal provision is s.19(2) which
provides that:
l Consent for alterations cannot be unreasonably withheld if the lease allows for
alterations by consent.
l Improvements to property authorised by the landlord may be compensatable at
the end of the lease.
The specimen lease covers the subject in three clauses: 4.9 – the alterations provision;
4.18 – the position on planning applications; and 4.8 – the need to yield up at the end
of the lease.
Clause 4.9 is a fairly open clause for a multi-let property.
First, it prohibits demolition and works that affect the external appearance of the
property. This is to prevent tenants changing the appearance of a property by, say,
putting in tinted glass which would contrast with the rest of the property. If the effect
was great enough it could reduce the property’s capital value and/or saleability.
Secondly, Clause 4.9 allows internal, non-structural work with consent. This allows
the tenant to install demountable partitions. Indeed, a number of leases exempt a
tenant from having to seek landlord’s consent to their installation; but this relaxation
cannot apply in the case of a multi-let building. The landlord will probably be the
relevant competent party for compliance with the terms of the Fire Certificate, and
any changes to the internal layout may affect the certificate. If the tenant has the
whole of a building, then the responsibility rests with him, not with the landlord.
The second part of the alterations clause sets out some of the procedural aspects for
the tenant’s application for consent.
Clause 4.18 (the planning clause) is the second point of control by a landlord. Clause
4.18.1 prohibits a tenant from making a planning application without approval. This
will arise for certain categories of work or changes of use.
Clause 4.8 is the third point of control. It contains the yield-up provisions, which give
the landlord the right to have the property reinstated to its original condition.
2.3 User
The user clause in a lease will generally fall into one of three categories:
l Open
l Qualified
l Restricted.
The Landlord and Tenant Act 1927 covers the landlord’s control of the user clause.
This Act provides that where the lease requires landlord’s consent, no premium or
increased rent may be charged. It does, however, allow the landlord to recover his
costs and any diminution in value of the property that may result. Usually the tenant’s
solicitor will ensure there is a clause in the lease providing that the landlord’s consent
cannot be unreasonably withheld.
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The more restrictive the user clause, the more difficult it will be for a tenant to
dispose of his interest, by either assignment or subletting. However, the benefit of the
restrictive user to the tenant will generally be to reduce the rent at review and renewal
compared with identical premises, but with a wider user clause.
The Use Classes Orders set out in the Town and Country Planning legislation are
often used as a shorthand by solicitors. The order may cover a number of definitions
and be seen as a safe way of defining the user. This is not necessarily the case,
however, as once the relevant Order is referred to, it will always be fixed to that
clause. Thus reference to offices in Class II of the 1973 Order did not change to Class
B1 of the 1987 Order when that replaced the old Class II of 1973.
Lease provisions
The specimen lease deals with use in Clause 4.14. The specimen allows a number of
scenarios to be developed, but, as usual for lease provision, it not only tells you what
can be carried out in the property, but it specifically excludes certain categories.
Modern leases will exclude, for example, hairdressing, funeral parlours etc; older
leases will cover more exotic uses such as blood-boiling, tallow-making, hoofrendering – uses which are virtually extinct today.
One overriding element in many leases of commercial property is the prohibition on
people sleeping in the property, with its suggestion of residential use. This stems from
the risk of the person claiming some form of protection under the Rent Acts.
2.4 Alienation
Alienation is the process whereby a tenant ‘disposes’ of his direct interest in the
property but retains a residual liability for the lease. The extent of that liability differs
according to the two methods of disposal:
l Assignment
l Subletting.
Each, which has its own benefits and disadvantages, is covered below. First, however,
a note about general covenants.
General covenants
It is usual to find a covenant against assignment and subletting in a lease. This
covenant might be an absolute bar; for example:
‘. . . not to assign, sublet or part with possession of the premises’.
Or the covenant might be a qualified one, subject to consent; for example:
‘. . . not to assign or sublet without the consent of the landlord’.
Modern leases usually have a qualified covenant. Absolute covenants will rarely be
accepted by tenants, except for very short term leases, and it is rare for a landlord to
grant a lease preventing alienation, as this will adversely affect the rent at review.
