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Advanced Commercial Property
Part 1 Revision Notes
Part A: Pre-Contract Searches/Inquiries regarding the title plan and office copies
Searches to always make:
• LLC1
o Listed buildings
o Conservation areas
o Tree protection order
• Official Copies of Title
o Rights benefitting and burdening each land
o Charges
o Owners
o Boundaries
• CON29
o Planning issues
o Access
• CON29DW
o Drainage
o Water supply
o Pipes
• CON29O
o Ask optional questions
▪ E
...
do people have the right to move through the land?
• Company Search
o Against the seller for insolvency and funds
▪ Especially important if seller is taking a lease
• Environmental Search
o Where is the property situated? Near a river? Mining area? Etc
o Pollution
o Contaminated land
• Physical inspection
o Boundaries
o Vacant possession
o Overriding interests
• Survey
o Whether it is suitable for development
• Coal Mining/Brine Mining Search
o Could impact stability of the land for development
o Location is key e
...
Cheshire/Nottingham/Derby
• Highways Search
o Ransom strip? This is key
o Who has access?
o Who is responsible?
• Index Map Search
o This is just to be thorough – to check that the part are exactly what is being bought
• Flood search
o All about risk
▪ Has it flooded before/will it flood again?
• Chancel Check
o Are we in the vicinity? Who is responsible? Insurance?
• Checking existing leases
o Compliant with covenants?
This SGS first looked at each section of the proposed transaction involving office buildings/existing leases/buying woodland area
(lease)/residential development/retained land
...


There was then an in depth look at each Official Copy with a particular focus on certain ones – each one had similar issues and differing
issues such as:
•
•
•
•
•
•
•
•

Restrictive covenants qualified by needing consent
Not putting anything in the river that is injurious
Contributing to maintenance/installation of pipes
Restricting use of property
Maintaining a pylon
Mines and minerals – if this info has been excepted then it is safe to get insurance
Leases – to who? Terms? Rent review? Compliancy with covenants? Need vacant possession
Access to land via rights of way – does this right exist? In what capacity e
...
vehicles/footpath

Based off this information from the title – besides pre-contract searches, what other information is required from a practical point
of view?
Example:
Restricted use - Were any consents provided? Was it insured against?
Putting something injurious in the river – was anything put in?
Maintaining the pylon/pipes – has this been done? Is it linked to the property we are buying i
...
are we responsible?
Leases – vacant possession will be needed
Importantly – think laterally – will this impact development?
What will be done between exchange and completion regarding Estate Management?
The idea of this part of a transaction is to mainly protect the buyer in certain events
...
1 to 6
...
8: Rent Review
If a rent review period is upcoming between exchange and completion – this part of the SCPC will need to be incorporated so that the
buyer is involved throughout the process i
...
rent review needs consent from the buyer and the seller
...
2: Lease Renewals
The seller will carry these negotiations with the tenants until completion and then the buyer takes over this process
...
1
...

SCPC 8: Risk and Insurance
The sale contract should deal with the issue of what happens if the property which is being sold is destroyed between exchange and
completion
...
e
...

The Buyer would usually insure on exchange but if there are existing tenants (which will be the case in the exam), then the seller will be
obliged to insure against the leases paid for by the tenants via service charge/insurance premiums
...
2
...
2
...
It’s the same as stakeholder but you just have to pay sooner – cashflow
issues for buyer
...

Pay SDLT slice rates on top of price and VAT together – tax on a tax
...

Interpret, apply and provide advice upon the Standard Commercial Property Conditions (3rd Edition – 2018 Revision)
...

The seller’s solicitor drafts contract and incorporates the SCPC with various omissions and amendments
...
e
...
g
...

Security of the overage (i
...
how payment is secured) – check other overage A3 notes
Consider including Clause 6 SCPC regarding Rent Review when leases are involved so buyer is involved throughout process
Consider a conditional agreement if PP is not confirmed yet
Consider including SCPC 5 so if existing lessors want to assign the buyer is kept involved
Incorporate Clause 8 SCPC so sellers insure property till completion due to existing tenants

Part 3 Revision Notes
Overage and Option Agreement
Overage is the term used to describe a payment which is made by a buyer of land/developer to a seller in addition to the agreed sale
price
...
The additional payment is calculated and paid by the buyer once the
outcome of the development is certain
...
Overage provisions will be agreed and documented at exchange of contracts but will generally not require
payments to be made until after completion, on some occasions, many years after completion has taken place
...
e
...
Build property
...
g
...
e
...

• Notification – buyer must notify when it does things that may trigger overage

METHODS OF SECURING OVERAGE PAYMENTS AND THEIR ADVANTAGES/DISADVANTAGES
1
...

Advantages:
• It is straightforward and therefore cheap
...

• The buyer may not be worth suing if it breaches the contract
...

2
...
If the
overage payment is not made as agreed, the seller can exercise its power of sale over the land and recover the overage payment from
the sale proceeds
...

Advantages:
• The charge creates an interest in land which can bind successive owners of the land - this would probably be the seller’s
preferred option where the buyer has no mortgage
...

• Even if the buyer is buying the land without a mortgage, it has to bear in mind that it may look to sell the land in the future
before the overage payment is due to someone who does require a mortgage
...
Lease with an option to buy the freehold
The seller grants to the buyer a lease that includes provision for payment of any overage due (either by way of rent or a lump sum)
...
Once the overage is paid, the buyer exercises an option to acquire the freehold
at no extra cost
...

Disadvantages:

• It is not suitable if the buyer wants to sell off the land in parts – assignments of part of a leasehold interest are very rare and
create all sorts of logistical problems
...

