Lease Notices; Common Deadline Interpretations

Posted on August 21, 2011 by admin    Comments Off

So, you’re required to serve a notice on your landlord or your tenant. This could be a lease break option or rent review notice. Either one is a very important document and could be the difference to your receiving a higher rent or early termination of your occupation of the premises. The dangers of getting it wrong therefore come with cost.

So, to ensure you or your appointed professional get it right they are going to read the lease. But what do the legal definitions of the words imply? Here are the RPS guidance notes to help you;

‘By’ …….simply means the notice can be served up to 23.59hrs on the date the notice is to be served. So a notice to be served on 21 August can be served up to 23.59hrs on the 21 August. BUT NOT LATER.

‘From’……. The date specified will generally be excluded, so the notice can only be served from the start of the following day. Therefore notices that can be served from 21 August will valid if served from midnight between the 21/22 August. Similarly, if the term of a tenancy is expressed to be from 21 August it will generally be viewed as starting on 22 August.

‘Not less than / At least’…….When calculating the relevant period, the first and last days are excluded. Therefore, a notice ‘to be served not less than or at least 10 days after 7 August’ must be served on or after 18 August.

‘Within one year’………. Here the calendar year is used. A notice to be served within 1 year of 21 August 2011 can be served at or before 23.59hr on 21 August 2012, but not thereafter.

‘Within one month’……. When calculating the period for documents made or effective after 31 December 1925, the calendar month is used; a notice served within one month of 31 March 2010. Not later.

You can therefore see the importance of a well drafted lease that gives clarity to both parties as to what is to be done and when. It is essential that the parties to the agreement fully understand the meanings construed in the lease. At RPS we recommend that you seek professional advice when considering issuing any notice in relation to your lease and that the lease wording takes precedent.

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When is a Lease not a Licence?

Posted on August 13, 2011 by admin    Comments Off

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.

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Breaching a Lease covenant

Posted on August 13, 2011 by admin    Comments Off

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.

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Actions on Business Interruption

Posted on August 9, 2011 by admin    Comments Off

If your property and business has been affected by the recent riots and vandalism in London and elsewhere then you will want to act quickly to protect, repair and get back on your business back into operation and trading. We can’t be there to help but we can assist with the following pointers.
1 Business Rates
If your trading has been directly affected, or even if you are lucky enough not to have direct damage caused but your business operations have been affected, then you can claim relief from paying business rates due to impact on your business. Here are some tips;
Keep a diary of events, times, dates etc.
Take photographs & notes.
Advise the local authority, they have the responsibility for collecting your payments, that you have been affected and will be claiming relief.
2 Insurance
Check your insurance policy, and then re-check your insurance policy. It may require you to take certain actions to enable you to make a sucessful claim. This could include advising them within a certain time limit or they may wish to view police reports etc. So when speaking with the police please make sure you get the crime report number your insurers may ask for it.
Your policy may also require you to take actions to prevent consequential damage. This could include turning off utilities or making temporary repairs. Check what you must do to maintain sucessful insurance claim.
Stock take to ensure you can produce evidence of what was taken and / or damaged. Only dispose of damaged stock if you are sure you can demonstate to your insurers that you had it and it was damaged, or if your insurers have confirmed it can be disposed of.
3 Rental Payments
It is quite possible that your landlord will require you to continue to pay rent and service charge payments throughout this period. We recommend that you read your lease and understand what provisions it makes in these scenarios.
Contact your landlord and advise them of the damage to the property and your business. Proactive landlords will also need to contact their own insurers.

In summary, make sure you communicate with the key people and suppliers. Keep a diary or notes of events and actions and who you spoke with and when. Communication and a diary will be invaluable in the coming weeks and months.

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Assignment Vs Sub-Lease; The Essentials

Posted on August 6, 2011 by admin    Comments Off

So What is the Difference Between a Lease Assignments and a Sub-lease?

The key difference is that an assignment places the assignee into a direct contractual relationship with the landlord, while a sublease does not.

 This distinction occurs because in an assignment the tenant/assignor assigns its contractual interests in its lease to the transferee/assignee, who then assumes such contractual interests, and also assigns the tenant/assignor’s property interests in the leased premises. Simply put the assignee has assumed the contractual position of the assignor and taken over his property interests as well.

Before an assignment the landlord and tenant enjoyed “privity of contract” with one another, and the tenant had and enjoyed possession of the leased premises and all of the rights and benefits of such possession. After an assignment the landlord and the assignee enjoy privity of contract with one another and the assignee enjoys possession of the leased premises and all of the rights and benefits of such possession. As a result the assignee becomes the direct tenant of the landlord, while a sublessee does not.

An assignee pays its rent directly to the landlord, while a sublessee does not. This difference occurs because after an assignment the assignee is directly obligated to the landlord to keep, observe and perform all of the tenant’s covenants and obligations under the lease, while by contrast a sublessee pays its rent to the sublessor under its sublease, who in turn remains obligated to pay its rent under the owner/landlord under its lease. After an assignment the assignee’s acts, omissions or other conduct of are the only ones that directly affect the landlord/tenant relationship of the owner/landlord and the assignee/tenant, not the acts, omissions or other conduct of the original tenant/assignor..

A sublease creates a new, direct contractual relationship between the sublessor and the sublessee, while an assignment transfers the assignor’s contractual relationship with the owner/landlord. This distinction occurs because a sublessee has no resulting contractual relationship with the underlying landlord, because the contractual interests of the transferor under its underlying lease are not transferred by a sublease. The sublease stands only in its own right. The contract that directly governs the sublessor and sublessee and their relationship is the sublease, not the underlying lease to which the sublessor is and remains a party as the tenant. The owner/landlord is not a party to the sublease, and is not obligated to perform pursuant to the sublease.

