Lease Structures

Question 1

Essential characteristics of a lease

Answer 1

Certain term + exclusive possession + correct formalities

Question 2

Is payment of rent a necessary condition for a lease?

Answer 2

No

Question 3

For how long can a periodic tenancy run?

Answer 3

The tenancy runs from period to period until either party serve a notice to quit

Question 4

Method for ending a periodic tenancy

Answer 4

serve a notice to quit

Question 5

Implied periodic tenancy

Answer 5

A periodic tenancy can arise impliedly where a tenant moves into premises and starts paying a rent on a periodic basis; the term relates to the rent instalments e.g. annual or monthly etc.

Question 6

exclusive possession

Answer 6

right to exclude all others from the premises, including the landlord

Question 7

Multiple occupiers need to show that they have a

Answer 7

joint tenancy (the 4 unities)

Question 8

the 4 unities

Answer 8

possession, title, time, interest (PITT - Put In The Trash)

Question 9

Formalities for lease of over 7 years

Answer 9

must be granted by deed and registered at the Land Registry

Question 10

Formalities for lease of 7 years or less

Answer 10

must be granted by deed, no registration

Question 11

When will the court recognise an equitable lease?

Answer 11

if the correct formalities are not complied with, equity may recognise the arrangement as an equitable lease, if the document is:
in writing, contains all the terms and is signed by both parties

Question 11

Short term lease exception

Answer 11

Lease of 3 years or less does not need to be in writing and no formalities required (unless there is an upfront premium payable)

Question 12

Is a legal lease of 7 years or less binding on a new owner?

Answer 12

Yes, it does not need to be registered when created and will be binding as an overriding interest

Question 13

How should an equitable lease be protected?

Answer 13

an equitable lease should be protected by the entry of a notice in the charges register of the burdened land or it will not bind a purchaser for value

Question 14

Search against registered lease of whole

Answer 14

OS1 search

Question 15

Search against registered lease of part

Answer 15

OS2 search

Question 16

Lease registration form for registered land

Answer 16

AP1 form

Question 17

Lease registration form for unregistered land

Answer 17

FR1 form

Question 18

If the landlord’s freehold title is charged, what else is needed to grant the lease?

Answer 18

a letter of consent from the lender

Question 19

Benefit of being an “anchor tenant”

Answer 19

stronger negotiating position than other tenants to negotiate their lease (eg John Lewis in a shopping centre = anchor tenant)

Question 20

If the tenant’s covenant strength is not sufficient, what additional safeguards may the landlord be willing to accept?

Answer 20

a rent deposit and/or guarantor

Question 21

Doctrine of waste

Answer 21

The tenant cannot carry out alterations which reduce the value of the premises.

Question 22

If the tenant wants to make an alteration covered by an absolute covenant, they can ask the landlord, but the landlord

Answer 22

has no obligation to even consider it

Question 23

If the landlord consents to alterations under a qualified covenant, then the consent will usually be documented in a

Answer 23

licence for alterations

Question 24

How could restricting the User backfire on the landlord?

Answer 24

limits the appeal of the premises, could limit the market rent on rent review

Question 25

The Code for Leasing Business Premises requires a landlord to give which permissions to the tenant?

Answer 25

a fully qualified covenant for internal non-structural alterations in a lease of part, and the ability to carry out internal non-structural alterations without consent in a lease of whole

Question 26

the demise

Answer 26

the extent of the property that is being let

Question 27

When are latent and inherent defects a bigger concern?

Answer 27

new build properties

Question 28

An absolute prohibition on structural alterations

Answer 28

“The Tenant may not make any structural alterations to the building.”

Question 29

If the landlord unreasonably refuses consent, what can the tenant do?

Answer 29

the tenant can apply to the court for permission to carry out the improvements (s 3 LTA application)

Question 30

Examples where a landlord has unreasonably withheld consent

Answer 30

- the landlord has refused consent in an attempt to obtain some advantage for itself - only minor breaches of the repairing covenant - where premises had been on the market for 18 months, the rent was significant and the slight harm to the landlord would be outweighed by prejudice to the tenant.

Question 31

How does the Equality Act 2010 interact with landlord's consents?