• A leasehold estate may not be acceptable to the buyer’s mortgagee as security
...


4
...
g
...
The buyer is given an
option to acquire the strip on payment of any overage due (in the meantime, the seller grants to the buyer a licence to use the strip)
...
g
...

• An inaccessible site will not be acceptable to the buyer’s mortgagee as security
...


5
...
The seller will release the covenant once the overage is paid
...

Disadvantages:
• There must be some land retained by the seller that genuinely benefits from the covenant
...

• The courts will not generally enforce restrictive covenants where the principal aim is to obtain payment in return for a consent
or a release of the covenant, as opposed to genuinely preserving amenity of land - see Cosmichome Ltd v Southampton City
Council [2013] EWHC 1378 (Ch)
...

• If the covenant is breached, the seller may not get an injunction (being an equitable remedy) and any damages obtained may be
less than the overage due (they would be calculated on normal contractual principles)
...
Positive Covenant
The buyer enters into a covenant in the transfer deed to pay any overage due
...

This arrangement is backed up by a restriction entered on the Proprietorship Register of the buyer’s title that no transfer of ownership
can be registered without the seller’s consent (the idea being that consent will be given as long as a fresh positive covenant is obtained
from any new owner)
...

Disadvantages:
• As with a contractual promise to pay, the strength of promise depends upon the creditworthiness of the promisor
...

• If the buyer has a mortgage, the mortgagee needs to agree to obtain a fresh positive covenant if it exercises its power of sale
(otherwise, a ‘link’ in the chain will be broken)
...


7
...
The easement is released on payment of the overage due
...

Disadvantages:
• There must be some land retained by the seller that genuinely benefits from the easement (an easement cannot exist “in
gross”)
...

• The seller must be able to identify a suitable easement that the buyer cannot work round
...

Option Agreements
Put Option – option to sell (not interested in this) Call Option – option to buy (focus will be on this)
It is time limited – often granted for a separate consideration
Usually acquisition is contingent on another event e
...
planning permission
Purchase Price may be fixed or market value
Need to protect once entered into by putting in the Charges Register via Land Registry by putting in a Unilateral or Agreed Notice (if
registered)
...

Call option exercised by service of written notice by Grantee
Basic Flaws to look out for:
•
•
•
•
•
•
•
•

Owners Name
Description of the property (should include the title number)
Option Period
The person who exercises the option (must always be the developer)
Notice provisions
Costs – who pays who’s costs? Should it be capped?
Owner must not be able to sell to third parties
Notice should be registered in the Charges Register of the Owner as an Agreed Notice

Part 4 Revision Notes
Planning
WHEN PLANNING PERMISSION IS NEEDED
S
...

Section 55 TCPA 1990 defines development as:
"the carrying out of building, engineering, mining or other operations, in, on, over or under land, [“BEMO”] or
the making of any material change in the use of any buildings or other land"
1
...
55(1A), states that operations include:
• Demolition
• Rebuilding
• Structural alterations/additions
NB this is not an exhaustive list
S
...

NB mezzanine floors need PP
Examples of ‘operations’:
•
•
•
•

Building new office building – need PP
Creating new windows in a building – maybe need PP
Marquee in garden – No PP needed
Marquee erected for 6 months – PP probably needed

2
...
However, case law has held that what is a material change of use is a question of fact and
degree in every case
...
55 (3) & (5)
• Conversion of a dwelling house into block of flats
• Using it now as a waste deposit
• Adding displays on the outside for advertising
Change of use NOT constituting development – S
...

The classes can be summarised:
Class A1

Shops

Class A2

Professional and financial services

Class A3

Restaurants and cafes

Class A4

Drinking establishments

Class A5

Hot food takeaways

Class AA

Drinking establishments with expanded food provision

Class B1

Business

Class B2

General Industrial

Class B8

Storage or distribution

Class C1

Hotels

Class C2

Residential Institutions

Class C3

Dwelling houses

Class C4

Houses in Multiple Occupation

Class D1

Non-residential institutions

Class D2

Assembly and leisure

NB theatres and laundrettes exist in their own classes as ‘sui generis’ uses
Examples of material/no material change of use:
•
•
•
•
•

Change within the use class (e
...
clothes shop to newsagents – within A1) = not a material change of use
Change of use between classes (e
...
B1 office to D1 Law school) is a material change of use
Dental surgery to training centre – No change of use (D1 -> D1)
Bank to architects’ practice – probably would be a change of use (A2 -> B1)
Warehouse to offices – Yes, change of use (B8 -> B1)

IMPORTANT FACTORS TO CONSIDER REGARDING CHANGE OF USE
What is the planning unit?
• In other words, is the actual property proposed to being changed part of a whole (teaching room in Law school) or is it
completely separate (shop within the Victoria Centre)
...
Again, matter of fact and degree
...
e
...

OBTAINING PLANNING PERMISSION
• Permitted Development (i
...
do not even need to apply for PP)
• Express application for planning permission
1
...

The GPDO can be restricted by a specific direction/condition within PP especially if it is near conservation areas or parks
...
Express Application for Planning Permission
S
...

A full permission then needs to be applied for which also is subject to various conditions being satisfied
...
Standard forms exist for submitting planning applications
...

The applicant can appeal to:
• The Secretary of State which will be heard by the Planning Inspectorate (time limit of 6 months from date of initial decision)
• Under S
...
106 AGREEMENT)
The LPA have power to impose such conditions as they think fit (section 70 TCPA 1990) though this power is not unlimited
...