All of the rights and interests of the sublessor and sublessee created via the sublease will subject to the terms and conditions of the underlying lease, which remains in effect as between the landlord and the tenant while the sublease is in effect, while all of the rights and interests of the assignee are created by the lease itself. This crucial difference exists because the rights and interests created by a sublease are derivative interests created out of or from the interest of the tenant, and are subordinate to the underlying lease.

No matter which path you take, you will still want a good new tenant who pays the rent on time and follows the lease rules to the letter.

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Lease Break Options

Posted on August 6, 2011 by admin    Comments Off

How to I exercise a break option safely?

Below are some of the key issues you need to consider well in advance of your intended lease break date. It is worth seeking specialist advice to ascertain exactly what you need to do to exercise a break option safely as the legal profession is full of examples where parties have failed in their attempt to exercise a lease break option thus being tied into the lease for the remainder of the term.

Who is entitled to exercise the break option?

This question can be particularly pertinent for group companies where the company occupying the premises may not necessarily be the company entitled to exercise the break. Check whether the break clause is personal to the original tenant and ensure that the correct name of the tenant is used in the notice. Any ambiguity may render the break notice ineffective.

When does the break notice need to be served?

The lease may state that the break can be exercised at any time (a rolling break), on a specified date, or at any time after a specified date. The break notice will usually need to be served a certain amount of time prior to the intended break date. Time is of the essence is relation to break options, which means that any deadline must be strictly complied with.

What do you need to do to exercise the break?

Break clauses are often conditional on compliance with certain conditions and the degree of compliance with conditions required varies between leases. If the lease requires absolute compliance with conditions then, in reality, exercising your break option may be virtually impossible as even a minor breach of covenant will invalidate your right to break. Where the lease requires you to have “materially”, “reasonably” or “substantially” complied with the conditions or covenants, minor or trivial breaches should not affect your right to break. However, you should seek specialist advice as to how and when to satisfy any conditions for the exercise of the break option.

To clarify often a break notice might state that in order for a tenant to action a break clause, the property must be given to the landlord with vacant possession, all monies owing pursuant to the terms of the lease are up to date and paid and the tenant has materially complied with the lease. How these requirements are to be proven, or challenged, will be dependent on the precise lease term. RPS recommends you take professional advice in this regard.

 How do you serve the break notice?

Requirements for serving a break notice will usually be specified in the lease. These may be specific as to who is to receive the notice and the method of delivery to be used as any such provisions must be fully complied with. The longer the lease and the higher the rent the more crucial it becomes effectively to be able to exercise a break option. It goes without saying that so far as the tenant is concerned, an invalid exercise condemns the tenant to continuing obligations in respect of rent and repair in particular until such time as the option presents itself again, if at all. This can be a highly expensive consequence not only for the tenant but in some unfortunate circumstances for professional advisers also.

 These are just a sample of issues which tenants must consider when deciding whether they wish to or indeed are able to action a break clause. To make matters worse for tenants, landlord’s fears over having empty commercial properties in the current economic climate is causing landlords to take specialist advice to see whether they can invalidate tenants break options.  

As you can see the requirements for exercising your break option will depend on the precise terms of your individual lease. You may also be able to negotiate with your landlord to see if he will waive any conditions attached to the break option in return for payment.

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Managing your Dilapidations Liabilities

Posted on July 22, 2011 by admin    Comments Off

What are Dilapidations?
A lease sets out the contact terms between the landlord and tenant, including the obligations relating to the repair, decoration and alteration of the premises. A failure to comply with those lease clauses either during or at the end of the term will result in a dilapidation liability. The process of dealing with dilapidations includes;
The Identifying of the obligations included in the lease;
Establishing the works required to comply with the lease terms;
Receiving Schedules of Dilapidations;
And either undertaking repairs or negotiating the level of the resulting damages.

What can a landlord include in a dilapidations claim?

Repairs
The cost of repairing the demised premises may include putting the premises into repair that meets the standards found at the beginning of the lease. You may also find that the obligations may be outlined by a Schedule of Condition recording the standards required.

Decorations
As standard, most leases require that the premises be decorated internally every five years and externally every three years. There will usually be a clause requiring that the entire premises be decorated in the last year of occupation.

Reinstatement
It is usual for the tenant to be required to reinstate the premises to the configuration / layout in which the premises were originally found. For example, this is likely to include the stripping out of any partitioning or plant.

Professional fees for Contract Administration
The fees for preparing the specifications, obtaining tenders and administrating works on site.

Professional fees for preparation of the Dilapidations Schedule
This may also include the fees for any specialist testing.

Loss of Rent
The market rent for the period it would take to undertake the works plus possibly the period for preparing specifications and obtaining tenders. Although in a poor renting market the landlords ability to demonstrate this loss will become harder.

Loss of Service Charge
Only If applicable where the building is in multiple occupancy and a service charge account applies.

Value Added Tax
On the cost of the works where not recoverable by the landlord.

When will you receive a Dilapidation schedule?
There are two stages where dilapidations might affect a tenant; during the term if the landlord is concerned that the tenant is failing to keep the premises in good repair; or more commonly at the end of the lease when a landlord usually alleges that a tenant has not complied with his repairing obligations.

During the Term of the Lease – The landlord may serve an “Interim” schedule when a tenant has over three years remaining on the lease. The tenant’s obligation to repair in such circumstances is governed by his repairing obligations, lease term and statutory limitation. An interim schedule is difficult to enforce formally due to the dangers of inviting forfeiture of the lease if entry is gained to the property without specific cause.

