The Practical Lawyer

Landlord and tenant – commercial

LTA 1954 – misrepresentation?

What happens if L recovers possession from T on the basis of a ‘redevelopment’ that never occurs; can T claim compensation?

This is what happened in a recent case where L told T about the planned redevelopment and then served a notice to terminate the tenancy based on the ‘redevelopment’ ground. On the facts, T realised that it would not be possible to remain in possession during the works, and that a court would not grant him a new lease if L did go ahead with the redevelopment. Accordingly, after L had rejected his offer of an increased rent, T vacated the premises and rented elsewhere. But, at the same time, L had been having second thoughts about the redevelopment and decided to accept the advice of an agent that a sale would be better than a redevelopment. However, L did not communicate this to T, who subsequently vacated.

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Carbon reduction – April 2010

CRC (Carbon Reduction Commitment) is a mandatory emissions trading scheme that is likely to come into force next April. It will require organisations to buy allowances to cover the equivalent amount of carbon dioxide that they produce in a year. In practice this will cover businesses with an electricity bill of more than £500,000pa.

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Contracting out – ‘terms of years certain’

A CA decision reported earlier this year has resulted in many contracted-out tenancies not, in fact, being contracted out.

The key point is that LTA 1954 gives security of tenure to a business T (ie a right to a lease renewal on expiry of the original lease). However, that statutory right of renewal can be excluded by consent of the parties; in the old days it used to be via a court order, but these days it will usually be done by a declaration from T. In that situation, T will not have the right to renew the lease.

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Rent arrears – recovery from sub-Ts

Section 6 Law of Distress Amendment Act 1908 enables L to serve a notice on a sub-T, when T is in arrears. The effect of serving the notice on the sub-T is to assign T’s right to receive the rents from sub-T over to L. Thus, once a notice is served on the sub-T, the sub-T then becomes the immediate T of L (and sums payable under the notice are deemed to be the rent).

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The Code – overtaken by events?

The Code for Leasing Business Premises was introduced in 2007. It replaced two earlier versions which had largely been ignored by the property industry.

All the evidence is that the 2007 Code is being far more widely implemented than its predecessors. However, the commercial property market is now radically different from 2007 and it could be argued that current market conditions have done far more to improve the negotiating position of Ts than any voluntary Code. Be that as it may, the Code remains an extremely useful starting point for negotiations – especially for Ts. The key points include:

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Apportionment – three methods

There are three main ways to apportion rent on completion. All involve spreading the payment evenly over the period in respect of which the rent is paid. But, each method results in different amounts:

calendar year apportionment: on this basis, the quarterly payment of rent is for administrative convenience only. It is therefore assumed that the rent is annual and should be deemed to accrue on an equal basis over the 365 days of the year;

quarterly apportionment: this assumes that the rent is deemed to accrue over the quarter in which it was paid. The point, of course, is that different quarters contain different numbers of days (25 March, 91 days; 24 June, 97 days; 29 September, 87 days; 25 December, 90 days);

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Inducement – rent-free period

Rent-free periods were originally introduced to give time for T to fit out newly acquired premises. These days, the length of a rent-free period is likely to be far longer than the time needed to genuinely fit out.

A long rent-free period has the advantage to T of lowering the SDLT payable, by virtue of a smaller amount of rent (and less VAT) being payable during the first five years of the lease term.

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Break notices – notice from solicitor

If you serve a break notice on behalf of a client, it is good practice to state that you are acting as the client’s agent.

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Consent to assign – require a deed?

Most leases prohibit assignment without L’s consent. But, as is well-known, it is very easy for L to inadvertently give consent. This is well illustrated by Alchemy [2008], where L’s solicitors sent an e-mail saying:

‘Please note that this correspondence does not constitute the provision of consent by our client. Such consent will only be provided on the completion and delivery of a formal licence executed as a deed. Please also note that our client reserves the right to change the form of the draft licence submitted herewith and to impose new conditions to the grant of their licence in light of any further information received in relation to this matter.’

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Sub-lease – less than passing rent?

Many leases contain a provision saying the rent in any sub-lease must be the greater of the open-market rent, or the passing rent under the existing lease. In practical terms, that will often make it virtually impossible for T to sub-let (since, in today’s market, market rents are likely to be considerably below the passing rent).

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