Lease expiry….just get on and deal with it!!!

You are the landlord of commercial premises. Your tenant is outside the Landlord and Tenant Act 1954, so that when the lease expires, the tenant does not have an automatic right of renewal

Hopefully you have put in your diary date at least six months before the lease expiry date to start negotiations with the tenant for a new lease or if the tenant has indicated that he will not be renewing, then considering the question of dilapidations

But what if, for whatever reason, the lease expiry date as arrived, you have done nothing, and the tenant is still in the premises. What is his status?

He cannot be a tenant, his lease outside the Act has expired, he is a trespasser and you should treat him as such, taking such steps as to obtain vacant possession as prove necessary

But what if, for whatever reason, you do not do this, he carries on paying “rent” which you fail to return, for whatever reason

Then, a court might well imply that a tenancy has arisen. It might be a weekly, monthly or quarterly tenancy depending upon the facts, particularly how frequently the “rent” is paid

The danger from your point of view is that that tenancy might well be a tenancy protected under the Landlord and Tenant Act 1954. You may well be “lumbered” with that tenant. If you want to get him out, you will have to bring yourself within the mandatory or discretionary grounds for possession. If you want to get him onto a market rent, then you will have to serve a six-month section 25 notice and go through that procedure

What happens about potential dilapidations under the old expired lease? Are full repairing obligations part of the new implied tenancy arising by payment and acceptance of “rent”? Are you still able to serve a schedule of dilapidations under the old lease?

…a tricky question, dependant on the facts and one which will probably you will have to take to court

All these problems arise because you have not managed the lease expiry properly. It is quite an easy thing to get right

Empty shop premises – avoiding inadvertent surrender

In this letting climate, with retail shop tenants ceasing to trade and new tenants hard to find, Landlords do not necessarily want to forfeit the shop lease to get their premises back.

They would often much rather continue with the non-trading entity owning the lease of the now empty shop so that the Tenant is, rather than they as Landlord are, responsible for rates

The Tenant may, however, be seeking to surrender the lease and may be quick to allege that, by his actions, the Landlord has accepted such surrender

The Tenant may well return the keys to the Landlord’s premises, unbidden, by delivering them in the post or by hand through a letter box. The Landlord should write to the Tenant making it clear that he holds the keys to the order of the Tenant and he does not intend to accept a surrender

What can a Landlord do to protect his investment, but without running the risk of an implied acceptance?

The Landlord may wish to enter the premises to inspect and repair. This is consistent with the rights the Landlord will probably have under the lease. The Landlord should write to the Tenant in the usual way notifying him of the impending visit and again saying that, by entering, he does not intend to accept a surrender

The Landlord may wish to carry out repairs and protect the property against intruders. Clearly, if the Tenant has abandoned the premises and they are at risk, the landlord needs to take steps. The lease may well allow for such action. Again the Landlord should write a covering letter

Mere inaction alone is usually not enough to constitute unequivocal acceptance of a surrender. However, the Landlord should really continue to render demands in the usual way

The big question, of course, is how far the Landlord can go towards re-letting the property without being accused of having impliedly accepted the surrender. After all, the absent tenant might eventually go bankrupt or into administration /liquidation and the Landlord wants to mitigate his loss

In these circumstances, commentary suggests that the Landlord might be able to take certain steps without this necessarily amounting to an acceptance of surrender. However, the position is not clear

Again, a suitably worded letter to the Tenant explaining the position should help

Premises Licence -to own or not to own

You are owner of a property to be leased to someone who is going to run a pub, restaurant or other business which is to sell alcohol. You will have nothing to do with the running of the business

Someone will need to be the Premises Licence Holder. Should it be you or the tenant?

Below I describe the advantages and disadvantage

Criminal Offences.

Below is a list of the offences that a Premises Licence Holder can commit.

1. Failing to notify the Council that you have changed your address

2. Failing to give notice to a person who has or has not been replaced as a Designated Premises Supervisor

3. Where the DPS has said he wishes to be removed from the licence (and is also the holder of the Premises Licence), failing to give his Licence to the Council or explaining why he cannot do so

4. Failing to tell the DPS that a licence or interim authority has been granted

5. Failing to tell the DPS that an application has been made to transfer the Premises Licence

6. Failure to produce the Licence at the Council’s request within 14 days in the event of a determination notice, lapse etc

7. Failing to keep and display a copy of the Premises Licence, or a summary or it

8. Failing to notify the Council that the Designated Premises Supervisor (DPS) has changed address (unless this is already done)

All but the last two are within your control.

Both of those should be covered by suitable documentation

The penultimate one can be policed by regular inspection

Responsibility for offences committed by the Designated Premises Supervisor

Recently, some poor Landlord holding the Premises Licence was prosecuted for a criminal offence (selling alcohol and playing music after hours)

The court decided that on that particular type of infringement, it was only the person in actual control of the premises that could be charged i.e. the Designated Premises Supervisor

As you will not play any part at all in the management of his business, you can be fairly relaxed about the possibility of that happening again, even with different types of offences

Control

If you are satisfied that the DPS a is a respectable responsible person.