At Lease End – the landlord may serve a “Terminal” dilapidation schedule when there is three years or less left on the lease, or up to six years after the lease has expired. The landlord is either in a position where he is seeking damages when the tenant has vacated and not undertaken work, or he is trying to ensure that when the tenant leaves the premises, the property is in good repair.
The end of the lease may come by natural expiry, or may be as the result of the enactment of a break option or forfeiture of the lease. In many cases a break option may require strict compliance with regards to repairing obligations for the break to be effective.
Landlords and tenants have diametrically opposed objectives in dilapidations – the landlord wants the highest possible damages whilst the tenant wants to minimise his costs. Historically this has resulted in over-exaggerated claims in both scope and cost
to leave a margin for the tenants agent to negotiate.

1The key to successful resolution of dilapidations for tenants is based on forward planning. We often advise tenants to seek the advice of a professional well in advance of the lease expiry in order that the dilapidations liability can be assessed and a strategy established. They can then work on behalf of the tenant to negotiate an acceptable settlement and can project manage any required works.

2 In the case of an Interim Schedule, the tenant can seek relief under the Leasehold Property (Repairs) Act 1938 (as amended by the Landlord and Tenant Act 1954) if the lease has more than three years to run (and the lease term is over seven years). This will normally be successful provided that the repairs are not required to put the building in repair under a specific lease covenant or to avoid substantial damage to the value of the reversion of the landlord.

3 In respect of the terminal schedule, the tenant has a number of options as the end of the lease approaches:
• The tenant can attempt to comply with all his repairing obligations either by his own interpretation of the lease or by reference to the landlord’s schedule.
• The tenant can do nothing, wait until the lease expires and then seek to negotiate a financial settlement.
• He can carry out limited works and seek to negotiate a settlement in respect of the work he is not undertaking.

4If the tenant has discharged all his liabilities then the matter should be concluded swiftly. This option is not always viable, as the premises are usually required until immediately prior to the lease expiry. There is also the risk that the landlord may have plans for the building which would over-ride the requirements to carry out some works (ie substantial refurbishment) or they may have a new tenant wishing to retain some of the facilities for which there is a requirement for reinstatement. There is also the danger that the works carried out by the tenants may not be of a satisfactory standard resulting in a full claim from the landlord in any event.

5 we recommend you maintain all data relating to maintenance work done to the premises and its mechanical or electrical installations during your period of occupancy. This can be used to prove that a system remains in working order, consequently, in repair despite any shortcomings in its life expectancy or even original fitness for purposes.

The RPS approach;

As professional adviser’s our role will include the following to ensure that you minimise your financial liability;

1 Assess the repairing, decoration, alteration and yield up covenants within the lease and any other supporting documentation.

2 Advise you as to whether it is best to undertake certain works prior to the expiration of the lease in order to reduce/remove the dilapidation liability or to seek to negotiate a financial settlement with the landlord.

3Prepare report assessing the dilapidations liability, which will provide a realistic breakdown of the potential claim in relation to building works, loss of rent, service charge and insurance.

4 When project managing works, we will ensure that the scheduled works and costs do not exceed the specific liabilities and will not be superseded by essential works required to market the premises.

5 we will be persistent in negotiating a settlement in order to minimise the client’s uncertainty over liabilities or the potential monies available to undertake repairs.

Dilapidations Strategy, The Role of RPS;

Dilapidations are often ignored until the end of the lease. The obligations on both the tenant and the landlord are clearly set out in the lease and by careful management they can be minimised for tenants. A well advised tenant is able to ensure that their buildings do not fall into costly disrepair for the want of a well planned maintenance scheme and a strategy for compliance with the repairing and decoration clauses in the lease in time for the expiry of the term. A proactive approach by all parties will ensure that the long delays associated with dilapidations issues are minimised and tenants can move on without substantial and unnecessary loss.
A clear strategy in dealing with either the repairs or a financial settlement well in advance of lease expiry will afford the flexibility to obtain the best outcome.

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User Classes & The TCPO 1987

Posted on July 1, 2011 by admin    Comments Off

The Town and Country Planning (Use Classes) Order 1987 puts uses of land and buildings into various categories known as ‘Use Classes’. The following list gives an indication of the types of use which may fall within each use class. Please note that this is a guide only and it’s for local planning authorities to determine, in the first instance, depending on the individual circumstances of each case, which use class a particular use falls into.
A1 Shops – Shops, retail warehouses, hairdressers, undertakers, travel and ticket agencies, post offices (but not sorting offices), pet shops, sandwich bars, showrooms, domestic hire shops, dry cleaners, funeral directors and internet cafes.
A2 Financial and professional services – Financial services such as banks and building societies, professional services (other than health and medical services) including estate and employment agencies and betting offices.
A3 Restaurants and cafes – For the sale of food and drink for consumption on the premises – restaurants, snack bars and cafes.
A4 Drinking establishments – Public houses, wine bars or other drinking establishments (but not night clubs).
A5 Hot food takeaways – For the sale of hot food for consumption off the premises.
B1 Business – Offices (other than those that fall within A2), research and development of products and processes, light industry appropriate in a residential area.
B2 General industrial – Use for industrial process other than one falling within class B1 (excluding incineration purposes, chemical treatment or landfill or hazardous waste).
B8 Storage or distribution – This class includes open air storage.
C1 Hotels – Hotels, boarding and guest houses where no significant element of care is provided (excludes hostels).
C2 Residential institutions – Residential care homes, hospitals, nursing homes, boarding schools, residential colleges and training centres.
C2A Secure Residential Institution – Use for a provision of secure residential accommodation, including use as a prison, young offenders institution, detention centre, secure training centre, custody centre, short term holding centre, secure hospital, secure local authority accommodation or use as a military barracks.