Under the provisions of the Landlord and Tenant Act 1927, consent under a qualified
clause cannot be unreasonably withheld. This was bolstered by the Landlord and
Tenant Act 1988, which provides that a tenant can seek damages if consent to an
assignment is unreasonably withheld or delayed by the landlord.
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Clause 4.12 of the specimen lease deals with alienation. This clause follows the
general principle set out above, in that it prohibits parting with possession before
referring to specific exclusions of the prohibition.
1 Assignment
Lease terms
Clauses 4.12.2 to 4.12.6 of the specimen lease deal with assignment. These clauses
allow the tenant to assign the whole of the premises but provide that the landlord can
refuse consent in certain circumstances. It should be noted that the terms of clause
4.12.5(a) are very broad. Any assignee who did not improve the covenant strength of
the lease could be rejected by the landlord.
In these circumstances a tenant could argue that the landlord was unreasonable in the
way in which he dealt with the matter. He may wish to take the landlord to court to
challenge the grounds of refusal and to claim that the incoming tenant would not
diminish the reversionary value. However, the immediate benefit to the tenant will be
limited: the prospective assignee is unlikely to wait for the matter to be determined,
as it is likely to take at least a year to get to court.
Clause 4.12.6 deals with the elements arising from the Landlord and Tenant
(Covenants) Act 1995.
2 Subletting
In contrast to the assignment of a lease, with a subletting the original tenant remains
in control. A new interest is created (‘the subtenant’) and the original tenant becomes
a landlord while remaining a tenant under the original lease. The subtenant then pays
rent to the original tenant, in the latter’s role as landlord, and the original tenant pays
rent to his landlord. Clearly the original tenant is more involved in dealing with the
property than in the case of assignment, in terms of rent payments, collection, and the
general management of the property.
Lease clause
Clause 4.12 has a number of interesting provisions regarding subletting.
First, the subtenant is required to covenant directly with the superior landlord to
perform the covenants of the head lease. In essence, the subtenant is saying that he
will comply with the sublease and the head lease. The intention is that the superior
landlord can then enforce covenants against the subtenant if problems arise with the
tenant.
Second, the terms of the sublease require the rent to be the higher of that under the
lease and the open market value. This protects the landlord against a potential drop in
rent if the immediate lessee becomes insolvent, and helps him maintain a valuation of
the property that might be higher than the actual value.
Third, Clause 4.12.10(a) requires the sublease to be excluded from the provisions of
the Landlord and Tenant Act 1954 (ss.24–28) – sections that allow a tenant to obtain
renewal of the lease. By seeking to exclude these sections, the landlord provides
himself with a stronger negotiating position at expiry. If the subtenant is deprived of
the protection of the 1954 Act, the tenant will not have protection either, because one
of the 1954 Act’s essential requirements for protection is that the tenant under the
lease should be in occupation.
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2.5 Repairs
There are two types of repairing provisions in leases:
l FRI: Full repairing and insuring.
l IRI: Internal repairing and insuring.
Variations do exist and occasionally you may come across leases which put very little
onus on the tenant to repair. In the main, however, leases granted over the last 20–30
years put the liability for repair on the tenant’s shoulders. Indeed, most leases are FRI
in nature, even if the responsibility for repair for parts of the property rests with the
landlord, since the landlord usually recovers all his costs from the tenants in the
service charge.
The underlying premise of the repairing obligation is that the tenant will maintain the
property in the condition in which it was let, although he may have to put it into good
repair to begin with. Whether this is a fair approach is open to debate, but it underpins
the investment value of property and is therefore a very important area. There has
been a substantial amount of case law on the subject and some of the more important
points are raised below.
The repairing provisions in a lease, which will be drafted in a variety of ways, contain
clauses dealing with:
l Extent of the tenant’s responsibility – generally the whole property demise or
just the interior.
l Standard of repair.
l Delivering up of the property at the end of the term.
l Details of redecoration and the frequency with which it is to be carried out.
l Landlord’s right to inspect and carry out the works if the tenant fails to do so.
l Tenant’s liability to pay landlord’s costs in the preparation of a Schedule of
Dilapidations, detailing the condition of the premises.
These individual elements are considered in more detail below.
Legal parameters
Where the demise is the entire property, the major difference between the FRI and the
IRI repairing provision is:
l The FRI lease will include responsibility for the total, including the exterior
and structure.
l The IRI lease, as its name implies, will be limited to the interior and the
landlord will probably be responsible for the exterior and structure.
