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Contents of a lease 1: Repair, insurance and LL's Remedies (Structure…
Contents of a lease 1: Repair, insurance and LL's Remedies
LL's aim: guaranteed clear income stream ('clear rent') FRI: Full repairing and insuring lease and increase capital value of property
Covenant Strength: Tenant is solvent, reputable, likely to pay rent/perform covenants (maintenance & repair)
Security: rent deposit, guarantees, previous tenants.
LL's may ask for a some of money paid prior to grant of a lease. Documented in rent deposit deed. LL can use towards unpaid rent, service charge, insurance rent, deduct costs, losses. LL's can ask for a Authorised Guarantee Agreement (AGA)
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LL's view
Concerned with value of FH reversion + market value. Code asks LL's to take a more flexible approach to T's covenants to achieve fairness.
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Types of LH transactions
Alienation: (i) assignments (ii) Underlettings (iii) Surrenders). T disposes of its existing LH interest or grants a further interest to a third party.
Grant of a new lease
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If acting for LL, will need consent of LL's lender if there is a mortgage. Mortgage is not discharged, but terms of lending arrangements will oblige LL to inform Lender of dealings
Documentation: new lease itself: replaces the purchase deed (TR1). Drafted by LL's solicitor, and checked by T's solicitor.
IF delay between lease terms agreed and lease granted, involves a contract being exchanged "agreement for lease"
AfL useful if 1 party requires a "condition" satisfied" first. repair A/C, PP for change of use. LL can then spend money to fix knowing T will be committed. No deposit paid for this though. Lease then produced and engrossed (counterparts. Then dated). First quarters rent also provided (rent, insurance, service charge)
Pre-completion searches
Grant of a lease: Official search on Register of LL's title. Do an OS1 (if lease of whole). If part only, OS2. Both searches give 30 working days priority. OS1/OS2 identify any changes made to LL's official copy of title from search from date.
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Registration
If granted post 13 October 2003 and are more than 7 years, to be registered. schedule 11 LRA 2002
Structure of a lease
"Premises" - extent of the property and sets out T's repair obligations. If lease of whole, will refer to LL's property. Lease of part - only the internal envelope of the premises. Structural and external parts will be excluded, and common parts. Reference to a plan. Make sure adequate rights such as access, utilities etc is included.
i. Obligation of T to repair premises during term ii. obligation on T to hand back to LL in repair and iii. obg on T to decorate premises throughout term at intervals set by LL.
Keep in mind (a) definition of premses (b) LL's repair obg (c) insurance provisions (c) statute (d) alterations provisions
No more than renewal/replacement of defective parts. Not renewal/replacement of substantially whole.
Keep premises in repair entails obligation to put them ien repair first. Avoid the word 'keep'. Get a surveyor to produce a schedule of condition with photographs and the verbal description prepared by surveyor.
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LL: Include renew or to replace and rebuild. T will want to avoid this and add to "the satisfaction of the landlord ['s surveyor], acting reasonably"
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Damage caused by insured risks: T must ensure "not liable to repair damage caused by the 'Insured Risks' (as defined in the lease) and to ensure that the LL expressly covenants to use the insurance monies to repair such damage"
Latent/inherent defects: T "excluding from his client's repairing liability any obligations arising from an inherent defect with a requirement that the LL is to assume responsibility"
Decoration: T "LL does not have a veto over colours used" + "T will not be required to redecorate in the last year of the term if the T has redecorated within the previous 12 months"
Covenant to 'yield up' in repair: L may serve a schedule of dilapidations on T. List of items of disrepair. T:: "to the satisfaction of the LL's surveyor, acting reasonably". L: "If LL requests it to remove the T's fixtures and fittings at the end of the term and make good any damage caused during such removal"
i. FRI lease - LL to insure whole dev and recover proportion from T. Ask to see insurance policy prior to granting/assignment
ii. T's cov to pay: T will cov to pay insurance premium. Expressed as 'insurance rent'. Called rent so LL can use for non-payment of rent.
iii. Insured risks: fire, flooding, riot, storm. Lease should contain a list. LL "such other risks as the landlord may from time to time reasonably consider necessary"
iv. Rent abatement/rent suspension: T is obliged at CL to pay even if unfit. T must ensure clause "if damage by an insured risk has caused the premises, or access to them, to be unfit for use" - rent to be suspended. For all sums served as rent (service charge). IF rent suspension c, LL must ensure contains obligation to insure for and recover from T "loss of rent for [3 years[ where the premises or access to them have been rendered unfit for use or occupation by damage by an insured risk"
v. Covenant by LL to reinstate premises. T must insist on "make up any shortfall out of its own monies"
T may want to include right to terminate if reinstatement is impossible after expiry of specified period.
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Express forfeiture clause in the lease - for LL to re-enter premises and take back possession, prematurely end the lease on breach.
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Before exercising right to forfeiture, LL must serve a s146 LPA 1925 notice on T. Exception is for breach of covenant to pay rent.
s146 notice must set out the breach, require it to be remedied within a reasonable time and claim compensation. T can apply to court for relief against forfeiture
LL's remedies
Non-payment of rent
- Forfeiture If breach of non-payment of rent, no s146 notice has to be served (see s146(11) LPA 1925).
- Action for damages (only in debt to recover rent fallen due in 6 year period prior to issue of those proceedings - limitation ACt)
- Commercial Rent Arrears Recovery (CRAR) - LL can seize goods value of sum owed. LL obliged to serve 7 days clear notice on T. Provided 7 days rent is owed (not service charge/insurance rent). Limited to 6years.
- Security rent deposit can be used/guarantor.
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All other breaches.
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- Damages - put LL back in position if T had complied with cov/apply for injunction
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