C3 Dwelling houses – this class is formed of 3 parts:
C3(a) covers use by a single person or a family (a couple whether married or not, a person related to one another with members of the family of one of the couple to be treated as members of the family of the other), an employer and certain domestic employees (such as an au pair, nanny, nurse, governess, servant, personal assistant), a carer and the person receiving the care and a foster parent and foster child.
C3(b): up to six people living together as a single household and receiving care e.g. supported housing schemes such as those for people with learning disabilities or mental health problems.
C3(c) allows for groups of people (up to six) living together as a single household. This allows for those groupings that do not fall within the C4 HMO definition, but which fell within the previous C3 use class, to be provided for i.e. a small religious community may fall into this section as could a homeowner who is living with a lodger.
C4 Houses in multiple occupation HMO’s – small shared dwelling houses occupied by between three and six unrelated individuals, as their only or main residence, who share basic amenities such as a kitchen or bathroom.
D1 Non-residential institutions – Clinics, health centres, creches, day nurseries, day centres, schools, art galleries (other than for sale or hire), museums, libraries, halls, places of worship, church halls, law court. Non-residential education and training centres.
D2 Assembly and leisure – Cinemas, music and concert halls, bingo and dance halls (but not night clubs), swimming baths, skating rinks, gymnasiums or area for indoor or outdoor sports and recreations (except for motor sports, or where firearms are used).
Sui Generis – Certain uses do not fall within any use class and are considered ‘sui generis’. Such uses include: theatres, houses in multiple occupation, hostels providing no significant element of care, scrap yards. Petrol filling stations and shops selling and/or displaying motor vehicles. Retail warehouse clubs, nightclubs, launderettes, taxi businesses, amusement centres and casinos.
Before you negotiate a lease or buy a property for your business, check whether you need to obtain planning permission for your intended use, and, if so, your chances of getting it.
Changes of use not requiring planning permission
In many cases involving similar types of use, a change of use of a building or land does not need planning permission. Planning permission is not needed when both the present and proposed uses fall within the same class or if the Town and Country Planning (Use Classes) Order says that a change of class is permitted to another specified class (see table below).
For example, a greengrocers shop could be changed to a shoe shop without permission as these uses fall within the same class, and a restaurant could be changed to a shop or a estate agency as the Use Class Order allows this type of change to occur without requiring planning permission. Most external building work associated with a change of use is likely to require planning permission.

From A2 (professional & financial services) to A1                                                                         Shop From A3 (restaurant & cafe) to A1 or A2                                                                           A4 (drinking establishment) to A1, 2 or A3                                                                                 A5 (hot food takeaway) to A1, A2 or A3                                                                                        B1 (business) to B8                                                                                                                           B2 (general industrial) to B1                                                                                                          C4 (HMO’s) to C3                                                                                                                     Casinos to D2

Additionally, a planning application is not required for change of use in the following circumstances:
from A1 or A2 to A1 plus a single flat above;
from A2 to A2 plus a single flat above.
These changes are reversible without an application only if the part that is now a flat was, respectively, in either A1 or A2 use immediately before it became a flat.
Changes of use requiring a planning application
Other than for the permitted changes of use listed above and changes where both uses fall within the same use class, planning permission is generally required for a material change of use.
Most external building work associated with a change of use is likely to require planning permission.
Note; The building regulations may apply to certain changes of use of an existing building even though you may think that the work involved in the project will not amount to ‘Building Work’. You may wish to contact your local Building Control body for further advice. This guidance relates to the planning regime for England. If in doubt contact your Local Planning Authority
This is an introductory guide and is not a definitive source of legal information.

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Confused about the wording in your lease? Then take a look at our Glossary of Terms. We are here to help you with your jargon busting needs. If you can’t find it here then let us know and we’ll give you the expaination you need.

A

Use classes order; Section 55 of the 1990 Planning Act sets out classes of use for premises. Your lease may restrict the use of your premises to one of these classes or may be specific in its use.

Absolute covenant; An undertaking that is neither conditional nor determinable.

Access audit; A survey of the property to ascertain what needs to be done to meet the requirements of the Disability Discrimination Act 1995

Adverse occupation; Occupation by a trespasser or squatter who is denying the lawful owner or occupier their rights.

Alienation; The ability to transfer rights to another party ie sub-letting or assignment

Alterations; Changes made to the property that could be construed as an improvement

Arbitration;  Form of settling a dispute by use of an independent arbitrator whose decision is binding (see also Independent expert).

AGA, Authorised Guarantee Agreement; See L&T Act 1995, for leases from 1 Jan 1996, the landlord’s ability to obtain lessees requirement to meet assignees or sub-tenants obligations if in default.

B

Balancing Service charge; A calculation at the end of an accounting period summarising expenditure and income received. This can be a positive negative number and therefore either an additional demand or credit on the tenants account.

Break clause; A clause giving the party (landlord, tenant or both) the ability to terminate the lease given a certain set of, often very strict, circumstances.

Business tenancy; A business lease (as opposed to residential or agricultural) gaining protection of the L&T Act 1954.

Break point / Break date; The date at which a lease terminates when a break clause has been invoked.

Building Regulations; A code of practice issued as a statutory instrument which sets methods and standards of contruction and for quality of materials. These regulations are inforced by local authorities.

Burden (of contract or covenant); The obligations into which a party to a contract has entered in favour of the other party or covenentee.

Business Premises; Generally used to describe premises primarily used, or can be used, for commercial purposes. Important in relation to LTA 1954 for business tenancies and the application of business rates.

 

C

Capital expenditure; Normally monies spent on land, buildings or machinery, as oppose to repairs or maintenance.

Caveat Emptor; Let the buyer beware.

