The Practical Lawyer

Landlord and tenant – commercial

Insolvent T – L’s bank covenants?

The insolvency of T can have a direct impact on L’s financial arrangements. Indeed, non-payment of rent by T may mean that L is in breach of an interest cover covenant, or a loan-to-value covenant.

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Rent – no apportionment

If a lease requires rent to be paid in advance, then T cannot apportion the final rent payment (unless the lease says otherwise). This is particularly important on the expiry of a lease – whether it be by passage of time, forfeiture, surrender, or exercise of a break clause.

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Administrator – unlawful occupation?

On an insolvency administration, how do you balance the competing interests of L (who wants to enforce the terms of the lease) and the creditors (who want to maximise the business value)?

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Administration – empty properties

As administration becomes more commonplace, it is important for Ls to be aware of the empty property rates implications of a property being occupied by a T in administration.

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Repair – latent defects

The standard definition of ‘repair’ dates from Lurcott [1911]:

‘The restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is the reconstruction of the entirety, meaning by the entirety not necessarily the whole of the subject matter but substantially the whole of the subject matter.’
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Virtual assignment – alienation breach?

A ‘virtual assignment’ is a side arrangement (not involving L) by which all the economic benefits and burdens of a lease are transferred without there being an assignment of the lease, and without there being a change of occupier.

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Service charge – ‘promotion’ costs

It will often be in the mutual interest of both L and T for L to spend money promoting a large shopping centre or complex. Typically, shopping centre leases will contain provisions whereby ‘promotion’ costs form part of the service charge, but with L having to make a contribution in respect of such items. Indeed, the Trafford Centre in Manchester has just such a provision (with L having to make a 50% contribution).

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Right to inspect – intrusive

A typical lease will allow L, on giving reasonable notice, ‘to enter upon premises generally to inspect and examine the same to view the state of repair and condition thereof’.

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Insolvency – L’s remedies (1)

This table summarises L’s remedies when dealing with an insolvent individual (non-corporate) T.
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Inspection – drilling bore holes

A typical lease will allow L to inspect the premises (on giving reasonable notice). But, does that right to inspect mean that L has the right to drill bore holes?

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