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Landlord and tenant – commercial

Repairs – 1938 Act

A reminder that the Leasehold Property (Repairs) Act 1938 applies to leases granted for seven years or more, with at least three years on the term left to run. Note that certain agricultural tenancies are excluded.

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Renewal lease – break clause?

Suppose an existing business lease contains a break clause. If T is entitled to a new, renewal, lease under LTA 1954, can T insist upon that new lease also containing a break clause?

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Misrepresentation – entire agreement

Consider whether there should be an ‘entire agreement’ clause in a lease. If there is, then it will normally exclude liability for any pre-contract misrepresentation (other than fraudulent misrepresentation). Certainly, T should be fully aware of the implications of agreeing to such an ‘entire agreement’ provision.

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Lease renewal – L in administration

What happens if L is in administration, and T has a business tenancy that is nearing its end. Will T still have a right to renew under LTA 1954?

The answer is that L’s administration will not affect the right to seek a new tenancy, but the problem is that T cannot commence a claim for a new tenancy against L in administration without the permission of either the court or the administrator. So, there is a danger that permission will not be granted.

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Lease – costs clause

It is standard for a lease to allow L to recover any legal costs from T, if L has to take forfeiture proceedings under s146 LPA 1925.

But, it is important to appreciate that the costs clause will be interpreted strictly (against L). This is well illustrated by a recent case which involved a costs clause that will be found in many current leases. The lease allowed L to recover the costs incurred ‘in connection with any steps taken or in contemplation of, or in relation to, any proceedings under s146 LPA 1925’. What happened was that L served an s146 notice on T, and then negotiated a deal with T regarding repairs, with L then subsequently claiming its s146 costs (including the costs of its agents in those negotiations). But, the court held that L was not entitled to its costs. In its view, on a strict interpretation, the work carried out by L in reaching agreement with T was not ‘in connection with or in contemplation of any proceedings’. Not surprisingly, L argued that it was the service of the s146 notice, and the threat of proceedings, that led to the negotiation, and accordingly that costs should come within the scope of the costs recovery clause. But, on a strict interpretation, the court disagreed.

The point to appreciate is that such wording is used in many existing leases. In practice, many Ls will blithely assume that if they serve an s146 notice, then the cost of any subsequent negotiated deal will be fully recoverable from T. That is simply not the case – unless the costs clause is appropriately worded.

The answer lies in the wording used in Riverside [2004], where L could recover all costs ‘in connection with the enforcement of any of the Lessees covenants and conditions herein contained’, and therefore extended to enforcement costs.

The end result is that you should review your standard lease clauses to check that they provide for (a) costs ‘in connection with or taking any proceedings’, and (b) costs of ‘enforcement’ of the tenant covenants. For the sake of completeness, it is also worth stating that those costs are recoverable whether incurred by L during the term of the lease, or after expiry of the lease. See Agricullo v Yorkshire Housing [2010] EWCA Civ 229 (access free at www.practicalconveyancing.co.uk).

 

Dilapidations – or improvements?

Dilapidations are becoming increasingly important, as Ls try to squeeze as much as they can out of departing Ts. In response, many Ts could be making more use of the laws on improvements (and the obligation of L to compensate T for improvements carried out before the last three years of the term).

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Break clause – withdrawal?

There can be unexpected complications when withdrawing a break notice.

For instance, suppose T serves a break notice. Subsequently, but still before the break date, T decides it still needs the premises (or agrees a lower rent with L). Clearly, T cannot withdraw the break unilaterally, but if agreement can be reached with L then they might both agree that the break notice is withdrawn and both parties are to proceed as if it had not been served. Unfortunately, the situation will not be as simply as that. Even if L and T agree to treat the break notice as withdrawn, it is still effective, and their conduct is deemed to create a new tenancy on the expiry of the break notice!

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Break clause – pitfalls

We all know that great care must be taken when exercising a break clause. Any pre-condition must be strictly complied with. In practice, that is often not the case (and there are many reported cases of solicitors referring to the wrong parties, or the wrong dates). So, a reminder of the main pitfalls:

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CRC – energy efficiency

The CRC Energy Efficiency Scheme starts to come into operation this month. It is an extremely complex scheme, but in general terms it will affect businesses with a total annual electricity bill of £500,000 or more (2008 prices). Such organisations have to keep records of energy emissions, with the idea being that the more CO2 that they emit, then the more allowances they will have to buy.

One particular problem arises in relation to multi-let buildings, where L is responsible for the supply of energy to the building, and thus L’s energy performance will be affected by the activities of its Ts (with a financial impact for L). Bear in mind that the energy emissions of an entire group of companies may be needed to be taken into account. We then get the problem of whether Ts of an office building should have to pay towards allowances that are being charged because of the industrial use of other Ts in L’s portfolio! At the present time, it is fair to say that these issues have not been resolved and no-one really seems sure of the best way to tackle such problems. What does seem clear, however, is that it may not be easy for Ls to pass on net CRC costs to their Ts, if only because the typical outgoings clause, or service charge clause, does probably not cover costs incurred under CRC (and it is doubtful that the cost of purchasing allowances will be regarded as a ‘tax’). In the short term, the sums involved are likely to be fairly trivial, but they may rise substantially when Phase 2 of CRC is introduced in 2013.

At the present time, there is little one can do other than be aware of the potential issues that lie ahead. In the long term, the obvious way to avoid CRC charges is to reduce carbon emissions. More prosaically, the best advice for Ls may be to install separate electricity supplies to each tenanted area of its properties (so T becomes the person ‘responsible for the energy supplies’). Source: Olswang.

 

AGA – sub-guarantee

We have seen that if T assigns, then T’s guarantor cannot also guarantee the assignee. But, what about the more common situation where the guarantor does not guarantee the assignee, but merely guarantees T’s continuing obligations in the AGA (ie he is guaranteeing the AGA, rather than the lease)? This is generally referred to as a sub-guarantee and is very widely used.

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Page 42 of 53

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