Clean or clear title; Title to land with no claims, mortgages or liens

Liens; A loan covered by land ownership

Code of Measuring Practice;  A set of rules & guides ensuring a standard approach to measuring property & floor areas.

Completion; The final step in the legal process of transferring land ownership.

Completion Statement;  A financial summary normally prepared by the Vendors solicitor identifying the key dates and figures at the point of the document completion. Figures may include the purchase or rental figures, professional fees, service charges, deposits, taxation etc.

Conveyance; The legal process of preparing contracts, leases, searches, due diligence, land registration etc.

D

Damages; money recoverable by court action by party suffering lossrsulting from breach of contract under statute or tort.

Dangerous Structure Notice; A statutory notice issued by a local authority to a building owner requiring a structure to be put into a safe condition.

Date of Valuation; The date of which a property is considered to be of the value stated regardless of the date of the report, signature etc.

De Minimis; A term relating to the degree of which that the effect of damage or injury is deemded to be negligable and so may be disregarded.

Deed; A document of written evidence of a legal transcation that has been signed and delivered to testify to the agreement. a deed does not have to be sealed.

de facto; In fact; as a matter of fact;

Default notice; A notice which has to be served on a party in alleged breach of a contract stating the nature of the breach and requiring remedy as a pre requisite of intituting legal proceedings for breach of contract.

Defects Liability Period; An agreed period of time following practical completion of a project which the contractor is obliged to remedy any defects appearing, failure of workmanship or materials. Amounts specified within the contract shall be witheld.

de jure; By right; as a matter of law.

Demise; In a lease, means the area included within the grant; the area of the property subject to the lease.

Depreciation; Decrease in the value of real property caused by obsolesance, deterioration in condition etc.

Dilapidations; Items identified as disrepair which arise through breach of contract (reinstatement, repair or redecoration) giving right to right to damages or remedial action.

Disclaimer; The renunciation, usually of a right, power or liability. A liquidator may disclaim an onerous lease.

Disclosure; In litigation disclosure is the new name for discovery, the process by which each party reveals to the other documents within its control whether or not they are adverse to their case.

Discovery of documents; also known as disclosure.

Disregards; Items to be ignored in a valuation such as rent review. ie alterations or improvements.

Dissolution;  Formal termination of a company by winding up.

Distress; The act of seizure of chattels without legal process, a means of recoverying arrears.

Dominant tenanment; land which benefits from an easement or other right over other land (the servient tenement).

E

Easement; A right by a dominant owner over a servient. Ie rights to access over land or a right of light.

Eaves height; The height between the floor surface and the underside of the roof covering, supporting purlins etc, at the eaves or the internal wall face (usually the lowest level of the roof structure).

EBITDA; Earnings before interest, taxation, depreciation or amortisation.

Enabling works; works of clearance, demolition, diversion of services or building required prior to main construction.

Enterprise Zone; Under S.179 of Local Government Planning & Land Act 1980. an area designated as requiring special planning, fiscal & economic development treatment.

F

Forfeiture; The right of a landlord to retake possession following a tenant’s failure to remedy a breach of lease terms.

FRI lease; Where the tenant will have responsibility for repairing, maintaining and insuring the property.

G

Geared rent; A rent calculated as a proportion of the rental value received or the rental value of a broadly similar property.

Gearing; The use of borrowed money to improve the yield on the cash contribution of an investment.

General Permitted Development Order (GPDO); Refer also to the Toen & Country Planning Order and the granting of palnning permission for various types of development.

Geomatics; The study and practice of land measurement.

GIA; Gross internal area.

Goad Plan; plan showing the area of a town devoted to retail use and include names and describe each unit, streets, loading areas, car park & service areas.

Good and Marketable title; Technically if a seller proves he has the title he contracted to give, he has shown good title. In unregistered title, if the root of title is at least 15 years old, the title is described as marketable. the expressionbhas come to to mean there are no defects that would inhibit future disposal or result in reduction of value.

Gross rent; Actual rent received before deductions or offsetting

Guarantor; A third party bound to tenant’s performance of the lease covenants.

H

Habendum; Found in the lease to describe the property being let.

Halving back; Used in the rental valuation of retail units applying a zone to the first 6m depth of the unit at one price, then half again for the next zone etc.

Hazadous substances; a list of 15 groups of generic substances described as hazardous.

Head lease; A leashold interest held directly from the freeholder and subject to any underleases.

Head rent; The rent paid by a head leasee to a freeholder.

Heads of Terms; The agreed fundamental points of an agreement and intended to form the basis of the agreement. Duration, rent, alienation, incentives etc.

Hereditament; A property liable to exposure of business rates under the rating list.

Holding Over; Where a tenant remains in possession after the expiry or determination of a tenancy. This could lead to tresspass or a new lease if a business tenancy protected under the LTA 1954.

I

Interim rent; See L&T Act 1954, a temporary rent paid whilst parties used negotiate a rental figure for the new lease.

Intermediate Landlord; A tenant acting as landlord to his sub-tenant and below the landlord.

Immediate Landlord; In a chain of interests the interest immediately above that of a particular tenant.

Implied covenant; A covenant assumed in law to be in a lease even if expressly excluded. (ie tenant to use the property in a tenant like & proper manner).

Improvements; Generally physical changes to the property which could enhance value (extensions, additonal buildings new services). A new installation as apposed to repair of exisiting.

In the Market; In valuation terms a property that is currently for sale or let.

Independant Expert; an impartial person with relevant specialist knowledge who is appointed to resolve differences between parties. He can use his knowldge as well as evidence put to him.

Inducement; A benefit offered to a prospective tenant to take a lease. may include rent free periods, contributions to fit out works, break options etc.

Inferior interest; Any interest granted out of an interest in land.

Inherent Defect; A defect within the structure of a building which was inadvertently ‘built-in’ at thetime of design or construction.