If he should start to create difficulties or go off the rails (prompted by drugs, alcohol, women problems or whatever) you can remove him or threaten to remove him as DPS

That could get quite messy, as you would have to appoint someone else but then you are not involved in the business and have no control over it nor do you wish to

Loss of Control

If your tenant were to be the Premises Licence Holder and then backs off the premises (perhaps in order to concentrate on other business interests) he might appoint someone else (whom you don’t know) as Designated Premises Supervisor.

If that person is not so respectable /responsible, then suddenly your premises start getting a bad reputation which might deter a potential future tenant

Lease provisions

Your solicitors will make sure that you have got clauses in the draft lease that protect you e.g. that you can forfeit the lease if the Designated Premises Supervisor starts committing offences all over the place

If you were to relinquish the Premises Licence to your tenant, then additional clauses might be needed in the lease

For example, you might wish to

· make it a condition of the tenancy that all Premises Licence documentation will be held by you together with a transfer form, signed by your tenant . If Your tenant “does a runner”, you can then deal with any necessary applications including the transfer of the Premises Licence into a new tenant’s name.

· become involved in any amendments by him to change the licence. Possibly, the lease could contain the tenant’s power of attorney to you for that purpose

· Have a say in whom your tenant appoints Designated Premises Supervisor

Any provisions in the lease can only give you rights against the tenant. It cannot impact upon the licensing process

Tenant Insolvency

If the Tenant/Premises Licence Holder enters into an arrangement with his creditors (IVA), goes bankrupt, you have 28 days (until October 2013, it used to be only 7 days) from that event in order to make an application to the court to preserve the Premises Licence before it lapses

You might not even know about his difficulties within that timeframe

If you fail, any new tenant will have to start all over again and this time round, more strict conditions might be imposed, especially if there had been any problems with the trading conditions and compliance with the rules.

That may impact upon the new tenant’s willingness to deal or pay the requested rent

Mental Capacity and death

If the tenant is going to hold the Premises Licence personally, you also have to worry about him losing mental capacity or dying. Again, you need to act quickly

Shadow Licence

This is the nickname for a [second] Premises Licence in the name of the Landlord which can be used if the Premises Licence held by the Tenant become lapsed, suspended or revoked.

A recent High Court case established that such things were possible but an applicant for a shadow licence must demonstrate a sufficient link between its business and the relevant licensable activities. Cases will depend upon their facts and for example, developers might be excluded from using them

Notification

Landlords can register their interest on the licensing register. This means that they should be notified of any substantial proposed action in respect of the licence

Conclusion

There are only small risks/disadvantages with being the Premises Licence Holder but given that the Premises Licence is a valuable asset, it seemed sensible to retain more, rather less control

Guarantors of guarantors! Guarantee of guarantee

Landlords do not like to see their leases being assigned from one tenant to the next with each tenant proving to be a weaker covenant e.g. the lease is assigned from nationwide supermarket chain to West End property dealer to corner shop proprietor/individual

Before 1996 this did not matter as the original tenants remained liable.

In respect of leases granted since then, the outgoing tenant and his guarantor get released.

However, the former can be called upon to provide an authorised guarantee agreement, thereby continuing its liability for the duration of the assignee’s ownership.

The guarantor can be called upon to guarantee the outgoing tenant’s obligations under the authorised guarantee agreement….a guarantee of a guarantee!

He cannot,however, be required to guarantee directly the immediate assignee

However, if the assignee assigns, then there is no reason why the original tenants guarantor cannot be asked to guarantee that subsequent assignee

Break clauses …again

Once upon a time, the merest deviation from absolute compliance with the terms of a break clause in the lease was fatal.

Traditionally, therefore, a failure to serve the correct landlord, a failure to give the precise period of notice, a failure to serve at the prescribed address or in the prescribed manner were all fatal. As one judge said (in effect): if the terms of the break clause require the notice to be written on pink paper, then it will be invalid if written on blue paper

Now, courts are bending over backwards to hold break notices are effective. Probably because of the perception that, in good times when the lease is for granted, landlords were setting traps for tenants …..so that now in the bad times, they could keep their tenants “on the hook”

How far will the courts go? Already, they have held that a break notice was effective, even though it did not contain some (nonsensical) wording required by the break clause in the lease

What weighed heavily with the court was that the break clause did not set out the consequences of non-compliance. This left it open to the court to decide whether such non-compliance was indeed fatal

The lesson for landlords is clearly that the break clause should spell out that non-compliance with the precise terms of the break clause is fatal

Void rate on empty property

Harry Hyams has traditionally taken the opprobrium for being the person, whose action, or inaction, brought empty rates into being

His Centrepoint Development In Central London remained empty for years after the construction, whilst he sought the best rents. Empty rates were devised to encourage property owners not to leave their premises idle

After office/retail premises become vacant, there is no rates for three months and then full rates have to be paid. In the case of industrial/warehouse premises, the grace period is six months

However, if the premises are then occupied for 42 days or more, any new vacancy gives rise to a further three, or six, months rate free period

If you are therefore a landlord facing difficulties re-letting premises, you need to allow a commercial company to use them for six weeks at a time for storage/whatever.

