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Absolute & Qualified Covenants

admin — Sat, 27 Aug 2011 16:36:25 +0000

LEASE CONSENTS – THE BASICS

Following on from our previous blogs its time to see how your lease works in detail. What if you need to make a change?

It is quite normal that during the course of a lease a tenant may need to approach the landlord for consent for covenants that requires the landlords consent to proceed. As we have pointed out in previous blogs as each lease differs it is essential to read the lease at an early point to avoid costly mistakes.

The distinction between ‘absolute’ covenants, those that prohibit the act, and ‘qualified’ covenants, those that require the landlord’s consent for that act, need to be understood and they contain certain requirements of both the landlord and the tenant. So be aware of the type of covenant and what you need to do. Here are some pointers;

Tenants request for a change of use;

Absolute Covenant – if the lease clause simply prohibits a change of use then there is no implied term to the effect that consent should be granted by the landlord. You cannot proceed.

Qualified Covenant – this may state that the change of use is permissible subject to obtaining the landlord’s consent. This may go on to say that the landlord’s consent should not be unreasonably withheld or delayed.
What is reasonableness? Well, there is case law on the question of reasonableness, under the Landlord and Tenant Act 1927 s.19 if the landlord grants consent he cannot charge more than expenses and compensation for loss in value provided that the change of use does not include structural alterations to the property.

Tenants request for alterations;

Absolute Covenant – again there are no implied terms.
Qualified Covenant – if the lease clause states that such change is subject to the landlord’s consent it is also implied that the consent cannot be unreasonably withheld or delayed. The landlord may require payment for compensation for loss in value of the property and expenses and he may also look for re-instatement provided it is reasonable and the improvement did not add value to the property. Again there is case law which defines what an improvement is and we recommend you take advice. Again, there is case law on the test of reasonableness.

Requests for Assignment & sub-letting;

Absolute Covenant – again, statute does not imply any requirement or the landlord to give consent when there is a prohibition to assign or sublet.
Qualified Covenant – where the lease clause states that assignment or subletting is permissible with the landlord’s consent, statutes assists;

Landlord and Tenant Act 1927 s.19 – there is a proviso that consent cannot be unreasonably withheld and it permits the landlord to recover his reasonable expenses.
Landlord and Tenant Act 1988 s.1 – this provides that landlords are liable for unreasonably withholding and/or delaying consent. The landlord must provide written reasons for refusing consent or conditions.
Landlord and Tenant (Covenants) Act 1995 – modern leases now specify circumstances when it will be reasonable for a landlord to refuse consent. Consider this when negotiating and drafting a lease.

Landlord’s advice;

If you are granting a new lease or renewing an old, think carefully about the circumstances in which you would refuse consent to an assignment or subletting. You should also be aware that the more restrictive a lease is the bigger impact it will have on its valuation.

If you receive a tenant’s application then you should act promptly;

Check the lease

Obtain valuation and/or accounting advice.

If you need more time then keep the tenant informed. If you want more information ask for what you reasonably need and why you need it.

If you want to refuse consent, spend time drafting your response as you only have that one opportunity to explain your reasons. Provide the supporting advice from your professional team’

Tenant’s advice;

Again, and as always, read the lease for the conditions that need to be performed in relation to your application and meet them.

Check that you are not in breach of any lease covenants.

Put your request for consent in writing and make it clear what you are asking for. Set a reasonable date for your landlord’s decision and quote the statues above. This shows you know your position and your rights. Send it by post and recorded delivery.

Pre-empt the landlord’s request for information by providing everything with your application.

If you believe the landlord is stalling, tell him so in writing but carry on dealing with his enquires.

When is a Lease not a Licence?

