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Landlord and tenant – commercial

Consultation – long-term agreements

There are special service charge consultation rules for ‘qualifying long-term agreements’ (s20 LTA 1985). If L fails to consult properly, then the recoverable service charge is capped at £100 per dwelling pa. But, there are pitfalls for developers in these long-term agreement rules which apply to a letting by L for a term exceeding 12 months:

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Tenancy – exclusive occupation

There is an important distinction between a legal right of exclusive possession and a personal right of exclusive occupation. Legal occupation entitles the occupier to exclude all others from the property; exclusive possession may or may not amount to legal possession. It is legal exclusive possession that is the hallmark of a tenancy.

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Section 21 – notice

If L wants possession under an assured shorthold then L will normally serve a notice under s21 HA 1988. Previously, there was no prescribed form but Deregulation Act 2015 introduced prescribed Form 6A.

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Insurance – fit-out works

Many Ts organising fit-out works will be the ‘employer’ under a JCT Building Contract. Under that contract it has traditionally been assumed that the ‘employer’ is also the building owner, and that the employer would therefore arrange for its existing insurance to also cover the contractor for the risk of damage to the remainder of the building. But, in practice, many Ts have failed to appreciate that they are not complying with the requirements of the JCT Contract, since they are failing to contact L to arrange an extension of L’s cover (so it extends to the contractor doing damage to the rest of the building).

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Partnerships – leases?

It is inadvisable for partnerships (or LLPs) to hold commercial leases. If a partnership wants to acquire a lease or premises, then the best advice is to put forward as T a nominee company owned by the partnership, along with a guarantee given by all the partners.

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Break clauses – checks

A reminder of the care needed when exercising a break clause in the lease: when notice must be given; how notice must be served; on whom; and by whom.

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Forfeiture – peaceable re-entry

Imagine this scenario: in 1981 L lets garage business premises on a 75-year lease to T, for a market premium. But, T disappeared four months ago without explanation, leaving the premises empty, in disrepair, and with unpaid ground rent and service charge. L forfeited the lease by peaceable re-entry without proceedings some three months ago. Can L now refurbish, and re-let, the premises?

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CVAs – L’s perspective

A company voluntary arrangement is a rescue procedure under IA 1986. It allows a company in distress to enter into a legally binding compromise with its unsecured creditors (eg reschedule or reduce debts, or change contractual terms – such as rents – with creditors). For a CVA to be approved, it must be voted for by at least 75% (by value) of creditors.

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Break clause – vacant possession

We have recently had two cases on the validity of break clause notices, where the break was conditional on T providing ‘vacant possession’ on the break date. As we have previously noted, it is important to fully comply with lease covenants when exercising a break notice and any suggestion that T has not given ‘vacant possession’ will usually be fatal. The ideal approach is to consult with L beforehand to agree what does, or does not, have to be removed – but, in practice, L will often refuse to co-operate.

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Break notices – checks

Each of these items requires detailed consideration by T (and its own checklist):

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