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Elective: Commercial property
Commercial Property Landlord and Tenant issues The developer is the landlord. His Tenants are those who occupy the various units within the development site.
1. Granting the lease The Code for Leasing Business Premises in England and Wales 2007
? Government created code - to set out the ideal relationship between LL and T and set out appropriate terms
? Voluntary only - it is not compulsory to abide by the code. [Guidance only!].
? Powerful Tenants [with strong bargaining power] can rely on the code to put them in a good position.
? Appendix 3 - p.345 1
? What should be included in the lease: rent / term / break clause / security of tenure / rights to assign.
? LL should promote flexibility
2 Rent Deposit and Guarantees Length of term, break clause, renewal rights
? Amount / how long / interest payments
? State clearly the conditions for release
4. Rent Review
5. Assignment and subletting
? NO headline rent review clause
? Alternatives to upward only [e.g. upward / downward with set minimum on initial rent]
? Allow both LL and T to start the process
? Repeats statute - assignment should not be unreasonably withheld
? LL should not impose any specific circumstances for refusal - e.g. non payment. [this is usually ignored] - exception when it is subsidiary with bad financial standing.
? AGA should not be a condition to assignment / LL should not have automatic right to AGA
? Alternatives to AGAs for smaller tenants [e.g. rent deposit deed]
3 ? Length of term = clear
? Pre-conditions on break clause [rent is paid / give up occupation / no sublease]
? Encourage open discussion about renewal rights
? Sublet = rent should be set at a market rent
? Sub-lease should not be on the same terms as the head lease
6. Service charge
7 Repairs /
1 ? Disclose any known irregular events that will impact future payments
? LL should observe RICS 2006 Code for service charge
Elective: Commercial property
9 changes Insurance
? Rent suspension - if property is damaged by insured / uninsured risk
? Clears lease / institutional lease [i.e. get pure profit]
? Tenant under full repair obligations
? No security of tenure
? Restrictions on alienation
? AGA on assignment
? Upward rent review
? No break clause
? Forfeiture clause
? Guarantor with adequate liability
? Reasonable service charge????LL right to enter and inspect limited Security of tenure - to hold over Reasonable alienation provisions AGS only if reasonable Upward / Downward rent review Break clause [esp. if upward only R.review]
Limit scope of forfeiture Limit liability of guarantor where possible User should not be too restrictive - as this effects assignment.
? Restrictions on use if appropriate
INSURANCE: 2007 CODE: o Insurance terms in the lease should be fair and reasonable . o LL should disclose if they are receiving a commission. o Rent suspension should apply if the premises are damaged and it was not Ts fault. There should be options to terminate if rent suspension period expires and there is no repair
? Insurance provisions in the lease:
? Clause 5.2: LL covenants to insure the premises
? Clause 5.3.1: obligation for LL to get a competitive quote and insure with a reputab insurer
? 5.3.2: what the insurance must cover
? 5.3.3: What risks are insured -see "insured risks" definition - does it include terrorism? [see below]
? 5.4: Tenant covenants to pay the "Insurance Rent" -see the percentage that each tenant must pay. [i.e. 15% of the landlord's insurance cost in providing the insuranc against insured risks.
? 5.5: rent suspension [LL can insure against loss of rent for a specified period of 3 years]
? 5.6: reinstatement and termination
? Terrorism: Does the insured risk include acts of terrorism? This is very expensive!
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