Example of void condition:
R v LB Hillingdon ex parte Royco Homes [1974] – accepting tenants from council housing list was void as a condition because it was a
housing purpose – not a planning one
...
106 agreement is an exception although going out of
fashion due to CIL
...
106 AGREEMENTS)
Section 106 TCPA 1990 provided that any person interested in land may, by agreement or otherwise, enter into a planning obligation
which may:
•
•
•
•

specify a restriction on the development or use of land;
require specified operations or activities to be carried out on the land;
require the land to be used in a specified way; or
require money to be paid to the LPA
...


Examples of Planning Conditions attached to the PP and S
...
g
...
106 agreement
• Very wide – it attaches to the land and passes to SIT
Formalities for entering into S
...
e
...
106 Agreement and the key points:
The seller is the party to the S
...
Planning permission + obligations
cannot be granted on someone who cannot be enforced against (e
...
the prospective buyer)
...
Regardless though the S
...

The seller is also protected against non-performance of the obligations during the development process due to:
The SIT being bound by the agreement due to the local land charge;
Clauses also inserted that state the seller won’t be liable for any breach of the covenants in this agreement once it parts with interest
in the property
Also, that development only occurs via buyer + S
...
Also, if development does not
commence then the PP shall cease
...
106 agreements
Contract conditional on planning permission

LPA resolution to grant PP subject to S
...
106 agreed to between the seller and LPA

PP granted

Contract becomes unconditional upon completion
Community Infrastructure Levy
Sits alongside the S
...

Period of time in which to begin development once PP is granted
Permissions granted prior to 24 August 2005 were deemed to be subject to a condition that development must commence within 5
years of the grant of permission
...

Certificates of Lawfulness
Certificates of Lawfulness of Existing Use or Development (CLEUD)
Certificates of Lawfulness of Proposed Use or Development (CLOPUD)
Effect of certificate:
a)
b)

Lawfulness of use, operations etc shall be presumed; and
Immunity from enforcement action
...

Enforcement of an enforcement notice
a) By way of a criminal prosecution with fines available
...

There are different types of notices:
•
•
•
•

Planning Contravention Notice
Stop Notice
Injunction
Breach of Condition Notice

Other Related Controls
BUILDING REGULATIONS APPROVAL
Building regulations approval is generally required for any new building or structural alterations to an existing building
...

LISTED BUILDING CONSENT
It may also be necessary to obtain a separate listed building consent if work is carried out to a building of special architectural or
historic interest, which is included on a list kept by the Secretary of State
...
Whether or not a building is listed is revealed by a local land charges search
...
The effect of designating an area as a conservation area is that:
•
it can be more difficult to obtain permission for development, especially where this affects the character or appearance of the
area
...
g
...

Part 5 Revision Notes
Planning – relates to the above
This document will look at how all the planning permission notes apply to the case study we have been working on throughout this
term
...
These buildings were built in the late nineteenth century and were originally used in the cotton
industry, before being used partly for the purposes of the brewing industry formerly on the site
...

As you are aware, units 1, 2 and 4 are now empty, whilst short-term tenants occupy unit 3
...

Considerable interest has been shown from prospective tenants, who include MBNA Bank plc (an American bank), Marks & Spencer
Financial Services plc, Aon Insurances plc (all of whom wish to base central administrative offices at the site) and Interactive
Development Training plc (who wish to use part of one of the units to operate an IT training centre on the site)
...

What planning obstacles do you foresee in respect of Brightwood’s intentions for the office site?
Part B Planning enquiries – Exercise 1
The aim this exercise is to get you to apply basic knowledge of planning law to ascertain whether:
•

existing uses are permitted uses;

•

any planning conditions have been complied with; and

•

there is a risk of any enforcement action
...
The following points will be relevant:
•

We don’t know what the current permitted use for the office park buildings are as there may be a planning permission relating
to the site
...


Furthermore, there might (though unlikely) be a CLEUD which confirms what the existing use is which, again would be revealed by the
local search
...

From the facts we can assume that the permitted use is as a brewery which falls within Use Class B2
...
Enquiry should be
made as to when this occurred
...
Note, however, that change of use from industrial (B2) to
office/light industrial (B1) is permitted under the GPDO (see the Use Classes Order guide in your Source Materials)
...


•

If any building works were carried out in connection with the changes of use (or otherwise) they would be immune from
enforcement action after four years
...


•

A buyer will be concerned to enquire as to whether any of the buildings have been altered, and if so, whether building
regulation consent was obtained
...


•

The local search should reveal whether or not any of the buildings are listed or whether the property is in a conservation area
...
)
Which have been implemented?
How are the existing buildings authorised?
What is the existing use, and how is that authorised?
Has there been any building in the last 4 years?
Have all planning conditions been complied with?
Is any consent subject to challenge?
Have any applications for consent been made?]

See questions attached to the SGS 2 description
...
Unless enquiries show otherwise,
planning permission will be required to effect a material change of use from industrial to office although change of use from B2
to B1 is within the GPDO
...


•

The use of one part of one of the buildings by Interactive Development Training plc as an IT training centre would not appear to
be an office use (either B1 or A2 - see the Use Classes Order guide in your Source Materials)
...


Planning permission restricted to B1 offices may prevent a letting to IDT
...
It depends what the planning unit is (see Planning Vodcast B)
...

MAKING THE CONTRACT CONDITIONAL UPON PLANNING
The sale is to be conditional upon the buyer securing appropriate planning consent for the construction of two new office units on the
site
...
1 Conditional completion
3
...
1 Completion of the sale and purchase of the Property shall be conditional upon the Buyer obtaining from Warrington
Borough Council within six months of the date of this agreement planning permission for the erection of two office
buildings on the Property
...
1
...

