Im a Tenant, Get Me Out of Here

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Im a Tenant, Get Me Out of Here

• Jon Mowbray
• Andrew Olins
• Real Estate Dispute Resolution

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Im a Tenant, Get Me Out of Here

• Jon Mowbray
• Real Estate Dispute Resolution

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Lease for a term of 15 years from 01.09.2002 Basic
rent of 100k
Landlord (British Property)
Original Tenant (Electrical Superstore)
Proposed tenant (Sound as a Pound)
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Can the lease be assigned?

• Lease is silent no restrictions on assignment
• Absolute covenant absolutely prohibited
• Qualified covenant with landlords consent
• Fully qualified covenant landlords consent
  not to be unreasonably withheld
• Section 19 of the Landlord and Tenant Act 1927

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Application to assign

• Case Study
• Fully qualified covenant
• Written application with bankers and trade
  reference and 2 years accounts
• Sound as a Pound slim margins but limited debt
• Guarantee offered from owner, Johnny Cash (not
  the Johnny Cash!)

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Application to assign

• Clear, unequivocal and specific
• In writing
• Specify what the tenant proposes to do
• Identify correctly proposed assignee or
  subtenant
• Specify proposed user

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Application to assign

• Financial Information
• Bank reference
• Previous landlords reference
• Solicitors or accountants reference
• Three years audited/management accounts
• Trading reference

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Application to assign

• Case Study
• British Property passes the application to its
  managing agents.
• Acknowledge receipt but after 6 weeks no
  substantive response has been received.
• What can Electrical do?

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The landlords response

• Landlord and Tenant Act 1988
• Landlord must respond within reasonable time
• - Midland Bank v Chart Enterprises (1990)
• - Dong Bang Minerva (UK) Ltd v Davina Limited
  (1994)
• - NCR Limited v Riverland (2005)
• Landlord must respond in writing
• Must state reasons for refusing
  consent/conditions of consent

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The landlords response

• Tenants options if unreasonable delay
• Apply to Court for declaration
• Proceed with assignment
• - Legal interest will pass
• - Risk of forfeiture
• - Risk of mandatory injunction (Crestfort Ltd v
  Tesco Stores Ltd (2005))
• Damages
• Exemplary damages (Design Progression Limited v
  Thurloe Properties Limited (2004))

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Case study

• British Property do respond within a reasonable
  period
• Refuse consent for following reasons
• - Not persuaded that Sound as a Pound is good
  for the rent on a unit of this size
• - Retail format
• - 3 months arrears
• - Connection between proposed assignee and the
  controversial reality show
• - British Property would prefer to obtain the
  premises back as they believe that they can
  re-let it at a higher rent

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Test of reasonableness

• International Drilling Fluids v Louisville
  Investments
• (Uxbridge) Ltd (1986)
• Protect landlord from undesirable assignee
• Must relate to landlord/tenant relationship
• Reasonable landlord test
• User
• Burden on landlord
• s19(1) Landlord and Tenant (Covenants) Act 1995

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Test of reasonableness

• Examples
• Diminution of landlords interest
• Proposed assignee vacating other unit/landlord
  obtaining possession before term date
• Good estate management (Moss Bros Group v CSC
  Properties (1999))
• Guarantors
• Breach of lease

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Effect of assignment

• Legal interest vested in Sound as a Pound
• Sound as a Pound liable to British Property for
  rent and other covenants
• What if Sound as a Pound defaults?
• - Pre 01/01/1996 lease Electrical still liable
• - From 01/01/1996 Electrical released from
  liability for any breaches that post-date the
  assignment UNLESS
• - Authorised Guarantee Agreement

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Application to sub-let

• Case study
• Mowlins Fashion Emporium interested in sublease
• Proposed sub-rent of 75k
• Lease includes a covenant not to underlet the
  demised premises at a rent less than the basic
  rent for the time being payable under the lease
  and without premium or other consideration.
• Side agreement between Electrical and Mowlins
• Electrical indemnify Mowlins against the
  difference in rent

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Application to sub-let

• Can you use a side deed between tenant and
  assignee?
• Allied Dunbar Assurance plc v Homebase Ltd (2002)
• Sublease and side deed must be read together
• Breach of headlease
• Can tenant pay assignee a reverse premium?
• NCR v Riverland (2004)
• Headlease prohibited tenant from taking any
  premium
• Did not cover reverse premiums

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Application to sub-let

• Can the indemnity be given by tenants group
  company?
• Crestfort Ltd v Tesco Stores Ltd (2005)
• - possible reassurance
• Legislative change?

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Break Clauses

• Andrew Olins
• Real Estate Dispute Resolution

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What is a break clause?

• A clause in a lease that enables one of the
  parties (usually the tenant) to terminate the
  lease early.

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Why have a break clause?

• Tenants perspective
• Over rented
• Expansion or contraction
• Landlords perspective
• Development

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The standard break clause

• The tenant may determine this lease on 24
  December 2007 by giving to the landlord not less
  than six months prior notice in writing and
  providing the tenant has paid the rents reserved
  by this lease and reasonably complied with the
  obligations on its part contained in this lease
  then on the expiry of such notice this lease
  shall come to an end but without prejudice to the
  rights of either party against the other in the
  respect of any antecedent breach of covenant.

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What does this wording mean?

• Tenant must comply with certain pre-conditions
• which are
• - Serve break notice
• - Perform obligations
• - Until break date

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What obligations must the tenant perform?

• Pay the rents
• Beware insurance premiums and service charges
  reserved as rent
• Put the premises into the necessary state and
  condition
• Repair, decoration, reinstatement, statutory
  compliance etc

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What happens if tenant fails to comply with
pre-conditions?

• Disaster
• Lease continues until end of contractual term (25
  December 2017)
• Compliance is everything
• Harris -v- Jones 1832
• Cost of repairing cracked skylight 40 shillings

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The battle commences

• When the tenant vacates on break date but
  landlord refuses to accept that the lease has
  ended.
• Landlord continues to demand rent and identifies
  breaches of tenants obligations that existed at
  the break date
• Often landlord will serve a schedule of
  dilapidations.

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A real-life example

• Dispute before Technology Construction Court
• The valid exercise of the break clause is
  conditional on the full performance of all the
  tenants obligations up to and including the
  break date (24 June 2006)
• If the landlord can establish that any breach
  existed at the break date, the lease will
  continue until September 2017

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A real-life example cont.

• Market for the premises is difficult
• Premises surplus to the tenants needs
• Passing rent is 200,000 per annum
• Tenant spent 280,000 carrying out repairs and
  decorations in the run-up to the break date.

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A real-life example cont.

• Landlords allegations
• Unpaid quarters rent that fell due on 24 June
  2006
• Unpaid insurance premium for the period January
  to December 2006
• Unpaid service charges
• Disrepair and failure to decorate

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A real-life example cont.

• Beware the apportionment of rents
• Apportionment Act 1870 only applies rents payable
  in arrears

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Self-help is the best protection

• Pro-activity
• buy certainty of outcome, if possible
• draft break notice correctly
• prepare detailed specification of works
• appoint supervise building contractor
• obtain statement of account from landlord
• engage with landlord throughout
• Sympathy of the Court?

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Genuine dispute

• Court proceedings
• Settlement offer

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Questions?