Commercial Property newsletter
www.henmansllp.co.uk
April 2010
Meet the Team
Shree Hindocha joined Henmans in 2005 and qualified into the commercial property team in 2007.
Shree handles a wide range of commercial landlord and tenant matters for office, retail and industrial
accommodation and acquisitions and disposals of commercial freehold property. She advises on a
variety of property portfolio management matters and also works alongside the corporate team to
carry out property due diligence for acquisitions of companies by share purchase as well as business
asset sales and purchases.
Shree enjoys spending time playing tennis, going to the theatre and eating out! She is a member
of the Thames Valley satellite branch of Women in Property and a trustee for the Oxfordshire
Community Foundation.
Contact Shree on 01865 781152 or via e-mail on [email protected]
Shree Hindocha,
Solicitor, commercial
property team
Avoiding the surrender and implied regrant of a lease
Landlords and tenants should both be wary of the potentially
• Loss of lease end covenants – if the lease is surrendered then
disastrous pitfalls arising from the surrender of a lease and an implied
the landlord could lose the ability to enforce yielding up and
regrant of a new lease. Commonly a surrender and implied regrant
reinstatement requirements at that time
occurs where documentation has not been undertaken properly usually
• Inadvertently giving a tenant security of tenure – where the
following an attempt to vary a lease by either extending the term or
old lease excluded security of tenure for the tenant, then on an
increasing the size of the property being leased.
implied regrant of a new lease if the
The leading case on the issue is Friends
“The consequences for landlords
exclusion procedures have not been
Provident Life Office v British Railways Board
followed then the tenant could gain
and tenants can be disastrous.”
(1995) which confirmed that an implied
security of tenure
surrender and regrant can arise from a
variation to extend the term or increase the demise. Similarly, an
option to allow an extension of the term can also trigger a surrender
and implied regrant of a lease (see the case of Baker v Mercker (1960)
where a lease for 7 years was granted and a later supplemental
agreement giving the tenant an option to extend the term to 11 years
operated as an implied regrant).
The consequences for landlords and tenants can be disastrous.
For a Landlord the pitfalls are: •
•
Patrick Whetter,
partner, commercial
property team
Loss of privity of contract – in a pre-1996
lease an implied regrant of the lease could
result in the landlord losing the right
to call on a previous tenant to perform
covenants
Loss of Authorised Guarantee Agreements
(“AGA”) and guarantors – if the lease
is surrendered then under the implied
regrant the landlord could lose the
benefit of any AGA provided by the
previous tenant
For the tenant the pitfalls are:•
an unexpected SDLT charge on the new lease
•
registration problems where the new lease has a term with more
than 7 years to run
There are some simple rules to avoid these potentially costly results
of a surrender and implied regrant. These include granting a separate
lease where you wish to increase the demise, granting a reversionary
lease where you wish to extend the length of the term, and entering
into a surrender of part to reduce the term.
If you have any concerns with regards to any of the issues arising in
respect of surrenders and implied regrants please do of course contact
us as it is important to ensure that the documentation is in order to
avoid potentially dire results.
For further information please contact Patrick on
[email protected]
Henmans LLP. Regulated by the Solicitors’ Regulation Authority
For more advice on the topics in this newsletter, please contact:
5000 Oxford Business Park South
Patrick Whetter
Katherine Gregory
Lesley Pollock
Oxford OX4 2BH
Partner, property team
Partner, dispute resolution team
Partner, property team
Tel: 01865 781000
[email protected]
[email protected]
[email protected]
Rent Arrears – notice to subtenant
As many commercial tenants continue to struggle in these difficult
financial times, it is not unusual for tenants to fall into rent arrears. If
tenants do stop paying the rent, then commonly landlords look to a
rent deposit to make up the shortfall in incoming rent. However, the
rent deposit may not last long in these situations or there may not be
a rent deposit at all. In these cases, it is worthwhile for the landlord
to find out if the tenant has sublet the rented property. If there is a
subtenant, the landlord has a remedy open to him which is poorly
advertised and not often considered by landlords as a way to retrieve
rent.