3
...
3 Upon obtaining planning permission this agreement shall become unconditional and the Completion Date shall be a date
which is 10 working days thereafter
...
De Vere’s solicitor has drafted the clause in exercise
2 making the sale conditional upon obtaining such planning
...
Major developments tend to endure a more protracted planning process
...


•

Reference to planning permission for two office buildings is too vague
...


•

Completion is conditional upon obtaining any form of consent for such development
...
A buyer will use ‘reasonable endeavours’ to get the consent, but no
more
...
The applicant
may appeal to the Secretary of State under section 78 TCPA 1990 within six months
...
This should be made clear in the contract
...
The buyer will want the seller to cooperate with the application
...
The seller will need to have some control over terms and may want an
indemnity from the buyer in respect of any obligations in the S 106 Agreement
...
The contract could identify what will amount (or, more usually,
what will not amount) to a satisfactory planning consent
...
The buyer could then either
decline to complete, or build in a right to appeal against the imposition of the condition
...
The contract may also list conditions to which the buyer will not object
...
Will also need related provisions for return of the deposit and the cancellation of entries against the seller’s title(s)
...
g
...


•

The contract is conditional upon obtaining consent “from Warrington Borough Council”
...
The contract should be conditional upon obtaining consent, without indicating from whom
the permission would be obtained
...
The buyer may require a provision that completion is delayed for six weeks (the time limit for
bringing a judicial review claim) to ensure that the permission isn’t challenged by objectors
...
g
...


Part 6 Revision Notes
This revision document will answer the following questions:
•
•
•
•
•
•

When a business tenant enjoys security of tenure
The ways to terminate under the 1954 act
Applying the statutory definition of ‘competent landlord’
The grounds upon which to object to the renewal of the lease
Whether any compensation will be paid
The potential traps under the 1954 act

When a business tenant enjoys security of tenure
Section 23(1) states that business tenants get protection of the act: for their tenancy which is occupied by them for the purposes of
carrying on business
...

Therefore this includes unlawful tenancies
...

• Business purposes: Section 23(2) defines this widely
...
It is best practice to always state that you aim to bring the tenancy to an end a few days after the contractual
termination date to comply with the notice period
...
25 notice on the same
date rather that separate ones because tenant who can stay that little bit longer may get holding over rights
...
44)
...

You can find out who the competent landlord is by serving a Section 40 notice
...
The landlord must give the tenant at least six months’ notice and not more than 12 months’ notice –
as per S
...

Grounds upon which to object to the renewal of the lease
The landlord, as part of the S
...

•
•
•
•

S
...
30(1)(b) – persistent delay in paying rent which has become due
S
...
30(1)(d) – provision of alternative accommodation that are suitable for the tenant’s requirements in terms of facilities and
goodwill
• S
...
30(1)(f) – landlord intends to demolish or reconstruct the premises and so it needs possession
• S
...
It is available if:
• the landlord successfully opposes a tenant's court application for a new tenancy under grounds (e), (f) or (g) and upon no other
ground;
• the landlord relies solely on grounds (e), (f) or (g) in its s
...
26 request, and the
tenant does not apply to the court for a new tenancy; or
• the landlord serves a s
...
26 request, specifying one or more of the grounds (e), (f)
or (g) and others and the tenant applies to court but is refused a new tenancy solely on (e), (f) or (g)
...


THE AMOUNT - Compensation is assessed by reference to the rateable value of the holding multiplied by the statutory multiplier,
which is currently 1
...
Although this
is a lease for 7 years, we know that A & K was not the original tenant, and so we need to find out when the lease was assigned to A & K
(and whether the original tenant was a predecessor in the same business now being run by A & K)
...
[As the breach is a continuing one, waiver through
serving a section 25 notice is not an issue
...
24 still kicks in so the tenant has holding over period
...
25 notice again
...
Cannot recover insurance premiums or service
charge
...
e
...

o Give 7 days notice of the intent to use and then a further 2 day notice to then seize
...
g
...
e
...
g
...

• If relief is granted to subtenant then they become direct tenant of landlord
• Surrender the lease through agreement
• Injunction
Where there is any other breach:
• Sue for damages of the loss suffered/diminution – which is what Section 18(1) LTA 1927 says you can only claim for i
...
it is a cap
• Forfeiture
o Section 146(1) LPA 1925
o Before forfeiting the landlord must serve this notice which
▪ Specifies the breach
▪ Requiring it to be remedied
▪ Requesting compensation
o This is essentially a final warning notice
• Jervis v Harris clause
o A self-help remedy where the landlord goes in does and bills the tenant for it
▪ If the tenant fails to pay it becomes a debt action which isn’t capped by S18 LTA 1927
• Surrender the lease through agreement
• Injunction to stop certain actions
• Specific performance
The effect of privity of contract due to LTA 1995
Due to Section 16 LTA 1995 (AGA) privity of contract now exists between the Landlord + tenant (assignor) -> Landlord + original tenant
(assignee)
This is also because:
Section 3 LTA 1995 – on sale or lease the benefit/burden of landlord and tenant covenants are automatically transferred
Section 5 LTA 1995 – on assignment the current tenant is released from the benefit/burden of the tenant covenants
...

Procedural formalities for pursuing third parties for rent arrears and potential consequences
First identify the type of lease it is – this is a ‘new lease’ as it was made on or after 1/01/1996
...

HOWEVER, THIS IS SUBJECT TO GETTING…
An ‘Authorised Guarantee Agreement’ under Section 16 LTA 1995 given by the tenant when assigning which gives a guarantee to the
landlord that they would be liable
...