There are many combinations of responsibility, however, and it should not
automatically be assumed that because the tenant is not responsible for the exterior,
the landlord is; the lease may be silent on the point and no one will be liable.
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If the tenant is wholly responsible, the burden imposed can be very great. The only
limit is that the tenant will not have to provide something that is totally different.
However, even here there is a caveat following the decision in Ravenseft Properties
Ltd v Davstone Holdings Ltd (1980). In this case the tenant was found to be
responsible for the repair of what was an inherent defect, rectification of which would
produce an improvement to the property. The wording of the repairing covenant can
also place the tenant under an obligation to put the property into repair, as well as
maintain it in upgraded condition to the end of the lease.
Standard of repair
The standard of repair required will depend upon the exact wording of the lease
clauses. The property may be subject to a schedule of condition which will specify its
exact condition at the time of granting the lease. This schedule may be used as the
basis upon which either the landlord or the tenant is to undertake the appropriate
works to deal with the defects specified; or it may limit the extent of tenant liability.
Clause 4.4 of the specimen lease covers the repairing obligations. Here the tenant is to
covenant to put as well as keep the property in good repair. This is a positive
obligation to get the property into repair.
Deliver up
The delivering up of the property at the expiry of the lease is generally geared to
dilapidations, an issue which is examined in more detail elsewhere. The yield-up
provisions are in Clause 4.8.
Redecoration
Redecoration can be the subject of lengthy lease clauses, especially if the property
forms part of a prestigious building such as a shopping centre. The landlord may try
to impose on the tenant detailed requirements for colour schemes for the interior and
exterior. The redecoration clause will generally define the cycle of redecoration for
the interior and, if the tenant is responsible, the exterior.
Older leases tended to adopt a five-yearly cycle for the exterior and a seven-yearly
cycle for the interior. Modern leases tend to shorten the dates, particularly the internal
cycle. Modern buildings have less exterior paintwork, with windows of aluminium or
plastic, and the only areas that need attention are in exposed places, such as the tank
housing or fire escapes. The interior, on the other hand, has become a more attractive
environment, generally at the expense of durability of finishes. The effects of wear
and tear are that much greater on the interior, and cycles of three years are not
unknown, especially for the ‘common areas’.
The specimen lease is for a multi-let property and Clause 4.5 covers only the interior,
with a three-year redecoration cycle.
Landlord’s remedies
The lease will allow the landlord to enter to inspect the premises on reasonable
notice. In most cases this will be a relatively informal approach, becoming more
formal if the landlord has reason to suspect that the terms of the lease are being
breached.
The landlord’s ability to enforce the repairing covenants often rests on whether he can
enter the premises and carry out the work himself. Having done the work, the
landlord will then seek to recover his costs from the tenant in the same way as for
rent.
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The most radical step the landlord can take is to seek possession of the property
through action for forfeiture. In this he is fettered by s.146 of the Law of Property Act
1925. This provides that, before any action for forfeiture, the landlord must serve
notice specifying the breach and providing the tenant with a reasonable period of time
in which to carry out the works. The emphasis is on ‘reasonable’: if a reasonable
period is not allowed, the notice will be invalidated. The facilities manager who
receives such a notice should seek the advice of a building surveyor and solicitor
straight away. However, the notice should provide sufficient time for him to deal with
the repairs before the expiry of the time limit, assuming due diligence, and he should
have had advance warning of the landlord’s actions by the inspections that have been
carried out.
Under the Leasehold Property (Repairs) Act 1938, where a lease for a term of seven
years or more has still got three or more years to expiry, the landlord is restricted in
his rights to forfeit or to sue for damages; (this does not apply to internal repairing or
decorating clauses).
One option for a landlord is to enter the premises and carry out the repairs himself.
This must be expressly provided for in the lease, which is the case for most modern
leases. The procedure is to serve notice on the tenant giving a reasonable time for the
repairs to be undertaken. If the tenant fails to do the work the landlord can then enter,
carry out the repairs and recover the cost from the tenant.
Where the lease specifies that the money is recoverable as a debt, the landlord can
then sue for the work as a debt, not as a breach of the repairing obligation. In this way
the landlord is able to circumvent the constraints of the 1938 Act. The case that
determined this approach was Jervis v Harris (1996) 2 WLR 220, CA.