Initial Yield; In investment analysis the inital net imcome at purchase expressed as a % of the purchase price, including the cost of purchase.

Institutional Investor; Generally taken to mean the banks, pension funds, unit trusts and insurance companies that together are taken to be ‘Institutional Investors’. The big boys!

Interim Rent; Under the LTA 1954 Pt2, a temporary rent payable from the date of expiry of the current tenancy until such time as a new rent is agreed or the lease terminated.

Internal Repairing Lease; A lease under which all or some of the internal repairs are the responsibility of teh tenant.

Intra vires; ‘within the powers’.

JCT Contract; A standard form of contract dreafted by the Joint Contracts Tribunal. Most widely used standard contract but not statutory.

Joint Agent; One of 2 or more agents instructed by a principal to act on their behalf.

Joint & Several Obligation; An obligation entered into by 2 or more persons under which each person is liable individually as well as jointly with others.

L

Land Registry; Government body recording ownership & transfer in land.

M

Magnet Store; also known as an Anchor store, a large store known to be or expected to be attractive to customers. Mainly in reference to a shopping centre.

Managing Agent; An agent taking on all, or some, property management function on behalf of the landlord.

Market Value; Defined in Internation Valuation Standards as; ‘the estimated amount for which a property should exchange on the date of the valuation between a willing seller and a willing buyer in an arms length transcation wherein each party has acted knowledgebly, prudently and without compulsion’.

Marriage Value; The latent value which could be released by the merger of 2 or more interests in land. ie 2 plots of land together being worth more than the sum of the individual parts.

Material Change of Use; A change of use of a property so significant as to be defined as development under the Town & Country Planning Act 1990, and thus requiring planning permission.

Mitigation of Loss;  The duty of a party seeking a legal remedy or compensation to take reasonable steps to avoid or reduce the loss.

N

Net Present Value; The sum of discounted values of a prospective cash flow.

Notice to Terminate; Formal landlord notice served by the competent landlord on the tenant of a business premises under s25 of LTA 1954.

O

O&M Manual; Operation and maintenance manual.

Obsolescence; The factors affecting the economic life of a tangible asset such as a building. Economic obsolescence; Environmental obsolescence; Functional obsolescence; Configurative obsolescence; Strategic obsolescence.

Occupation; Physical use and control of a property.

Occupational lease; A lease by which the lesseee occupies the property rather than being a mesne landlord (a tenant who is also the landlord of a sub-tenant).

Offer; one of the 3 requirements of a contract. the others being acceptance and consideration. Offers are usually made ‘subject to contract’.

Office of Fair Trading; Public body dealing with the protection of consumer rights.

Off Licence; Generally issued under the Licensing Act 1964 by magistrates allowing the sale of alcohol for consumption off the premises.

Off the market; A property transaction taking place without the property being generally marketed.

OMV; Open market value. Best price that might reasonably be expected at arms length, on date of valuation, subject to statutory assumptions. Now defined in the RICS Red Book.

Open space; Under S336 of the Town & Country Planning Act 1990 ‘land laid out as public garden or public recreation…’

Outline Planning Permission; Under the Town & Country Planning Order 1995, formal consent in principle to a proposed development subject to subsequent approval of ‘reserved matters’. Does not apply to a material change of use.

Over-rented; A property which is let at a rent which is greater than the current open market rent.

Overriding Interest; An interest in registered land which is not itself registerable but is binding on the proprietor. Legal easements, the rights of a person in actual occupation & most leases.

Overrriding Lease; An intermediate lease granted to another party for a term longer than that of an exisiting lessee. There is privity of estate but not privity of contract.

Oversail; The part of a building or structure (such as a crane) which overhangs airspace.

Q

Qualified Covenant; A restriction in a legal document which limits the rights of a person but envisages the removal of the restriction subject to ‘qualifications’. ie not to assign a lease without landlords written consent, such consent not to be unreasonably witheld.

Quarter days; The English being; March 25, June 24, September 29 & December 25.       The Scottish being; Feb 2, May 15, Sept 29 & Nov 11.

Quiet enjoyment; an implied right in a lease, and often an express one, providing the tenant with the right to recover damages if there is interference by the lessor or others.

R

Rack rent; The full letting value of a property given set terms & conditions.

Ransom Strip; A piece of land required in order to access other land, achieving a ‘ransom’ value.

Rating year; Commencing 1 April

Rateable value; The figure upon which uniform business rates is charged. The amount equal to the rent at which it is estimated the hereditament might reasonably be expect to let.

Red Book; The colloquial name for the RICS standards & rules for appraisal & valuation standards published by the RICS.

Reddendum;The part of the lease dealing with the rent.

Reinstatement; The process of putting the property back into the condition which existed at the commencement of the agreement.(See schedule of condition)

Relief;  In rating, a statutory reduction in liability to pay rates based on a number of conditions; status of occupier, recently unoccupied, refurbishment or not fit for use etc.

Rent Cesser clause; Lease provision which allows the tenant to cease paying the rent during given period; rebuilding after destruction or fire.

Reversionary lease; A lease that commences sometime in the future

S

Sale & leaseback; an arrangement whereby a freeholders sells their interest in the property and takes a lease back. Thereby often releasing capital.

Schedule of Condition; A statement describing the condition of a property, often accompanied by photographs and can be attached to the lease. often used in conjunction with dilapidations settlements.

Section 106 Agreement; legal agreement between local authority & land owner that regulates land development requing works that will to the benefit of the community.

S.17 notice; See LTA 1995, notice 0f recovery of arrears to be served on a former tenant, guarantor or tenant under an AGA. Must be served within 6 months of becomming due indicating intention to take action.

