10 Howlers to look out for in a Lease

There are some very serious defects which can be found in leases. These defects can be like time bombs ticking away waiting for a prospective assignee to find them. Then all of a sudden you have a lease which you cannot assign without obtaining a Deed of Variation from the Landlord and guess what? He wants some money if he is going to allow you to vary the Lease.

Here are some of the 10 most serious howlers I have found in existing Leases:

1. The term is defined as including the holding over period under the Landlord and Tenant Act 1954 which means that according to a recent High Court case that this is not a lease with a term certain and so the exclusion order/Tenant's declaration is ineffective and the Tenant gets security of tenure. This is a very common defect found in a lot of leases.

2. The rent review is triggered by a notice from the Landlord and if the Tenant does not respond with a counter notice within a set period of time, the new rent is fixed at the Landlord's figure. The Landlord will naturally put a very high figure in the Landlord's notice expecting to get beaten down by the Tenant or its surveyor but if the Tenant does not respond and often there is a very short time limit to respond, the Tenant becomes contractually bound to pay the new rent. This may bankrupt the Tenant instantly.

3. The break clause is subject to a pre-condition that the Tenant must have complied with all of the obligations in the Lease. This is always intepreted strictly by the courts and effectively means that the Tenant can never operate its break option because there is always bound to be some minor breach of the Lease which will prevent the exercise. Even if the wording is qualified to "material breaches" only, it can still thwart the Tenant's break option. A very common defect found in many leases.

4. There is no forfeiture clause in the Lease or (in relation to a residential Lease) the lease may be forfeited in the event of bankruptcy of the Tenant. Both these defects makes a residential lease unmortgageable/impossible to assign.

5. The rent review provisions in a commercial lease provide for the rent to be reviewed to the higher of retail use or leisure use when the user covenant only permits one of those leisure use (or vice versa). This means the Landlord can pick the most favourable use from a rent review whilst the Tenant is limited to the one use.

6. No mutual enforceability covenant from the Landlord on a multi-let building or a lease of part. This can mean that the ground floor shop tenant cannot do anything about the state of repair of the roof which is leaking into their unit. The tenants above may be absent or unwilling to carry out repairs and there is nothing the ground floor tenant can do about it.

7. No rights of way over estate roads on a lease on a business park or estate. Sounds obvious but a very common error and of course, this could be disastrous or very costly to rectify.

8. No obligation on the Landlord to provide services to the building on a lease of part of the building but the Tenant still has an obligation to pay the service charge. Quite a common defect.

9. Time is of the essence in a rent review. This is particularly of concern where the Tenant has to respond to a Landlord's notice (see 2 above).

10. There are no rent suspension provisions in the Lease in the event of damage, destruction of the building such that the Tenant cannot occupy its premises.

I am sure there are many other howlers which you may have found. It is always a good idea to get a lease checked out by a lawyer before committing in relation to a leasehold property because of the flaws which may be contained in the document.

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Not in my backyard-Sainsburys destroys village businesses

I moved to Bishops Waltham in 1996 from the smog of London. I was attracted by its village atmosphere, tight-knit community and thriving local shops. Bishops Waltham (made recently famous by the being the home of Amanda Holden for many years during her childhood) has changed since then. More and more houses have been built and suddenly it has appeared on the Big Supermarkets' radar. Sainsbury is proposing constructing a huge store on the site of the former Abbey Mill Business Park. So what's new? This is happening to thousands of rural communities not just in this country but all over Europe. It is weird when you read about it happening to other villages etc you empathise but not half as much when it happens on your doorstep and everything that you hold dear and value is being challenged. Bishops Waltham has a fishmonger, baker, greengrocer, butcher, coffee shop, delicatessen and numerous other shops which all thrive. The traders all help each other out and they all do very well. In one fell swoop Sainsbury will gradually kill off all of these businesses and we will all be poorer for that.

Why does Sainsbury want to open in a village when it has one of the largest superstores in the UK at Hedge End only 15 minutes drive away. There is also large Sainsburys stores at Eastleigh and Fareham also only 15 minutes drive away. I am sure Sainsburys knows just what it is doing and has done its demographics scrupulously. They would not be going to the expense of defending a public inquiry and mailshotting every house in Bishops Waltham putting their side of the argument, if there was not some serious money to be made.

So the damage was done when the planners permitted intensive housing development in Bishops Waltham increasing the population to a size where it suddenly becomes viable for Sainsburys to build a £1m store in a rural village. There is no winding back of the clock. Pandora is out of the box.

In the meantime, we will all fight and do everything we can to stop this destruction and you might wish to log on to the dedicated action group website to prevent this action. The web site link is below.

http://www.bwactiongroup.org.uk/

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10 Top Tips for Commercial Tenants in Crisis

In a previous post, I gave Landlords top tips for dealing with Tenants in financial difficulties. In this posting, I set out 10 top tips for Tenants who are struggling in the current financial conditions. Here are the points which Tenants should think about:

1. Check your lease for break clauses to get out of your lease early. Make sure there are no onerous pre-conditions to exercise the break such as compliance with the Lease covenants and if so get advice on whether this will prevent operation of the break option.

2. Is the Lease assignable or sub-lettable? If so, check pre-conditions, obligations to provide Authorised Guarantee Agreements and personal guarantees and rent deposits.

3. Negotiate monthly rent payments with the Landlord or rent holiday or a rent decrease

4. Negotiate surrender of Lease with your Landlord. The Landlord may well want a surrender premium. The premium should equate to the time it takes the Landlord to re-let the premises but the Landlord might consider it should equate to the rent the Landlord is owed for the residue of the term.

5. Negotiate a release of any personal guarantees given to the Landlord. Of course, the Landlord will want money for this and is extremely unlikely to concede but no harm in asking.

6. Tenant could consider liquidating the company if it is trading as a limited company. There is a possibility that the directors could be sued by creditors for wrongful trading or trying to avoid paying creditors and might even result in directors being disqualified from acting as a company director.

7. The Tenant could speak to business recovery specialists/insolvency practioners with regards to a pre-pack adminstration. Again, this needs proper advice and may not always be available as an option.

8. The Tenant could find a sub-tenant to take the premises or part of the premises on a Sub-Lease.

9. The Tenant could open a discussion with the Landlord and its surveyors to come clean about the position and try to find a solution. It is in the Landlord's interests to have a dialogue and it may be that an innovative solution can be found.

10. The Tenant could speak to his solicitor to see if there are any other options which might be available.

The one thing a tenant should not do is bury its head in the sand and hope the issue will go away. It is always a good idea to confront the issue head on and get some good advice. The situation may be better than the Tenant thinks.

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