Landlord’s repairs
The final area to consider under repairs is the effect of the landlord carrying out
repairs in a multi-let property.
Where the tenant does not have responsibility, it is usual for the landlord to maintain
the areas excluded from the tenant’s liability, although, as mentioned earlier, the lease
must be explicit for a party to have a liability.
In multi-let buildings the landlord is often responsible for the fabric and structure of
the building, together with the internal common areas. Where there is a consistent
expenditure, such as for the cleaning and maintenance of staircases, the cost of the
work will be met by the tenants via their contributions to a service charge. If the
expenditure is more irregular, the recovery of costs might similarly be irregular. From
a tenant’s point of view this is not ideal: most tenants are better able to deal with
regular payments than with widely varying rates. The use of sinking funds has
developed to even out the cash flow of running a property.
In Clause 11.1 of the specimen lease, the landlord covenants with the tenant to keep
the common parts in good repair if the tenant has paid the service charge.
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2.6 Rent reviews
An investor, by definition, is prepared to pay a capital sum in exchange for income
and for capital and income growth. In the case of property, the income is the rent paid
by the occupier for the use of the property. For the tenant this is just part of his
overall ‘production costs’.
As part of his investment the investor will want to see his return at least remain in line
with the value of money. In other words, he does not want to see the rent payable
become less valuable due to inflation, and ideally he wants to see the return exceed
the level of inflation and, with it, standard interest rates.
Rent reviews were introduced in the 1960s to reflect the high levels of inflation and
the erosion of the return to the investor. The mechanism that has developed in the UK
is to fix the rent at the review dates with reference to the market value of the property
at that time. The creation of this hypothetical scenario has resulted in a considerable
amount of case law, as the parties to the lease have sought to maximise/minimise the
effects of the review.
The body of information to be understood is substantial, and it is not the intention in
this paper to examine the subject in detail. However, the facilities manager needs to
know about certain elements of the subject so that he can make the appropriate
response to events, as a wrong action can lead to a costly mistake that could last for
the rest of the lease term. These areas are:
l
l
l
l
Notices
Review timetable
Third party referrals
Instructing specialists.
Notices
The terms of review clauses in leases vary considerably, from three or four lines to
pages of instructions for assessing the value, which may include a whole lease that is
to be valued. Likewise, notice provisions of leases also vary in detail. Some leases do
not even provide for a notice mechanism. Others may include a detailed timetable and
specify the form that notices and counter-notices are to take. There is no standard
format: leases on the same property granted at the same time can have minor but
significant differences.
Increasingly leases require the landlord to serve a notice to initiate the review process.
This notice may include the amount of new rent that the landlord is seeking; it may
require a counter-notice; and there may be a timetable to meet if the review is to be
opposed. The specimen lease does not require the service of a notice.
There can be no generalisation on the subject because no clause is the same.
However, the House of Lords in United Scientific Holdings Limited v Burnley
Borough Council (1974) determined that the presumption for a rent review was that
‘time is not of the essence’. In other words, failure to adhere to a timetable for the
review does not defeat the review. This presumption does not apply, however, if there
is a contraindication in the lease, or if there is a presumption in the surrounding
circumstances, or if there is an interrelationship with other lease clauses. The most
common example of the last is a break clause linked to the settlement of the review
itself.
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Assumptions
The review provision often refers to the terms of a hypothetical lease. This is to
prevent problems arising when surveyors have to look at all the terms of the actual
lease. Clauses 10.2–10.4 of the specimen lease cover this.
Review timetable
The lease may or may not set out the timetable for dealing with the review – which,
as we have seen in the section above, can vary in length and complexity. Most leases
do not have a strict timetable that makes the review time of the essence of the
contract. However, many have a timetable for the mechanics of the review – such as
the earliest date when the landlord can serve a notice on the tenant, whether the notice
has to include the new rent, or whether the tenant has to serve a counter-notice, and
the form of that counter-notice.