S.18 Valuation; An assessment in the valuation of the demunition in the reversion of the landlords reversionary interest. Used in conjunction with dilapidations claims.

Security of Tenure; The right of a tenant to remain in possession of demised premises in accordance with lease terms. See also LTA 1954 Pt2, to remain in occupation beyond original lease term.

Service Charge; The amount payable by a tenant on account of charges for services supplied & recoverable by the tenant. Normally reserved to ‘common parts’.

Serviced Offices; Business space where the landlord provides a range of services such as admin support, telephony and meeting rooms. A common type of service agreement is by way of licence rather than lease.

Servient Tenenment; Land burdended by an easement such as a right of way or access.

Shell & Core; The basic construction of an office but excluding finishes such as raised floor, carpet, painting or ceilings allowing the tenant to fit-out to their precise requirements.

Shortfall; The difference whereby receipts is less than sums paid out.ie service charge payments or insurance premiums.

Side Letter; A letter accompanying a legal document explaining the intentions of the parties.

Sinking Fund; Money collected from tenants and set aside to set off against future projects (ie lift or roof replacement). now rarely used.

Sitting Tenant; The tenant either in lawful occupation or entitled to immediate possession of the property. Usually applied to a tenant benefitting from a statutory protection on expiry of the lease.

Speculative Development; Construction of a property where no known buyer or occupier is known at the time of contruction (see Pre-let).

Squatter; A person in occupupation with legal title or owners consent.

Stamp Duty Land Tax; See Finance Bill 2003.

Statement of Standard Accounting Practice (SSAP); One of a series of approved documents relating to accounting standards.

Statute Law; The part of the law which derives from legislation ie Acts of Parliament. 

T

Time of the Essence; the doctrine that the term of a contract can be enforced within a certain time limit. Only if; Stated to be so within the contract or properly inferred from the nature of the circumstances of the transaction.

Title; the right of ownership of land.

Title Deeds; Legal documents proving ownership and the terms of the ownership.

U

UBR; Uniform business Rates,also known as non-domestic Business Rates.

Under offer; where an offer for a property has been accepted in priciple but subject to contract.

Unliquidated Damages; Damages, the amount of which has nor been determined but to be settled by the court.

User clause; Usually a lease covenant stipulating to what use the property can be made.

Usual covenants; in a good quality lease these include; covenants by the tenant to pay rent, rates & taxes, keep the property in repair. And by the landlord for quiet enjoyment. The lease may make mention of ‘the usual covenants’. there are also covenants implied by law to be incorporated in an agreement for lease where this does not specify all relevant terms.

V

Voluntary Liquidation; The termination of the operations of a company by the winding up procedure initiated by the shareholders at the request of the creditors. As apposed to compulsory liquidation by the court.

W

Waiver; The actual or deemed abandonment of, or failure to assert, a legal right.

Walking Possession; in levying distress the act of the bailiff in listing the goods to be distrained but leaving them on the premises subject to enforceable conditions. They may not be removed from the premises.

Walkway; A footpath created under S.35 of the highways Act 1980, enabling the public to go over, through, under, around buildings. local authority may be liable for maintenance.

Warrenty; An express or implied undertaking whereby the warrentor becomes legally responsible in the event that the facts being otherwise.

Waste; The doctrine of unlawful change, usually involving deterioration in the physical condition of the property resulting from a positive act or neglect.

Waste Carrier; A person authorised and registered by the Environment Agency to transport waste.

Wasting Asset; Under the Taxation of Capital Gains Tax Act 1992, an asset with a predictable life not exceeding 50 years. Freehold land is NOT such whereas an asset which in real terms will normally depreciate in value over time eg a leasehold asset.

way of Necessity; Where there would be no other means of accessing a plot of land that is surrounded by other land. It results from the severence of ownership.

Wayleave; A determinable right of way to pass over, lay cables, pipes etc over or under another’s land.

Willing Lessor, Willing Lessee (willing landlord / willing tenant); An assumption sometimes used in for rental valuation purposes such as a rent review that the lessor is willing to let the property and that there is at least one tenant who is willing to take a lease.

Willing Sellor, Willing buyer (willing vendor / willing purchaser); An assumption sometimes made for valuation purposes in a similar manner to willing lessor / willing lessee.

Winding-up; The procedure for terminating the affairs of a business or company.

Without Prejudice; A phrase used to enable parties to negotiate an agreement or settle a dispute without any statement or admission being subsequently quoted or produced in evidence at a legal hearing on the subject. The privilage applies only to the proceedings in question so that ‘without prejudice’ statements  can, in certain circumstances, be produced in evidence in some other unreleated dispute.

Y

Year of Assessment; For taxation purposes a calender year starting 6 April and terminating 5 April between which liability is calculated.

Tears Purchase; Used for valuation purposes. The amount bt which the net income is multiplied to calculate a capital value. also used in conjunction with Present Value of £1 and is the reciprocal of the annuity that £1 will purchase.

Yield up; To give up possession of a property especially at lease expiry.

Yield Up Clause; A lease provision in reference to yielding up.

Z

Zone A Value; A unit of comparison of rental used for retail purposes and specifically the front zone of the unit. See also halving back.

Zoning Method; A method of defing rental for retail units by dividing the floor area (normally the ground floor) into strips parallel with the frontage. Each strip having rental applied corresponding to its ability to achieve sales or profit. The most expensive strip normally being at the shop front. Standard strip length being 6m but may vary.

