Drafting Leases

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Drafting Leases

• Audio Lecture

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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

3
Why use a lease?

• Problems of repair and maintenance
• Commercial considerations

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Drafting leases

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

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Commencement

• This lease
• Date
• Name and addresses of the parties
• Land Registry heading

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Premium

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

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Operative words

• Traditional - hereby demises
• Modern grants or lets

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Title guarantee

• with full title guarantee
• with limited title guarantee

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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

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Parcels clause

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

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Easements

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

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Rent and rent review

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

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Types of rent review

• Fixed increases
• Index linked clauses
• Turnover and sub-lease rents
• Open market review

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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 tenants own interest

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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

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Circumstances of the letting (1)

• The premises
• The market

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Circumstances of the letting (2)

• The consideration
• Possession

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Circumstances of the letting (3)

• The terms
• The alienation covenant
• The user covenant
• Rent and rent review
• The length of the term

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Assumptions

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

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Disregards

• Goodwill
• Occupation
• Improvements

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The mechanics

• There are two ways in which a review may be
  carried out
• By negotiation
• By service of notices

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Is time of the essence?

• Express stipulation
• Any other contrary indication
• The interrelation of the rent review clause with
  other lease clauses

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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

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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

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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

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Ancillary provisions

• Late review
• Record of review

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Alienation

• Flat leases
• Commercial leases

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Types of covenant

• Absolute
• Qualified
• Section 19(1)(a) LTA 1927
• LTA 1988

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Special rules for commercial leases

• Apply to leases granted on or after 1/1/1996
• Section 19(1A) LTA 1927
• factual
• discretionary

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Alterations

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

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Permitted user

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

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Other lease provisions

• Insurance
• Rent suspension
• Repair
• Service charge
• Forfeiture

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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