Once a tenant has not paid an instalment of its rent, the landlord
can serve a notice directly on the subtenant under the Law of Distress
(Amendment) Act 1908, section 6. A valid s6 notice requires the
subtenant to redirect the sublease rent to the headlandlord instead of
the headtenant. The subtenant in essence becomes the headlandlord’s
new tenant whilst the effect of the notice lasts, meaning the role of
the actual headtenant in the chain of relationships is bypassed. This
is only the case provided the rent payable by the headtenant and the
subtenant amount to the same. If the subtenant’s rent amounts to more
than the headtenant’s rent payable to the
landlord, the subtenant deducts the amount
paid to the headlandlord and pays the
remainder of its rent to the headtenant.
It is important to remember that this remedy
will not be available if the landlord has
already taken steps towards forfeiting the
lease or obtained a court judgement against
Katherine Gregory,
the headtenant for the rent arrears. If the s6
Partner, dispute
remedy is used, then the right to forfeiture
resolution team
is lost for those arrears and the service of a
s6 notice is required every time arrears accrue as this remedy can only
be used for rent that is already due. Therefore the landlord may have
to serve a number of s6 notices to secure the sublease rents until the
headtenant recovers from its difficulties.
For further information please contact Katherine on
[email protected]
Break Clauses - Take Care
As tenants look to reduce costs and keep their accommodation
requirements under review, we are increasingly asked about utilising
break options in leases. Tenants should be aware that landlords who
are looking to avoid void periods will carefully scrutinise the terms of
the break option in the lease and the validity of any notices served to
check whether the tenant has met the necessary requirements. If not,
the tenant will remain liable for rents until expiry of the contractual
term.
A tenant’s right to exercise a break is often
conditional. A landlord may be able to
insist on strict compliance with any of the
following conditions depending upon the
terms of the lease:
•
•
plant or goods still at the property. Alterations may have to be
reinstated, depending on the wording in the lease.
•
Break clauses may require compliance with tenant’s lease covenants
(either on service of the notice or at the break date) and tenants
should plan for this carefully in advance. It may be necessary to
instruct a surveyor to prepare a schedule of works in advance for
example and to send this to the landlord for approval to ensure
compliance with the repair covenant. All
“Be careful to ensure that the
remedial and reinstatement works will need
notice provisions in the lease
to be completed in good time.
are followed meticulously.”
Most break clauses will require the rents to be fully paid either
up to the date of service of the notice or sometimes up to the
break date. The term ‘rents’ usually includes the principal rent, the
insurance rent and the service charge but may also include other
payments made under the lease (depending on the definition of
‘rents’). It would be sensible to request a statement of monies
outstanding from the landlord. Tenants should also be careful
to ensure that the full quarter’s rent is paid in advance and then
request a refund of the overpayment (rather than calculating an
apportionment up until the break date) to avoid any argument
that the full quarter’s rent has not been paid.
Vacant possession will usually have to be given on the break date
and tenants will have to deliver the premises to the landlord free
from any subtenancies and without any of the tenant’s equipment,
In addition to the break conditions, tenants
should be careful
to ensure that the notice provisions in the
lease are followed meticulously. Courts
enforce options strictly against the person
seeking to exercise them and any error
could lead to the break right being lost.
Time limits must be adhered to and notices
served on the correct party.
Whether tenants want to use break options
as a way of downscaling or as a tool
to re-negotiate their occupancy terms,
forward planning and paying attention to
the wording in the lease is key!
For further information please contact
Lesley on [email protected]
The firm is not authorised under the Financial Services & Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to
clients because we are members of the Solicitors’ Regulation Authority. We can provide these investment services if they are a part of the professional services we are
engaged to provide. Professional advice should always be sought for assistance in specific areas of the law, and we cannot accept any responsibility for any action
based on these articles.
Lesley Pollock,
Partner, commercial
property team