Drafting Leases Audio Lecture

Aims & Objectives To understand key drafting issues in rent, rent review, alienation, user and alterations provisions in a lease To understand the different methods of reviewing rent To understand the fundamentals of an open market rent review

Why use a lease? Problems of repair and maintenance Commercial considerations

Drafting leases Why are the precedents so long? Use of precedents Standard forms of commercial leases Land Registry prescribed clauses leases

Commencement ‘This lease’ Date Name and addresses of the parties Land Registry heading

Premium Consideration and receipt clause Payment of rent Promise to perform covenants

Operative words Traditional - ‘hereby demises’ Modern – ‘grants’ or ‘lets’

Title guarantee ‘with full title guarantee’ ‘with limited title guarantee’

Term Length of the lease and start date must be set out It must be clear whether or not the date specified as the commencement date is to be included in the term

Parcels clause Certainty Top floor and ground floor units Garage and/or car parking space

Easements Access and services Access for repair New rights Use of communal facilities Rubbish

Rent and rent review Flat leases Commercial leases The need for rent review in a commercial lease Regularity of review

Types of rent review Fixed increases Index linked clauses Turnover and sub-lease rents Open market review

It is not possible to assess the rental value of the premises It is a leasehold interest which is capable of valuation A hypothetical interest in the premises is valued not the tenant’s own interest

Hypothetical letting Terms of the hypothetical letting must be set out in the lease The date of valuation must be the review date Valuer will be directed to ascertain the open market rent of a hypothetical letting of the premises at each review date

Circumstances of the letting (1) The premises The market

Circumstances of the letting (2) The consideration Possession

Circumstances of the letting (3) The terms: –The alienation covenant –The user covenant –Rent and rent review –The length of the term

Assumptions Premises fitted out and ready for occupation and use Covenants performed Recovery of VAT

Disregards Goodwill Occupation Improvements

The mechanics There are two ways in which a review may be carried out: –By negotiation –By service of notices

Is time of the essence? Express stipulation Any other contrary indication The interrelation of the rent review clause with other lease clauses

Negotiated review Provides for rent to be agreed at any time But if no agreement by review date, then a referral may be made to an independent third party Either party should be able to refer

Trigger notices Formal timetable for service of notices Problems can arise: –Landlord does not have to be reasonable in his proposals –Notice must be clear and unequivocal

The third party Usually a surveyor Appointment process Will act either as an arbitrator or as an expert There are considerable differences between the two

Ancillary provisions Late review Record of review

Alienation Flat leases Commercial leases

Types of covenant Absolute Qualified –Section 19(1)(a) LTA 1927 –LTA 1988

Special rules for commercial leases Apply to leases granted on or after 1/1/1996 Section 19(1A) LTA 1927 –factual –discretionary

Alterations Landlord will want control over alterations Absolute bar on structural alterations Qualified covenant for other alterations Section 19(2) LTA 1927

Permitted user Flat leases – use for residential purposes only Commercial leases – use agreed between parties Reference to use classes? May be absolute or qualified

Other lease provisions Insurance Rent suspension Repair Service charge Forfeiture

Conclusion To understand key drafting issues in rent, rent review, alienation, user and alterations provisions in a lease To understand the different methods of reviewing rent To understand the fundamentals of an open market rent review