NB no need to serve a S
...
81 Tribunals Courts and Enforcement Act 2007
...
Subtenant essentially steps in
...

This is because by pursuing a third-party S
...
This then
means they can freely assign to others etc which the landlord will want to avoid
...
This grants a moratorium which
means that the tenant is immune from any legal claims i
...
from the landlord
...
e
...
The tenant is no longer liable
...

Third parties?
• Third parties can still be pursued – only the tenant is exempt from liabilities
• Disclaimed lease lets you pursue third parties but not forfeiture
• If there is a sublease and the headlease is disclaimed the undertenant can remain in occupation so long as it observes the terms
of the headlease and it may then apply for a vesting order via S
...
But this is at the discretion of the court
...

Part 7 Revision Notes
Environmental Issues
Commercial Concerns
• High cost of clean up and effects on land value
• Polluter pays but polluter is often no longer traceable/solvent
• Potential liability of subsequent owners? Investors? Bankers? Tenants/occupiers?
Legal protection outside the contaminated land regime
• Nuisance/Rylands v Fletcher
• Negligence/Occupiers Liability
• Trespass
Contaminated Land Regime
Sections 78 A to 78 YC Environmental Protection Act 1990 (Environment Act 1995)
Came into force April 2000 – initially a duty to inspect and identify sites
...


SECTION 78A – DEFINITION OF CONTAMINATED LAND
“any land which appears to a local authority to be in such condition, by reason of substances in, on or under the land that:
a) significant harm is being caused or there is a significant possibility of significant harm being caused; SPOSH
“Harm” is defined as “harm to the health of living organisms or other interference with the ecological systems of which they form part
and, in the case of man, includes harm to his property
...

CONTAMINANT LINKAGE
This is the Concept of a Contaminant Linkage – so need a contaminant, a pathway and a receptor– Guidance Notes
...

PROCEDURE FOR DETERMINING CONTAMINATED LAND
Area survey by local authorities – if there is contamination then try sort a voluntary clean up (between council and owner etc) if there
is no agreement then council will serve notice on who they think should deal with it
...

•
•
•
•
•

Physical inspection of individual site
Duty to notify and consult with “appropriate persons” – see below
Determination
Remediation Statement
Remediation Notices – this is rarely done now as most environmental requirements are attached as conditions via PP
...


Notice served upon “appropriate persons”
“Appropriate person” can either be:
a) S
...
78 F (4) if those who caused or knowingly permitted particular contaminating substances to be in the land cannot be found,
the appropriate person is the “owner or occupier” (Class B)
Class A – S
...
78 F (4)
“Owner” - a person entitled to receive the rack rent of the land or would be entitled to receive the rack rent
...

“Occupier” – no definition
...
Seller who sells land that is contaminated to Class B owner = Seller is released
from liability
4
5
6

those who have deposited an inert substance A which when combined with substance B, becomes a contaminant (depositor of
substance B becomes liable)
those who deposit substances which later escape due to intervention (intervener becomes liable)
those who deposit substances which later become a risk due to the intervention of a pathway or receptor (introducer of
pathway becomes liable)

SO new owner developing is liable here
...

Mortgagee in possession = liable
Instead appoint a receiver under LPA 1925 and then sell = avoid liability as lender
...
Landlord is more likely to be Class A as knowingly permitting
...

However, terms of the lease may put responsibility of repair/service charge on tenant to help with clean up costs
...

“Pie-crust” leases?
Taking a lease of the top of the property not underneath – so wont be liable
...
In addition, in response to pre-contract enquiries, the seller has released to the buyer previous
environmental reports relating to the site and to work carried out on it
...
The infilled land cuts through the land leased to Warrington Borough Council, part of the
land leased to Carpet Kings and part of the undeveloped office park
...
The report also reveals that the infilled land
contains contaminated materials
...
The report further suggests that if future redevelopment is contemplated,
allowance should be made for the possibility of disturbing contaminated materials and care should be taken to avoid the effects of
landfill gas migration
...

1
...

When applying for planning permission, the clean up would normally fall on the buyer as a condition for the granting of PP anyway
...

• The buyer would also bear the cost after the remediation notice is served
...
Does the SELLER have any continuing risks or potential liabilities, and if so, how would it guard against them?
The seller would be a Class A person as they filled in the riverbed so they ‘caused or knowingly permitted’ the substances to
contaminate the land
...

For Test 2 to be satisfied:
The seller would simply reduce the purchase price so that the buyer can then be liable for the clean up cost
For Test 3 to be satisfied you would need:
•
•
•
•

A sale from seller to buyer
Sale at arms length – market terms
Before sale occurred the buyer had access to information that told of the contaminants
Seller retains no interest in land – this is important because in the case study the seller was granted a leaseback
...

3
...

• The lender could potentially be a Class A person – for providing the development money - or a Class B person, for possessing
themselves
...
To guard against this in the event possession is needed – the
lender would simply need to appoint a receiver under the LPA 1925 to avoid liability
...

4
...

• They would then be excluded under Class B because they would be paying rent at market value
• However, under basic repair obligations they may be liable to remedy the contamination
...

• Moreover, tenants would need to comply with any statutory notices such as remediation
...
Why would the buyer commission its own environmental report instead of relying upon those provided by the seller?

•
•
•
•

General due diligence – best to have independent survey
Have no contractual relationship with the old report so would not be able to sue for misrepresentation
Also earlier report is old – may not be reliable anymore/could be completely wrong
From a tort point of view, there is no ‘proximity’ to this report by the buyer and so needs to set up his own one
...
will often
enter into a collateral contract with these third parties
...