Answer 31

any discrimination in withholding consent for the disposal of a property on grounds of race, sex or disability is generally unlawful.

Question 32

Court approach to assessing the reasonableness of a landlord withholding consent

Answer 32

TEST - what the reasonable landlord would do when asked to consent in the particular circumstances

Question 33

If underlettings of whole or part are permitted, there will be a requirement for the tenant to obtain

Answer 33

the landlord’s consent

Question 34

Example clause on underlettings

Answer 34

The tenant shall not underlet the whole of the property except in accordance with this clause nor without the consent of the landlord, such consent not to be unreasonably withheld.

Question 35

If the lease is silent on when rent is to be paid, it will be paid

Answer 35

in arrears

Question 36

If a tenant starts the lease during a quarter and the rent is paid quarterly, the rent for the full rent will be apportioned on what basis?

Answer 36

Apportionment is usually done on a daily rent

Question 37

What should the lease include re rent?

Answer 37

- Amount - When rent is payable (eg in advance or in arrears) - Apportionment - Payment method - VAT status - Rent review clause

Question 38

Eg of the tenant's covenant to pay rent

Answer 38

7.11 The tenant shall pay the annual rent and any VAT in respect of it by four equal instalments in advance on or before the rent payment dates. The payments shall be made by banker’s standing order or by any other method that the landlord requires at any time by giving notice to the tenant. 7.12 The first instalment of the annual rent and any VAT in respect of it shall be made on the date of this lease and shall be the proportion, calculated on a daily basis, in respect of the period beginning on the date of this lease and ending on the day before the next rent payment date.

Question 39

Common assumptions in a rent review clause

Answer 39

* ‘By a willing landlord to a willing tenant’ * ‘With vacant possession’ * ‘On the assumption that the tenant has fully complied with their obligations in this lease’ * ‘On the assumption that if the property has been destroyed or damaged, it has been fully restored’

Question 40

In relation to assignment and underletting, s 19(1)(a) LTA 1927 turns a qualified covenant into a

Answer 40

fully qualified covenant - the landlord must within a reasonable time give consent, except in a case where it is reasonable not to give consent

Question 41

most common type of rent review

Answer 41

upward only open market rent review

Question 42

If a tenant applies to make improvements under s 3 Landlord and Tenant Act 1927, how will the courts make their decision to allow/not allow?

Answer 42

the court will consider if the proposed improvements add to the letting value of the property, are reasonable and suitable to the character of the property and do not diminish the value of any other property of the landlord.

Question 43

the head-landlord will give its consent to the grant of the underlease in a

Answer 43

licence to underlet

Question 44

SDLT chargeable on a lease

Answer 44

on any capital sum being paid (‘premium’) and on the amount of the rent

Question 45

"NPV" of the rent

Answer 45

net present value

Question 46

How is the NPV calculated?

Answer 46

working out how much rent is payable in total over the term of the lease (including any VAT) and then discounting rental payments to be made in future years by 3.5% per annum

Question 47

NPV charge rates for SDLT

Answer 47

- No SDLT on £0 - £150,000 - 1% on £150,001 to £5 mil - 2% above £5 mil

Question 48

the SDLT1 and payment must be submitted to HMRC within how many days of completion?

Answer 48

within 14 days of completion of the grant of the lease

Question 49

NPV charge rates for LTT

Answer 49

- No SDLT on £0 - £225,000 - 1% on £225,000 to £2 mil - 2% above £2 mil

Question 50

Which leases are not capable of being registered with their own title at the Land Registry?

Answer 50

A legal lease for 7 years or less is not capable of being registered with its own title at the Land Registry

Question 51

Is a legal lease over unregistered land binding on subsequent owners?

Answer 51

Yes, in unregistered land, a legal lease is binding on all subsequent owners of the land, irrespective of notice.

Question 52

When would 'good leasehold title' be awarded?

Answer 52

Good leasehold title will be awarded where the Registrar is satisfied that the title to the leasehold interest is sound but, having no access to the superior title, they are not prepared to guarantee the lease against defects in the freehold title or guarantee that the freeholder had the right to grant the lease

Question 53

Why may good leasehold title be regarded as a title defect?

Answer 53

because it may make it difficult to sell or mortgage the lease