Under rating law, the occupation can be minimal. In one case, storage took up only 0 .2% of a warehouse. In another, the installation of a wireless transmitter, sending out marketing and advertising messages, was sufficient occupation

As an aside, these cases are likely to be prayed in aid of what is minimum occupation for the purposes of the Community Infrastructure Levy. There, 6 months vacancy can result in the levy “biting” – see my previous blogs

Occupation pending completion

Buyers often want to exchange contracts and then be given occupation/access immediately in order to start works to make the premises habitable/usable for completion.

However, the seller needs to consider what his mortgagees and insurers might say to that …….and of course, what would be the position if the buyer gets only so far with the works and then fails to complete

Often, the seller will come to the conclusion that the risk is too much, especially considering the lack of reward

Subject to contract

All property professionals are used to using this expression “subject to contract” to signal that they are still at the negotiation stage.

Of course, any agreements relating to land have to be in a formal contract signed off by the parties

However, in other areas of law, agreements can be reached in correspondence and in conversations

Many contract lawyers have spent many an hour working their way through email threads and hazily remembered reports of conversations trying to ascertain whether and if so, at what point the parties were “ad idem” / in agreement in order to declare that a contract had been formed

In such other areas of law, the words “subject to contract” are probably not enough and in a recent High Court decision, even the words “such settlement to be recorded in a suitably worded agreement”</em were not good enough

There, the parties had a settlement deal on the table subject to those words but could not agree the final wording. One party said there was no deal. The other party said there was. The High Court agreed with the latter

Commentary suggests that “subject to signed contract” is better.

Indeed it is, but even more so would be “subject to separate formal signed contract”

Flood insurance problems again!!

Property professionals have been watching anxiously whether the Government and the insurance industry would renew the agreement under which insurers insured properties in flood risk areas even though they would rather not insure or raise the premiums dramatically

That agreement expired in June 2013 but was extended to the end of July.

It is now “open season” on property owners in flood risk areas. The property may be uninsurable …therefore un-mortgageable…..or only insurable at a high premium

There is a new agreement coming along in 2015. All households will pay an extra premium to fund the scheme, under which all but the more expensive houses (council tax band H) in flood risk areas will be able to get insurance upon payment of between £210 – £510

Business premises will be outside the scheme

Restrictive Covenants – Enforcement – Part 4

Part 4 dealt with the tricky question ” who has the right to enforce?”

This sets out miscellaneous other matters won which you should be aware

LETTER BEFORE ACTION

There are serious costs sanctions against anyone starting court proceedings without exploring amicable settlement beforehand. It is incumbent upon any Claimant to write a “letter before action” setting out his claims and for a Defendant to write outlining the nature of his defence

If any potential Defendant is going to raise any defence, technical or otherwise, it is incumbent upon them to make this clear before the Claimant gets into court issuing court proceedings

You can therefore proceed to this stage without incurring any huge costs or risking the adverse costs from the other side. It is only when court proceedings are issued and served that sometimes clients feel that they are on an “unstoppable escalator to an expensive court hearing” and totally in the hands of the legal system

You may well think that it is a very tough judge who will deny either a neighbouring householder or the Estate Management Company on behalf of such a householder a remedy.

DISCRETION

Granting an injunction is what is called a “discretionary remedy”. The judge is not bound to grant it. He may exercise his own discretion. This is where the lawyer traditionally says “it depends which judge you get”

One judge might have the attitude that the wording is clear, that it was designed to allow householders to look out their front windows and see the front garden of the house opposite, without their view being blocked by an “ugly” lorry/large van, perhaps with garish coloured signwriting

Another judge might have the attitude that that such restrictions are “old-fashioned” and were designed to protect the “middle classes” from having to live next door to “working classes” with their “horrible” trade vehicles and that such notions are out of date, especially now that many “working class” trades are able to earn greater incomes than “middle-class” professionals.

The alternative to granting an injunction is to award “damages”, but I appreciate that no amount of money is likely to compensate if one is upset by the view. In any case, the amount of money awarded by way of damages is never very great

MODIFICATION OF COVENANTS

There is a mechanism for anyone who feels that a restrictive covenant is old-fashioned to seek that have it modified or discharged

This has been very useful where there have been restrictions imposed, say, in Victorian and Edwardian times designed to stop large houses with gardens being divided up into flats or knocked down to provide blocks of flats in areas where life has moved on, the neighbourhood has changed and no one drives a horse and buggy any more

Of course, these restrictive covenants were only taken out in 2006 and so the developer presumably thought that they serve the legitimate purpose then and would continue to do so once he had sold all units

PRELIMINARY ENQUIRIES

When one sells a property, the buyer ask about disputes with neighbours. Obviously any seller involved in the dispute about parking commercial vehicles, would have to explain the situation to their buyer or else possibly face a misrepresentation claim later if the truth comes out

Some people put up with situations and avoid getting into disputes simply because getting involved and taking issue might affect the saleability of their own property

I hope this little series of articles has been useful