The obligation to provide collateral warranties will be included in the main contract/appointment which the contractor/professional
enters into with the employer
...

It is ancillary to the main building contract
...


ALTERNATIVES TO COLLATERAL WARRANTIES:
Section 1(1) Contracts (Rights of Third Parties) Act 1999
Subject to the provisions of this Act, a person who is not a party to a contract (a "third party") may in his own right enforce a term of
the contract if(a) the contract expressly provides that he may, or
(b) …
...

Generally, it is excluded as there is reluctance amongst construction industry to use it
...

Lenders prefer collateral warranties
Latent defects insurance
Similar to NHBC – where in residential developments the builder guarantees 10-year guarantee
Similar here in commercial – no standard schemes must get quotes from companies
...
5% of the whole
development cost and must be got at the start of the project otherwise won’t give it
...

Cannot assign if assignment prohibited – usually building contracts prevent assignment
Not appropriate to do:
If sale of part – enforcement issues regarding different plots of land
Assigning to tenant – if owner has to forfeit lease then this causes issues as they are no longer tenants but have benefit of building
contract
Declaration of trust
May use if you cannot assign benefit
Seller declares trust of right to sue for purchaser or tenant
Proceedings to be brought in name of seller on behalf of purchaser/tenant as trustee and beneficiary
If seller is disposing of entire property, seller may not want to continue involvement

How can a landlord and/or a tenant deal with design and/or construction defects? How can the respective parties seek to minimise
or avoid liability?
When do landlord’s covenants bind successors in title? How can an original landlord be released from liability?
Interrelationship with repairing covenants in the actual lease itself
Tenant's liability for inherent defects
Ravenseft Properties Ltd
...
So tenant would want this to be carved out in agreement – does not want to be liable for inherent defects and
place an additional obligation on landlord to fix those problems
...
They wont want repairing covenant limited – would want FRI
(full repairing insurance) terms
...

Best thing to do is have a collateral warranty in place or insurance
...

In addition, obtain an express covenant from landlord to remedy such defects
...
g
...
g
...


For a collateral warranty, check main contract as a collateral warranty is a promise to carry out main contract/appointment
...

Minimising landlord’s liability of covenants when they assign/dispose of the reversionary interest where there is a tenancy
If there is a covenant within the agreement for lease in relation to the landlords duties/obligations regarding the construction and
liabilities for the property, the tenant will still want this to be in place with the new buyer and from a landlord point of view they will
want to be released from such a burden
...
There will be privity of estate
...

• Section 6 (2) (a) states that the landlord, on assignment, may apply to be released from the landlord covenants so long as
Section 8 is complied with
...

• Section 8 (1) (a) – the notice must outline the proposed assignment
• Section 8 (1) (b) – the notice must also request that the covenant be released
• Section 8 (2) (a) – (b) – (c) states that the covenant is released if the tenant does not object the release, if an objection is made
but the court sides with the landlord, or the tenant agrees with the release
...
2 once it has bought the site from De Vere if defects should appear in the
steel frame in the future
...
Under that section, an
assignee of the reversion “becomes bound by the landlords covenants of the tenancy…”
...

If Brightwood will potentially be liable under clause 5
...


If Brightwood will potentially be liable under clause 5
...
Although Brightwood will still be liable under clause 5
...

Remember that, without any collateral warranties, there is no privity of contract between Brightwood and the professional team and,
at common law, a tortious claim for negligence cannot be made for pure economic loss
...
2 once it has sold the site to Brightwood if defects should appear in the
steel frame in the future
...
However, under section 6 of the 1995 Act, De Vere can apply to Carpet Kings to be released from liability
...
If

Carpet Kings fails to respond within four weeks of receiving De Vere’s application (or responds consenting to the release), De Vere is
released
...

Imagine that the words “but so that this obligation shall be a personal obligation binding only on The Greenalls Group Plc [De Vere’s
old name]” were added to the end of clause 5
...
Explain whether this would affect the potential liability of (a) Brightwood and (b)
De Vere
...
In the case of BHP Petroleum Great Britain Ltd v Chesterfield
Properties Plc, the Court of Appeal held that an outgoing landlord in those circumstances could not use the release mechanism in
sections 6 and 8 of the 1995 Act (those sections apply to “landlord covenants” and the covenant in question would no longer satisfy
the definition of that term in section 28 of the 1995 Act)
...
2 is contained in an agreement for lease that preceded the grant of the
lease
...

It makes no difference to the liability of either
...

For this reason, when acting for a buyer of a reversion (such as Brightwood), you must ask the seller’s solicitors for a copy of any prior
agreement for lease (there may be obligations in it which will bind your client once it has bought the reversion)
...
2 to make sure
that De Vere will definitely not be liable once it has sold the site to Brightwood?
You could state expressly in clause 5
...
In the case of Avonridge Property Co Ltd v Mashru, the House of Lords held that clauses such as this were valid, despite the
fact that a landlord’s release mechanism is already provided for in sections 6 and 8 of the 1995 Act
...
e
...

Liquidated and ascertained damages (LADS) – for delays in works
Contract to be performed within a timescale subject to force majeure (circumstances beyond control of parties that prevents contract)
Provision to pay a specified sum of money unless delay down to force majeure – must be a true representation of loss e
...

relocation/accommodation
If sum exceeds true loss, then it will be unenforceable
Extensions of time certified by architect (who employs the architect?) – usually the developer so would want 3rd party architect so they
are not biased and sign off a building that is not ready
...
g
...

