Drafting A Lease Notes

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Drafting a lease 1) Considerations to ALWAYS address when analysing /
drafting a lease

2) Drafting clauses on demise

The Three Ls

The extent of the "Premises"

1) Lease

Considered below

2) Law

Considered below

3) Landlord's title

Must consider the landlord's title by inspecting the official copies and precontract enquiries, considering: a) Restrictions / covenants on use b) Restrictions / covenants on alterations and works c) Positive covenants on maintenance of the property d) Demise of the landlord as set out in the title plan

Lease of a whole property

The definition of Premises will simply be to the address, by reference to a plan attached to the lease and, if registered, the title number: 21 Parliament Street, NW1 6RT, Title Number: 0485334

Lease of part of a landlord's property

1) Should reference a plan attached to the lease

2) The demise will typically only be the 'internal envelope' of the building, the structural and external parts should be excluded.

3) The common parts will not be included in the demise, but the tenant should be given the right to use them elsewhere in the lease

"Premises" should be considered in terms of its interrelationship with covenants to repair

Lease of a whole property

The tenant, as he has a lease of the whole Premises, will likely be required to repair the whole Premises

Lease of part of a landlord's property

1) Should ensure that the obligation to repair is limited only to the 'internal envelope' and not the structural support or common areas

2) Should ensure the landlord has the obligation to repair the structural support or common areas

3) Landlord will then record his costs from the tenant by a service charge

Access to the remainder of the building / rights of way to use the Premises

Ensure that adequate rights are expressly granted for the tenant over other parts of the building (common parts, conducting media, electrical sources) especially if these run through the premises belonging to other tenants

3) Drafting clauses on term and break clauses

Term

The landlord and the tenant

a) Will state the date that the lease starts - 24th March (This can be a date before the date of grant)

b) Will state whether the start date is 'from and including' (meaning it starts on the 24th of March) or 'from (meaning it starts on the 25th of March).

c) Will state its term (length) - 10 years

d) Consider any effect the LTA 1954 may have on the term of the lease

Break clauses

The landlord and the tenant

Will set a date or dates on which the break clause can be enacted (e.g. 1st January 5 years after the start date of the lease)

The landlord

Will want the break clause to be: a) Enacted only on the landlord's will b) Have a large amount of circumstances on which he may enact the break clause

The tenant

Will want the break clause to be: a) Enacted only on the tenant's will b) Have a large amount of circumstances on which he may enact the break clause

4) Drafting clauses on rent

What is rent

The landlord

Will want to reserve as rent as many payments as possible (including insurance payments and the service charge) so that he will have the additional remedies available for non-payment of rent for all of these payments

The landlord

Will want only rent to be reserved as 'so that the landlord will not have the additional remedies available for non-payment of rent for other types of payments (including insurance payments and the service charge)

Both landlord and tenant

Will want to stipulate when rent is paid and is normally either: a) By the 'usual quarter days' - 25th March, 24th June, 29th September, 25th December b) By reference to other dates - e.g. 1st January, 1st April, 1st July, 1st October

The landlord

Will want a short / no 'grace period' for payment of rent (e.g. 7 days) before interest is payable on unpaid rent

The tenant

Will want a longer 'grace period' for payment of rent (e.g. 21 days) before interest is payable on unpaid rent

How rent is paid

Both landlord and tenant

Will want to specify: a) The manner of payment - e.g. standing order b) Whether rent is payable in advance or arrears (if none stipulated, default is rent is payable in arrears)

VAT on rent

The landlord

May want to charge VAT on rent (opt to tax) to recover the VAT on the costs of developing the property

The tenant

May not want to pay VAT on rent as they may not be able to recover the VAT they pay (e.g. banks and building societies)

When rent is paid

Rent abatement / rent suspension (rent)

As contained in '6) Insurance'

5) Drafting clauses on repair

The parties' objectives

The landlord

1) Wants to obtain 'clear rent' by ensuring the tenant pays for all running costs associated with the property

2) Wants to see the 'capital value' of the property rise by the tenant properly maintaining the property

The tenant

1) Wants to ensure the definition of 'premises' is limited to those areas it anticipated it needs to maintain

2) Wants to ensure that there is an obligation on the landlord to repair the areas outside of 'premises'

3) Wants to avoid any large capital expenditure in connection with the building

"Repair"

The landlord

1) Will want the repair clause to read "To keep the premises in repair".

*
This requires the tenant to put the premises into repair first if at the outset of the lease they were out of repair, and then maintain them

2) Will likely, for clarity, also want a 'schedule of condition' and want it expressly referred to in the repairing covenant

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A surveyor will report on the state of repair prior to taking the lease

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The schedule will then be annexed to the lease prior to grant

The tenant

1) Will want the repair clause to read "To maintain the premises in repair".

*
This requires the tenant to simply maintain the premises in the condition they were in at the outset of the lease

2) Will likely, for clarity, also want a 'schedule of condition' and want it expressly referred to in the repairing covenant so as to limit the tenant's liability to only the condition the property was in when it obtained the lease

3) Might want, as a commercial solution, instead of the schedule of condition, to have a rent free period in return for the poor condition or require the landlord to reinstate the condition of the property before moving in

"Fair wear and tear"

"Renew" and "Replace and rebuild" structural /
property damages

The landlord

Will want the tenant to be responsible for repairing "fair wear and tear"

The tenant

Will want to exclude responsibility for repairing "fair wear and tear"

The landlord

Will want the tenant to be responsible to "Renew" / "Replace and rebuild" as it extends the tenant's liability beyond "repair"

The tenant

Will want to exclude responsibility to "Renew" and "Replace and rebuild" as it extends the his liability beyond "repair"

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