admin — Sat, 13 Aug 2011 10:02:54 +0000

The Distinction between a Lease and a Licence.
This is far from a straightforward issue and there have been many legal cases fought over the distinction between a license and a lease (tenancy agreement). And many people have got want they had not expected.
Property can be occupied but not necessarily “possessed”. It this subtle distinction that is very important in distinguishing the difference between a lease & Licence. Occupation of property comes under four main headings in English law: Freehold (owner), Leasehold (tenant), License (authorised occupier) and trespasser (squatter).
A license allows occupation but does not give the occupier legal title in land, as does a tenancy. So, a guest in a hotel has a license to occupy, as does a lodger in a property where the landlord is in occupation, and as does a company which occupies a serviced office or workshop space.
The big advantage to a landlord is that the licensed occupier can be removed (subject to the notice period in any agreement) without too much trouble – they have limited or no legal protection. Had the occupier been granted a tenancy, then they would have legal protection (security of tenure) either under the Housing Acts (1988 & 1996) for a residential tenancy, or under the Landlord & Tenant Act 1954, in the case of a commercial tenancy.
The crucial distinction between the two – license or tenancy – is the terms “exclusive possession” and “control”. So, where a tenant can exclude all others, including the landlord, he has a tenancy, regardless of what the landlord may title his agreement.
A lease agreement where the property owner gives another party the right to occupy the property is often identified as an agreement that contains the following aspects; it issued in exchange for consideration. Usually the right is (1) exclusive, (2) for a term of a year or more, (3) transferrable (except as stated in the lease), and (4) irrevocable. The property owner gives up a leasehold interest in the property.
Whereby a license is an agreement where the property owner gives permission to another party to use the property for a specific, limited purpose. Usually the right is (1) non-exclusive, (2) for a short term or non-consecutive use, (3) non-transferrable and (4) freely revocable. The property owner does not give up an interest in the property.
The most important distinction between a lease and license is whether the right to use the property may be revoked. A license is more appropriate for a shared, non-exclusive, revocable right to use property. For example, an organization could be given a license to use a meeting room every Monday from 6pm-7pm, or a barbeque event could be given a license to serve food one Saturday each month.
Here’s what the courts have said; “……It does not depend on whether he or she has exclusive possession or not. It does not depend on whether the room is furnished or not. It does not depend on whether the occupation is permanent or temporary. It does not depend on the label which the parties put on it. All these are factors which may influence the decision but none of them is conclusive. All the circumstances have to be worked out. Eventually the answer depends on the nature and quality of the occupancy. Was it intended that the occupier should have a stake in the room or did he have only permission for himself personally to occupy the room, whether under a contract or not………….’
So be sure to understand what type of agreement you intended and how you are going to achieve this before entering into such an agreement.

Breaching a Lease covenant

admin — Sat, 13 Aug 2011 09:23:38 +0000

What is a Section 146 notice?
A notice issued under section 146 of the Law of Property Act 1925 warns a tenant who is in breach of lease covenant (other than the covenant to pay rent) of the landlord’s intention to forfeit the lease. A landlord has other routes for remedy when it comes to recovery of rent or items reserved as rent (insurance premiums, service charge or other demand, if reserved as rent). The notice must specify the breach complained of and if the breach is remediable, require the tenant to remedy it; and in any case require the tenant to monetarily compensate the landlord
The landlord must serve a section 146 before taking any steps to obtain possession. The s. 146 Notice must specify the breach complained of, and indicate that the lease will be forfeit if the breach is not remedied within a reasonable period of time. The s. 146 Notice must be served on the “lessee”, and the section makes clear that this includes any subtenant.
There are different procedural steps that need to be taken to forfeit a lease depending on the type of breach that has occurred. Where a tenant has breached a term in the lease (with the exception of payment of rent), then the landlord must serve a S146 notice if he wishes to proceed to lease forfeiture. Although a time limit is not required to remedy the breach, a failure to provide a reasonable time could lead to the forfeiture being deemed unlawful.
Forfeiture can be a very effective remedy for the landlord. The landlord may use this remedy providing amongst other things, that there is an express provision in the lease to do so.

Non-Payment of Rent
Where a tenant has failed to pay rent, such a notice is unnecessary. However, the landlord must serve a rent demand upon the tenant unless such a requirement is specifically excluded in the lease. Ie ‘to pay the rent whether demanded or note’. Here the tenant owes and must pay whether the landlord raises and issues a demand and invoice or not.
If a tenant fails to remedy the breach or satisfy a rent demand, the landlord can forfeit the lease.

Methods of Forfeiture
A landlord may forfeit the lease using either Court proceedings or peaceful re-entry. Making an application to the Court can be time-consuming and costly but it does provide the landlord with greater certainty of securing possession.
Peaceful re-entry is an alternative method of forfeiture for the landlord and is more efficient than the Court. Peaceful re-entry may only be used when the premises are empty and providing that the premises are not of mixed use, i.e. where there is no residential element to the premises.

Relief from Forfeiture
A tenant can apply to the Court for relief when a landlord has forfeited the lease. Where the lease has been forfeited for failure to pay rent, the tenant will generally be entitled to automatic relief providing the tenant pays the arrears and the landlord’s costs before a hearing.
Where the landlord has forfeited the lease pursuant to a s146 notice, the tenant can apply to the Court for relief once he has been served with the s146 notice. The Court has a very wide discretion to grant or refuse relief.
All the above issues have key legal aspects associated with them and your specific circumstances will be dependent on your lease terms and RPS always recommends you take professional advice in such circumstances. This information has been prepared by RPS as a general guide and does not constitute advice on any specific matter.