Structure and common features of an agreement for lease:
• Landlord to carry out works
...
When does the tenant get access to carry out works, when is the lease granted,
when does rent/service charge/insurance commence?
• What provisions are there for delay? Is the tenant entitled to liquidated damages? What provisions are there to allow extensions
of time or deal with “force majeure”? These provisions in the agreement for lease should arguably reflect what the landlord has
included in its own building contract
...

• What happens in the event of an assignment of the freehold reversion?
• Effect on rent review of tenants works, should be disregarded - consider agreement for lease and lease provisions together
...
e
...
g
...

• There will usually be an option to extend
• There will usually be a time period where the tenant can claim for damages relating to the work but instead can used LADS to
claim for the actual time delay and associated costs
...

• There will be a time limit on this as well
...

• May have to pay license fees
What controls does the tenants have over:
Progress of the ‘Landlords Works’?
•
•
•
•

Usually the tenant will be kept informed of progress
Can inspect the progress
Make representations but not impede
Make complaints about state/progress of work

Issue of the certificate of Practical Completion?
• Tenant has no real say over this
• But key to have architect independent so there is no bias that may lead to early issue which then leads to inherent defects which
the tenant may be liable for
...

• However, the landlord may variations without consent in certain situations e
...
necessity as deemed by architect (again
independency issue)
• Tenant has minimal control overall again
...
e
...

Part 9 Revision Notes
THESE REVISION NOTES WILL LOOK AT LEASE NEGOTIATION AROUND THE FOLLOWING TOPICS:
•
•
•
•
•
•

RENT REVIEW
REPAIR
SERVICE CHARGE
INSURANCE
ALTERATIONS/USE
ALIENATION

RENT REVIEW
This will look at Open Market Reviews although other forms exist such as fixed increases/index-linked reviews/turnover rents
...
g
...

• A valuer decides that, in current market conditions, a hypothetical tenant would be granted a 12-month rent free period (as an
inducement to take the lease), and would then pay £100,000 per annum over the next four years (£400,000 in total)
...

• Headline rent is 100k
• But market value is 80k
Should the rent-free period be considered during rent review?
COA in the case above said the headline rent should not be allowed in these circumstances because headline rent does not look at
value of property or inflation
...

So, if the tenant asks for this to be assumed/removed from disregards it is best to just accept it to avoid unnecessary litigation
...

However, in practice landlords only ever want upwards only
...
Is the length of the hypothetical lease to be valued 15 years (the original term)
or 5 years (what is left)?
Why does it matter? For valuation purposes
...
Hypo tenant may be more willing to pay more for
shorter lease
...
So want rent review just
when lease ends so its accurate of market
...
Essentially redraft and take out last day rent review date
...

Hypothetical lease itself contain a rent review?
Nat West v Moores & Co – stated that it does not include rent review and so more valuable to hypothetical tenant
...
So, this benefits the landlord
...
This is different from the headline rent issue regarding rent-free
periods as it’s a different type of inducement
...
Therefore, when rent review comes
later on this should not be assumed again mid-term otherwise the tenant would technically be assumed to be benefitting from such a
rent-free period again thus reducing the rent overall
...

Landlord would want its covenants to be included as well so long as any breaches are minor e
...

Disregards
Statutory work e
...
fire doors should be disregarded as you don’t want the tenant having to pay twice
...
Time is of the essence if the lease specifically says so or the general wording
see directly below the case
...
The lease goes on to say that the tenant must respond with a counter-proposal within one month, or else it will be deemed
to have accepted the landlord’s original proposal
...
Is the tenant stuck with the landlord’s exaggerated figure (Starmark Enterprises Ltd v CPL
Distribution Ltd [2001] 32 EG 89)?
Time was of the essence here
...
g
...
Therefore, advise client to instruct
building surveyors to get an idea of level of work needed
...
To protect the tenant,
get a collateral warranty
...

If the Property definition just simply talks about internal descriptors then the tenant will not be liable for e
...
the roof leaking or other
external matters
However, if the tenant is leasing the whole of the building then they would be liable
...

Does renewal/rebuild form part of repair obligations?
Lurcott v Wheeler = If the foundations of the building need to be renewed/rebuilt and they are only part of a whole building and the
landlord will get something the same as before then the tenant may be liable
...

Will the tenant be liable for contamination?
Tenant will be liable for damage but also the clean-up costs
...

If no physical damage is caused though, then tenant is not responsible
...

What amendments can a tenant try to negotiate in order to limit its repair liability?
1
...
e
...

2
...
Ideally reduce costs for risks
...
g
...
This is because it
would increase insurance premiums for the tenant and from a landlord point of view getting certain risks in certain locations are
difficult and if you can’t get them then you will be in breach of contract
...

The tenant will strongly oppose this
...
The tenant may try to limit liability by having a Schedule of Condition
Essentially, tenant only needs to meet the standards set by the photos/description given here
...

4
...
They want this to be a FRI lease + insurance/service charge doesn’t cover these repair
costs so would want the tenant to cover this
...

5
...
e
...
If the lease is of the whole building, then landlord would want tenant to deal with
this
...

What service charge clauses are typically found in a commercial lease?
• The landlord covenants to provide services regarding the ‘common parts’ e
...
car park/heating
• The tenant covenants to partly pay the costs of those landlord services via a service charge
o This means paying the service charge ‘as rent’ quarterly
• Clauses dealing with how service charge accounts are prepared – usually calculated for the whole year

• Covenant by the tenant to pay any shortfall or a clause stating that excess payments will be carried over to next year
Issues for the tenant during lease negotiation with the landlord?
How is the tenants share calculated?
• Fixed percentage
• Based on use
• Proportionate floor area – this usually the best option
...