Posted on June 27, 2011 by admin | Comments Off

Leasing a commercial property in England & Wales

Posted on June 18, 2011 by admin    Comments Off

What is the Tenant responsible for?
A typical lease has never been seen as a contract whereby a building owner provides a service to an occupier but one intended to provide the landlord with a reasonable return on his capital invested in the land and buildings with the tenant taking responsibility for all of the costs and risks. This has turned into a form of commercial lease known as the Full Repairing and Insuring lease. Under such a lease, the tenant’s responsibilities are numerous and may include insuring the premises. The landlord’s obligations may be more limited and quite commonly extend to no more than undertaking not to interfere with the tenant’s occupation.
In larger multi-occupied building a lease of the interior of that part of the property they will occupy is more usual. The exterior and any common areas and services can remain under the direct control of the landlord. In such circumstances the lease will usually allow the landlord to recover the cost of maintaining and repairing the exterior services and common parts and insuring the building by way of a service charge. Financially, the effect is the same and this form of lease is commonly called an Effective FRI lease.
It is sometimes possible to agree with a landlord limits on the tenant’s liabilities by way of a cap on a service charge or by excluding responsibility for certain parts of the building. In addition to the rent, the tenant may be expected to pay for utilities, business rates and sometimes professional fees.

How long a lease will I have to take?
The length of the lease is purely subject to negotiation. For offices, 3 to 10 years is the norm, with 10 to 15 years more prevalent in retail premises. In the case of warehouse and industrial premises, leases of all lengths are negotiated, although longer than 15 years is now rare. Leases tend to become longer when larger accommodation is involved, but leases in excess of 20 years are now quite rare, although some leisure operators will take 35-year leases.

How is the rent calculated?
The landlord will normally quote a rent based upon a rate per square foot (or metre) applied to the floor area of the property. In the case of factories or warehouses the Gross Internal Area ‘GIA’ will be used. This is the area inside the external walls without any deductions. For shops and offices the Net Internal Area will be used whereby non-usable areas e.g. stairs, toilets and some corridors are deducted from the GIA. In the case of shops the Net Area will then be Zoned to enable a comparison between the trading potential of different shaped shops to be made. We produce a separate document explaining retail Zoning in detail.
Will I get a rent free period at the start of the lease?
It is usual for a tenant taking a new lease to be able to negotiate a rent-free period, or perhaps a reduced rent for a time, at the beginning of the lease. This is often stated as being for fitting out purposes but it is no more than an inducement to take the lease and may bear no relation to the actual period fitting out is likely to take.
The customary amount of rent free varies between different market sectors and usually depends upon the length of lease, the rent and the financial status of the tenant. If the financial status of the tenant, the covenant, is strong enough, a capital payment might also be negotiated. Occupiers, though, need to be wary of agreeing to pay a rent above market levels in consideration of a long rent free period or capital sum as this can leave them at a substantial disadvantage if the market deteriorates.
What are rent reviews?
Any lease in excess of 5 years will customarily have a rent review, either at 3 or 5 yearly intervals, that allows the landlord to revise the rent to a market level. Such reviews are invariably upward only so the amount paid will not go down even if rental levels in an area fall. The Government has been putting pressure on the UK property industry to make a change to this practice but it has not had any effect so far and, in reality, few landlords will agree to downward reviews. If the landlord and tenant cannot agree a fair rent, at review, then the amount is decided by arbitration.
What happens if I don’t need the property any more?
Unless the ability to terminate the lease early has been negotiated (a break option) the only option will be to assign the lease or sublet the property. Most leases allow the tenant to either assign or sublet the whole property but never to assign (and not necessarily to sublet) part. Where subletting of part is permitted, there are frequently additional conditions governing the total number of subtenants; which parts may be sublet; or the terms of the subleases that may be granted.
In the case of an assignment, the original tenant will typically be required to provide a  authorised guarantee agreement that the new tenant will honour its obligations.
Can I alter the property to suit my business?
Most leases allow the tenant to carry out alterations as long as they obtain the landlords consent and oblige the landlord to be reasonable about giving consent. It is quite common for this right to be restricted to internal non-structural alterations.
Anything more than minor alterations may require a formal Licence for Alterations to be drawn up by solicitors including the fitting out works at the beginning of the lease. The tenant will usually have to undertake to return the premises to their original condition at the end of the lease, if the landlord requires it.

What other terms will the lease contain?
Landlords and tenants are completely free to agree whatever terms they wish although a clause would not be enforceable if it infringed the legal protection granted to all tenants under the law. Inevitably, landlords try to retain a degree of control by placing restrictions on the use of the premises or to whom it may be assigned or underlet, but if these restrictions are too onerous, they will affect the rent the landlord is likely to receive at rent review or on renewal – so most landlords are reasonably commercial about this.
What happens at the end of the lease?
Leases of business premises longer than a year automatically have security of tenure. At the end of the lease, the tenant has the right to a new lease for up to 15 years on terms similar to the old lease but at market rent. There are certain circumstances in which the landlord can prevent the tenant exercising that right, e.g. if he wishes to redevelop the premises, but otherwise if the landlord and tenant cannot agree a new lease, then a court will grant a new lease on terms it considers are reasonable under the circumstances. It is possible for the landlord and tenant to agree at the outset that the tenant will not have this right to renew. This is called ‘contracting out’ or taking an ‘excluded lease’. It is quite common to do so in the case of small to medium sized office suites in multi-let buildings, but rare in the case of shops or industrial and warehouse premises
When the tenant eventually leaves they will normally have to return the premises to the landlord in good repair and, if the landlord requires, put back to the original specification, i.e. with any alterations reinstated. This liability for repairs, called dilapidations, can be substantial at the end of the term – if the work is not done the landlord can seek damages. If the premises are in a poor condition at the outset, however, it can be limited somewhat by arranging for a Schedule of Condition to be prepared and attached to the lease. The tenant’s obligation is limited to maintaining the premises in no worse a condition than that demonstrated by the schedule.

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