The Practical Lawyer

Landlord and tenant – commercial

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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Lease renewal – ‘any other reason’

LTA 1954 allows T to request a new tenancy from L. The grounds on which L can oppose the application is set out in s30(1):

failure to repair or maintain;

persistent late payment of rent;

other substantial breaches or for ‘any other reason connected with T’s use or management of the holding’;

L has offered reasonable alternative accommodation;

sub-tenancy of part where rent would be more if let as a whole;

L intends to demolish or reconstruct the premises; and

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Insolvency – deed of surrender

In an insolvency situation, L will often agree to a surrender, in which the insolvent T surrenders the property to L. That will then allow L to re-let the property (assuming he can find a T). But, the danger here is that L might inadvertently lose his entitlement to claim in the insolvency in respect of future rents and obligations.

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Leases – regearing negotiations

As a result of the recession, lease regearings and extensions are becoming increasingly popular.

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L’s consent – new company

When deciding to give consent to a proposed assignment by T, L is entitled to take into account all relevant circumstances, and that will include the financial strength of the proposed assignee. But, can L object because the proposed assignee is a newly incorporated company?

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Assignment – L’s consent

T can assign the lease unless there is a covenant in the lease prohibiting this, or requiring compliance with pre-conditions. If there is an absolute prohibition then that will be the end of the matter; there is no implied requirement to act reasonably, and L needs no reason for any refusal.

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Break clauses – reminders

A reminder of the ‘who, when, and how’ of break clauses:

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LTA 1954 – contracting out

L and T can agree that T will not have the security of tenure provisions that normally apply under LTA 1954. Prior to June 2004, it was necessary for L and T to get a consent order from the County Court; these days, L merely serves a warning notice and T responds by signing a statutory declaration.

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AGA – negotiation

The property downturn has seen a renewed focus on the detailed wording of AGAs. For instance, in a recent CA case the terms of the AGA limited the guarantor’s liability to the period during which the assignee was ‘bound by the tenant’s covenants of the lease’.

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Empty rates – insolvent T

The three or six-month period of rates relief for empty properties begins to run from the moment the property becomes unoccupied – even if there is a T in administration or liquidation in occupation (who is, in any case, exempt from rates liability).

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