The solicitor and surveyor will need to advise on the timetable of the review to ensure
compliance with the requirements. Again, having advance notice of an impending
review will give the professional team the opportunity of looking at the options and
the wording of the review clause at leisure, rather than in response to a last-minute
notification of the review and the counter-notice time. This greater awareness will
benefit not only the professional team but also the facilities manager, who will appear
in control of the event. By programming the review procedure early, the surveyor will
be able to provide a prior estimate of the rental level likely to be set, which has
obvious advantages for budgeting of costs for properties.
The specimen lease follows the modern trend of not setting a fixed timescale for
individual events, to avoid problems when the timetable is not being adhered to.
Third party referrals
If negotiations between surveyors fail to resolve the review, the rent review clause
will invariably provide a procedure for a third party to determine the rent. The two
options that exist are arbitrator and independent expert.
The procedure for the appointment of the third party is generally set out in the review
clause. The most common approach, if the parties are unable to agree on a suitable
person, is to refer the matter to the President of the Royal Institution of Chartered
Surveyors. The lease will specify directly or indirectly the type of third party to be
appointed, and the President will then choose a suitable member from the panel of
experts in that particular field.
The parties may object to a particular third party because of perceived conflicts of
interest or queries over his competence. The person invited must declare any
perceived conflict, as any subsequent disclosure of an interest could lead to litigation
by the parties to set aside an award.
What is the difference between the two options?
An expert will have specialised knowledge of the type of property and its location.
He will be able to determine from his own knowledge the value attributable to the
property. In the main, an expert will take submissions from the surveyors acting to
bring to his attention any relevant facts which will affect the rental value.
An arbitrator will probably have significant experience in the locality and for the
type of property in question, but this is not essential. The principal difference is that
the arbitrator has to hear the parties and must make his judgement based on the
evidence put before him by the parties. He must not use any other information. In that
respect the arbitrator acts in a quasi-judicial manner.
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Which is the best approach? The difference between the two has narrowed in recent
years. There are arguments that the expert will be anticipating the future trend of the
market and will be more up to date than an arbitrator, who has to rely on evidence of
completed deals rather than the ‘tone’ of the market.
The specimen lease covers this in Clause 10.5. As you will see, the wording gives the
drafter the option of expert or arbitrator, depending upon instructions from the
surveyor who will be negotiating the original lease terms.
The provisions of the Arbitration Act 1996 resolve a number of problems, including:
1. The appointment of a further arbitrator, if the appointed one becomes infirm or
dies.
2. The determination by the courts of questions of law that might arise.
3. Compelling witnesses by subpoena to give evidence.
4. Award of costs.
5. Control of misconduct or unfairness.
The Arbitration Act also allowed a challenge to be made for serious irregularity
within 28 days of the award and enables appeal on a point of law.
Instructing specialists
The subject of rent reviews is very specialised and it is important to choose the right
specialist to act on the company’s behalf. One individual will not necessarily deal
with all reviews, as the surveyor’s expertise, for example, might be restricted to one
location or one type of property. The rule of ‘horses for courses’ applies here, as it
does elsewhere.
Generally the best means of identifying a suitable surveyor to act is by personal
recommendation, and as many views as possible should be sought.
Similarly, the role of the solicitor is important. If the review clause is complex and/or
the amount of money involved is great, a specialist solicitor or barrister will be
needed: and again personal recommendation is essential.
The fees the professional team charge will depend upon the market conditions at the
time. During the recession of the early 1990s the level of fees charged by surveyors
fell dramatically as the amount of available review work fell away. Legal fees were
not affected to the same extent, and the costs of counsel probably increased during the
same period. The correct level depends upon the level of expertise required.
When the review has been settled, it will need to be documented by a rent review
memorandum, which will be prepared by the landlord’s solicitors and, when signed,
attached to the lease.
A final point to bear in mind is that modern leases tend to include provision for the
landlord to charge interest on any catch-up rent if the review is settled after the
review date. This may be 2–4 percent above base rate. It is there to discourage tenants
from delaying the review process in order to hold on to the backdated rent for as long
as possible. The inclusion or exclusion of a clause of this type will be instrumental in
determining the rent review tactics.
Full consideration is given to the subject in The Handbook of Rent Reviews, published
by Sweet & Maxwell, which is the definitive book on the subject.
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3 Break clauses
Break options tend to be linked to redevelopment proposals by the landlord, or are
optional breaks for the tenant. The latter became more common during the recession,
although the benefit to a tenant of a break option tends to be an increase in rental
value.
