Lease Of Part Notes

LEASE OF PART Defining the Demised Premises * * * * Walls o Demise often excludes structural walls and outer half of the internal nonstructural walls o Plaster finishes of such walls are often within demise Floors, ceiling and roofs o Often fall outside demise Windows o External fall outside demise Conducting media o Fall outside demise unless exclusively serve the premises Rights granted and reserved * To be granted to tenant, right to use: o Staircases, lifts, landing areas and corridors o Estate roads, footpaths and shared car parks o Shared facilities (bin stores, sign boards, toilets) o Conducting media o Access onto retained parts of building to carry out repairs to premises * Tenant responsible for repair of internal, non-structural parts ('internal-only demise') Landlord responsible for remainder Important to consider definitions of demised premises and common parts Repairs * * Service Charges Services to be provided * * * * * * * Landlord's covenant to perform services * * Tenant's contribution: basis of apportionment Payment of the charge * * * * * * Only expenditure reasonably and properly incurred to be recoverable Repairs and decoration o Inspecting, cleaning, maintaining, repairing and decorating Heating, air conditioning, etc Staff Managing agents Other common items o Refuse removal o Maintenance of signage and sign boards o Window cleaning and cleaning common parts o Fire prevention equipment o Security equipment o Maintenance of car parks and landscaped areas o Statute and insurance compliance costs o Advertising and promotion o Legal and professional fees 'Sweeper' clause o Courts construe restrictively but tenant should still try and limit these clauses 2 services o Essential services o Non-essential services Ill-advisable to leave non-essential services to discretion of the landlord ('reasonable' discretion) According to floor area According to anticipated use of services As a fixed percentage Advance payments o Usually on rent days o Pay into account to be held on trust? Final payments and adjustments o Annual accounts show actual expenditure o Lease may provide for refunds or credit to following year payments Certification of amounts due o Tenant should try and stipulate they should be examined by independent o accountant ADR? Sinking and Reserve Funds * * Funds for major, irregular expenditure (boilers and lifts) Points for discussion o Who should own it? o Absolutely or on trust? o What happens when landlord sells reversion? o What happens upon termination? AMENDMENTS TO REPAIR, INSURANCE & SERVICE CHARGE CLAUSES 1. 2. 3. 4. 5. What is the effect of the original draft (i.e. what does the landlord want)? What is the effect of the tenant's amendment (i.e. what does the tenant want)? Why does the tenant want the change (i.e. the tenant wants the amendment because...)? Should the landlord agree the tenant's amendment? If not, is there a compromise position or some other way of meeting the tenant's legitimate concerns? REPAIR Meaning of Repair Disrepair To keep in repair means to put in repair Inherent Defects Scope of Repair Factors to consider * * * * * * * * Repair v improvement/ renewal/replacement Standard of repair Tenants Concerns and Amendments * * * * * * * 'Deteriorated from some previous physical condition' (Post Office v Aquarius) Damage to the subject matter of the covenant If the premises are in disrepair at the date of the lease, a covenant to keep in repair will require the tenant to put the premises into repair (Payne v Haine) and then to keep in repair Tenant can be required to repair damage caused by 'inherent defects' Very worrying for tenants as defects will have occurred through no fault of their own Whether works go to the while or substantially the whole of the structure, or only to a subsidiary part? o Renewal should be distinguished from repair Whether the effect of the works is to produce a building of a wholly different character from that which had been let? o "A covenant to repair is not a covenant to give a different thing from that which the tenant took..." What is the cost of the works in relation to the previous value of the building, and what is their effect on the value and lifespan of the building? o Proportion which the cost of the disputed works bears to the value or cost of the whole premises Covenant to repair does not impose any obligation to improve premises Repair can include the renewal or replacement of subsidiary parts Question whether for the benefit of the occupant or owner? 'Having regard to the age, character and locality...' Premises need not necessarily be kept in perfect repair Clause wording o Additional adjectives and verbs ? Unclear whether additional qualifications strengthen the covenant, so each should be given careful consideration o Good condition ? Extends obligation to defects which don't cause any damage to structure of premises o Renew or improve ? Possible to include but could be regarded as onerous in rent review Reflected in 2007 Code for Leasing Business Premises o Schedule of Condition for pre-existing disrepair issues o Exlcusion of liability for design or construction faults o Won't want to be liable where issue should be insured Enforcement of Covenant by Landlord Covenant to yield up in repair Decorating Landlord's covenant to repair * * * * * o Will want to dilute wording of obligation o Qualify covenants e.g. 