• Regardless, completion of landlords services may be crucial for tenant to be able to do their work -> make money -> pay
landlord
...

Will the tenant be liable for all services provided?
• This depends on use as well as proportionate floor area
...

If there is a short term lease i
...
less than 5 years, how does the tenant protect itself against a major item e
...
a lift, needing significant
work done on it?
• Similar to point above, as the tenant will not be using that item in the long term they do not use/benefit
...

Unreasonable landlord costs?
• Tenant will try to amend the lease so that it expressly states the landlord can only recover costs for services provided for THAT
tenant
...

• Tenant will only want to pay based on what they use via floor area
...

Who prepares the end of year accounts for service charge calculations?
• Landlord? May be bias and lead to a yearly dispute
• Independent? Would be fairer but the cost will fall part of service charge
Should the tenant have to contribute to a reserve or sinking fund?
• Reserve fund – is a set of money put aside to deal with recurring items (decoration of the estate – doesn’t happen every year but
is regular)
• Sinking fund – money set aside for one off major items (does not happen very often e
...
the roof) landlord will want to
accumulate money for this on a year by year basis
...
But if short term lease then no need to pay as they
will never see long term benefit
...

• If it is set up then it should be set up in a separate trust account where landlord holds it as tenants
...

• If it is managed externally then the limit should be between 5-10%
...
e
...
They will want services to be a definitive list
...

• If this clause is unavoidable from tenants perspective then they should negotiate specific ‘other costs’ in square brackets
...

What insurance clauses are typically found in a commercial lease?
•
•
•
•
•
•

There will be a comprehensive list of ‘Insured Risks’ which means there is little scope for the landlord to avoid
...

Tenant will covenant to reimburse the landlord via insurance premiums payable ‘as rent’
Landlord will covenant to reinstate if there is any damage done by the insured risks
Provision that the tenants repairing obligations do not include insured risks
Provision that rent will be suspended if the property is damaged/destroyed by insured risks – landlord should have own
insurance in place for rental loss
• An option for either party to terminate the lease if property is damaged/destroyed by any of the insured risks
...

• Compromise = the tenants interest is noted on the policy
...
g
...
NB having the name on it does not
give you a right of action i
...
it has no legal effect
...

• Lease Code 2007 states that the landlord should pick on a fair basis regarding costs but they do not have to pick the cheapest
deal
...

• The landlord will argue that the lack of service charge will impact other parts of the site BUT the landlords insurance must cover
the rent AS WELL AS service charge
...

• Landlord will be wary of this list because if certain risks become unavailable to insure against then the landlord will be in breach
of the lease
...

• So, the landlord will not want to have to insure against this due to increased costs and potential legal liability
...

• However, the tenants will also dislike this because the uninsured risk = onus is on them to repair under usual obligations
...

• The landlord will rightly oppose such a situation
...

• The landlord can just cut its losses reinstate in its own time and possible agree with tenant to come back at a later date while
they find alternative accommodation on their own
...

Issues for tenant when negotiating with the landlord?
• The tenant will try to remove the absolute covenant against making alterations/additions
o This means that the tenant is trying to make the prospect of alterations occurring conditional on landlord consent
• The landlord would not want this absolute covenant removed as it takes too much control away from him
o Moreover, making the granting of alterations conditional upon consent (which cannot be withheld unreasonably) means
that consent will more often than not granted – this may impact the value of the property and drive it down
...

o This should be strictly opposed by the landlord – its only fair that the property is put back to what it was
...
Just keep normal wording – no need for
‘reasonable requirement’ of reinstating
...


Regarding user of the property, again its similar to alterations in that they’re quite standard and low in quantity
...
e
...

• Therefore, wants to be able to change use subject to landlord consent and the appropriate planning permissions being obtained
...

Diversifying tenants work could therefore financially benefit landlord on say rent review
...

Issues for tenant when negotiating with the landlord?
• The tenant will want to be able to underlet part of the premises i
...
remove the absolute covenant
...

o However, landlord will not like this because they would lose control and would create estate management issues
...

o Best way to deal with this is to either block same group companies via International Drilling Case or allow same group
companies as an undertenant but contract out of 1954 act so they can never become the direct tenant
...

o This is fine to remove because the International Drilling Fluids case lets the landlord refuse on other grounds
• There will be attempts to update the law – this needs to be correct e
...
references to S19 (1A) – this was inserted by the 1995
act but correct citation should be the LTA 1927 act
...
g
...

• The tenant will try to limit the grounds the landlord can refuse assigning
o One way would be to limit what kind of payments are left outstanding i
...
‘any sum’ would be changed to ‘basic rent’
▪ This would be okay to amend because the landlord could recover things like service charge in other ways
o A second way would be to remove breaches of covenants by the tenant
▪ This would also be okay because those covenants can be dealt with by specific remedies
o A third way would be to remove the ground that the tenant cannot assign to a shell company
▪ The tenant wants this possibly to assign for taxation purposes
▪ The landlord will be strictly against this because on assignment the AGA granted will be okay – but what if the shell
company assigns and they have no funds? There will be no one to pursue for rent
...

▪ The landlord will strictly oppose this – they want an AGA from everyone
...
3 LTA 1995 protects the landlord anyway
o A sixth way would be to propose guarantors as an alternative to AGAs
▪ The landlord will not allow this either or situation – they will always want the AGA
o Regarding a situation where an underlease has been granted
▪ The wording of that underletting section will be reworded which is fine
▪ The tenant will want to charge only market level not highest possible due to difficulty of finding a subtenant who
will pay above market level
...




---