Prep 6 Grant of a Lease and Lease Structure and Content

Essential components of a lease

• Exclusive Possession

• Fixed term or periodic tenancy

• Formalities

• Reversion

FRI Lease

Full repairing and insuring lease

Term Commencement Date

May be before, on the date of completion or after

Types of Rent Review

• Stepped Rent

• Index-Linked Rent

• Turnover Rent

• Open Market Rent Review

Disagreeing on rent review

The lease will set out a mechanism for a valuer to determine the new rent who will consider:

• Rent payable on comparable properties

• Terms of the hypotehical lease

Factors for a Hypothetical Lease

• Assumptions

• Disregards

Rent Review Memorandum

Records the new rent and is signed by tenant and landlord and attached to lease for future reference

Backdating Rent

After rent review, if time has passed since the last rent payment was due, those days will be recalculated at the new rate of rent plus interest (which must not be punitive)

Rent Review before 5th Anniversary of Term Commencement Date

May incur further SDLT or LTT

Mandatory Requirements under Code for Leasing Business Premises

Certain areas must be covered in the heads of terms, including:

• Extent of premises

• Length of term and break rights

• Rent and rent review

• Repairing obligation

• Rights to assign or underlet the lease

• Permitted use of property and whether the tenant can change it

• Rights to alter the property and any obligations to put the property back in its original state

Apportionment

Involves counting the number of days for which the tenant is going to occupy in the current quarter and calculating an appropriate proportion of the yearly rent

Types of Repairing Covenant

• Full repairing covenant

• Qualified repairing covenant

Responsibility for Repairs

Almost always falls on the tenant

“Keep in good repair”

When used in repairing obligations, also means to “put into” good repair

Schedule of Premises

Contains evidence of the state of the premises for a qualified repairing obligation

Renewal

Goes further than repair and will not be the tenant’s responsibility under a repairing obligation. Includes issues such as:

• Subsidence

• Inherent or structural defects

Who is responsible for insuring the building?

The landlord

Insurance for a Lease of Whole

The landlord will recover the insurance premium from the tenant

Insurance for a Lease of Part

Each tenant will pay a proportionate part to the landlord for the insurance premium