'fair wear and tear' Permission of landlord to enter premises upon reasonable notice Notice of disrepair to be served on tenant if found he is in breach Right to enter premises if repairs not commenced Expenses can be recoverable 'as a debt' from tenant At the end of term under the terms of the lease and to remove any alterations * * * * Specified intervals In last year, will not apply if decorated within a certain period (e.g. 18 months) Exterior is usually responsibility of landlord Covenant to repair exterior, structure and common parts REPAIR CLAUSE T=Tenant; L=Landlord T Obliged to Repair Subject to Inherent Defects Original Draft * T to keep Property in good repair Effect of T's * L to repair Property (and the Common Parts) at L's expense if damage is caused by an Amendment? inherent defect in design, workmanship or supervision of any works carried out during construction before Lease Why Does T * T wants to reduce his liability to repair where the need for that repair has been caused by Want Change? reason of something beyond Ts control Should L Agree? * If the Lease is a FRI (Fully Repaired and Insured) Lease then L unlikely to agree to clause: o A FRI lease should impose a full repairing covenant on the T to avoid invalidating the FRI nature o By limiting T's liability to damage not caused by inherent defects reduces T's liability Creates a Lease which is no longer a full (but rather limited) repairing and insuring lease o L must ensure to maintain FRI Lease is not limited to be able to pass it onto an institutional lender such as a pension fund at any later date o ALSO... lease is 'Code' compliant... obligation to keep in good repair does not require T to improve the property Compromise * Omit clause shifting liability to L for inherent defects Can give assurance through the Position Agreement for Lease but keeping the Lease 'clean', following provisions will provide T with security but L will incur no additional expense: o T will benefit from the defect liability period - T will still be liable for any repair caused by inherent defects under the lease BUT L 'procures the making good of all such defects' (inline with the defects covered in the defect liability period in L's building contracts) under Defects clause in the Agreement for Lease - T may try to negotiate for L to be liable for ALL inherent defects but likely to accept the above with the provision for collateral warranties o T SHOULD ensure L is obliged to obtain Collateral Warranties, for the benefit of T, from the contractors o ALSO... poss of insurance against inherent defects BUT very expensive AND the above measures are likely to be sufficient L Obliged to Repair ALL damage caused by Insured Risks even if could not be Insured Against Original Draft * T to keep Property in good repair Effect of T's * L to repair Property and the Common Parts at L's expense if damage is caused by an Amendment? Insured Risk against which L has been unable to obtain insurance for (i.e. flooding insurance that has been removed from the market) Why Does T Want * T wants to reduce his liability to repair where the need for that repair has been caused Change? by reason of an Insured Risk which has not been insured against by the L Should L Agree? * L should probably not agree to the amendment Compromise Position * * * o Covers uninsured risks which are rare to occur Negotiate with T to share the liability of costs incurred by repairing damage caused by such risks (i.e. 50% / 50%) T should have a right to inspect the policy under the Code - Include this right, therefore T will be aware of what is not insured However, 2007 Leasing Business Premises: Landlord Code, Para 9 - L should provide appropriate terrorism cover if practicable to do so INSURANCE Obligation to Insure Who is to ensure? What is to be insured? * * Landlord usually takes out insurance cover Insurance and re-instatement will need to apply to whole building, whether lease of whole or part In whose name? * Tenant ideally wants policy in joint names o Insurance company will not allow policy to lapse unless both parties have been give notice o Proceeds of policy will be paid out to both parties jointly o Prevents subrogation (insurer stepping into shoes of insure and pursuing claims against third parties. However can still prevent subrogation where it is shown that insurance is taken out for mutual benefit of both parties * Landlord will not agree to joint names where tenant is leasing part o Impractical for multiple part tenants o Landlord will be reluctant to share control of insurance monies * Compromise - tenant's interest is simply 'noted' on landlord's policy Risks and loses covered * Comprehensive definition of the risks needed - 'insured risks' * Problem of terrorist acts o 2007 Code - suggests landlord provide appropriate terrorism cover o However not automatically provided by all commercial insurers due to recent terrorist troubles! Sum insured * Full re-instatement value Obligation to pay for the insurance * Tenant to reimburse cost of insurance to landlord * Likely to be reserved as rent * Tenant must ensure premium is properly apportioned Compliance with terms of the insurance * Tenant would ideally want the lease to stipulate that the terms of insurance policy were subject to their approval. Unlikely if tenant of part * Tenant should be wary of any excess payable under insurance policy. Who bears the cost? * Obligation to reinstate Tenants repairing * Tenant not obliged to repair if they are damaged by one of the insured risks covenant apply? * Tenant should be wary of exclusion of risks which landlord has not been able to obtain insurance for Who will reinstate? * Must be express obligation on landlord to use the proceeds of the policy to reinstate Rent Suspension What is rent * Where rent ceases to be payable when the premises are damaged by an insured risk suspension? and become unfit for occupation * Landlord will usually insure against loss of rent When will it apply? * Premises are rendered unusable * Usually only as a result of an insured risk How long will it last? * Usual for rent to become payable as soon as premises reinstated and fit for use * Lease usually specified maximum period of rent suspension Are other payments * Tenant should press for similar suspension for other payments e.g. service charge suspended? * Landlord will resist on the basis that the loss to the tenant will be minimal 

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