In many ways a break clause has to operate on the same basis as the normal procedure
for the service of notices under the 1954 Act. If a landlord is exercising his break
option for redevelopment or refurbishment, he must serve the notice in the form
specified in the lease, but must also comply with the 1954 Act procedure. He will
have to serve a s.25 notice objecting to renewal. The landlord will have to prove his
case in court if the tenant does not accept that the notices are valid.
There is still uncertainty as to whether a tenant will have to serve a s.26 notice on the
landlord to operate a break option. This has not been the case in the past, but the
validity of the approach has been questioned. An important point mentioned in the
section on rent reviews was the linking of rent reviews and break options, which can
make the review time of the essence. Whilst break options at the time of review have
certain advantages, it is simpler to keep the two separate to avoid any problems.
It is important to consider the wording of the break clause, not only to avoid the
problem of the linking to the rent review, but also to ensure that the wording will
actually allow the break to operate. The wording of the break can be very open or
very restrictive. The former approach requires little more than the notice to be
correctly served within the prescribed timetable for it to be valid. The latter will
include payment of all monies, often even though the sums have not been demanded,
and most difficult of all is compliance with the repairing obligation. In such cases the
tenant has to undertake works to put the premises into repair but the landlord has not
had to agree or disagree to the specification – it becomes very difficult to ensure full
compliance and breaks have been held to be invalid because of this ‘failure’. Recent
cases do seem to suggest a change here in that the courts are regarding silence or acts
to frustrate the break as inequitable.
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4 Lease expiry
Under the normal law of contract, a lease ends on the expiry date and the tenant must
give up possession. However, protection is given to business tenants in England and
Wales by the Landlord and Tenant Act 1954 (as amended). Under s.24, a business
lease continues on the old terms unless brought to an end by a formal notice. This
gives the tenant the opportunity to claim a new lease, provided that the procedure is
observed and the parties have not contracted out of the Act by agreement of the
County Court when the lease was granted.
There are a number of qualifying parameters that must be met for a tenant to be
allowed to renew. The landlord is able to raise certain grounds of objection, including
persistent late payment of rent and breaches of lease obligations, but more commonly
that he needs the premises for refurbishment or redevelopment. In each case it is for
the landlord to prove his case.
The case law on lease renewals is extensive and for a detailed grasp of the subject you
are referred to Sweet & Maxwell’s Handbook of Business Tenancies. The facilities
manager generally does not need a detailed knowledge of the subject, just a grasp of
the salient points. However, if the brief for the facilities manager includes property
and there is considerable activity, a full understanding will be needed.
Increasingly, with changes to the length of leases and increased flexibility, landlords
have sought to limit the effect of such changes on them. Following the decision in
O’May and Others v City of London Real Property Co Ltd (1980), lease terms for a
lease with rights of renewal under the Landlord and Tenant Act 1954 will be
perpetuated in new leases. Where ss.24 to 28 of the 1954 Act are excluded when a
tenancy is granted, a tenant will have no rights of renewal. To do this, a court order is
needed at the time the lease is granted, and care is needed to ensure matters are dealt
with in the correct order. However, once excluded at the time of expiry, the landlord
is not impeded in his rights of regaining possession or in ‘holding the tenant to
ransom’.
The renewal process can be a complex one and expensive in terms of professional
fees and management time. It should be remembered, however, that it will determine
the costs and operation of a property, often for 25 years.
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Summary
This paper has only scratched the surface of the subject. However, this should not be
a disincentive to understand it. There are some areas with which a facilities manager
is likely to deal on a daily basis and for which he will need a clear understanding of
the issues. Others, such as lease renewals and rent reviews, occur less frequently and
the facilities manager’s involvement is likely to be considerably less. However, he
must grasp the essential points of these less frequent events. Perhaps the two most
important are: be prepared and decide in advance on the team who will work with
you on the matter. Equally, the more mundane matters can have a major effect on less
frequent events, such as reviews.
SELF-ASSESSMENT QUESTIONS
1. What effects may flow from late payment of rent?
2. In what circumstances can a landlord prevent a tenant from improving or altering
the premises held on a lease?
3. Identify three categories of user clause. Which would you advocate when letting
surplus space?
4. Identify two types of restriction on alienation.
5. How full is a full repairing obligation?
