Brimsdown Springs: Property Management - Essay Example

?MEGADOSH MANAGEMENT 245 Mayfair Street Mayfair London W1 Re: Units 3, 4 & 5 Enfield Industrial Park; Unit 22 Desolation Row Shopping Centre; 147 Streatham High Street, and; 57 Chapel Road A. Units, 3, 4 and 5 Enfield Industrial Park PROBLEM Reg Smalls, Director of Brimsdown Springs, has written on February 1, 2011 in effect requesting for a new tenancy for the same length of time as the first contract of lease, but with terms and conditions more favourable to the tenant. BACKGROUND Brimsdown Springs is the tenant of Units 3, 4 and 5 of Enfield Industrial Park, a commercial property managed by Megadosh Management and located in Jute Lane, Brimsdown, Enfield, under a tenancy contract for a period of 21 years. It operates a factory in the aforesaid units: a use authorised under the contract of lease. The terms and conditions under said contract include full repairing obligation by the tenant and seven rent reviews for rent increases only. Brimsdown Spring pays its rents promptly and has abided by all terms and conditions, so far. The term is about to expire on 24 March 2011. In Smalls’ letter, he expressly requested for new tenancy that would include the same length of time as the existing one, but under more favourable terms to them: Landlord takes over responsibility over structure, roof and exterior of the building and; a reduction of the present rent of ?43,500 a year to ?37,500 a year. Mr Smalls also made mention of a newly constructed commercial estate nearby that leases units at ?37,500 a year. RECOMMENDATIONS The Landlord can answer the letter indicating his objection. Such exchanges of communication, however, are not official because they are not in the prescribed form. In the meantime, the landlord can wait for the tenant to formalise its request using the correct form and oppose the application, or failing that, he can serve his own notice to quit and refuse a new tenancy before the end of 12 months following the expiration of the lease period. RATIONALE Part II of the Landlord and Tenant Act 1954 generally grants security of tenure to leases whose terms go beyond 6 months as implied under s 43(3)(a) of said Act, but this can be opposed by the landlord on any of the grounds allowed by law. This implies that security of tenure is applicable to Brimsdown Spring as a lessor, which further means that despite the expiration of the lease terms it will still be entitled to occupy the premises and continue the lease. Such continuity of lease despite the expiration of the lease period exists until the landlord serves it a notice to quit under s 25 and it serves a counter-notice to renew the lease or it initiates an application to request a new lease. In that case, the court decides for or against any of the parties. The tenant may also initiate the process by a request to renew the lease and the landlord either accepts it or opposes by going to court on any of the grounds allowed by law. In the case of Brimsdown Spring, the letter requesting for a new tenancy does not have any effect. It was not sufficient to serve as a request for new tenancy under the Landlord and Tenant Act 1954 because s. 26(3) thereof expressly states that the request shall not be effective if not contained in the prescribed form setting out the details of the proposals of the tenant such as the new period, the rent and other conditions. Under Schedule 1 of the Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004, a request for new tenancy must be made using Form 3 in Schedule II of the aforesaid Regulations. It can be noted in Form 3 that the date of which the proposed new tenancy begins to take place must be indicated whilst a list of the proposed new terms and conditions must be attached to it. Since Brimsdown Spring’s letter had no effect as a request for new tenancy, the Landlord is therefore, free to initiate the termination of the contract under s. 25 of the Landlord and Tenant Act 1954. The prescribed form for this is Form 2, or Landlord’s Notice Ending a Business Tenancy and Reasons for Refusing a New One, as prescribed by Schedule 1 and illustrated in Schedule 2 of the Landlord and Tenant Act 1954 (Notices) Regulations 2004. The landlord must specify the date of termination, which must not be earlier than the date of the expiration of the term indicated in the lease contract, which in this case is 24 March 2011. The form requires that the landlord indicates the reason or reasons of his opposition to a new tenancy and the acceptable reasons are limited and expressly indicated under s. 30 of the Landlord and Tenant Act 1954: failure of the tenant to comply with his obligations to maintain and repair the holding; persistent failure to pay the rent promptly; other substantial breaches of his obligations under the lease contract; suitable alternative accommodation to the tenant under reasonable terms being offered by the landlord; in cases of subleases whose rents in total are less profitable than when the entire area is let out as a whole; so the building can be demolished or reconstructed, and; the landlord plans to occupy the place for business or residential purposes. If the Brimsdown Spring does not formalise its request using Form 3 of schedule, then its request is not valid and the Landlord can serve his own notice to quit under s 25, which he can do under s 25(2) not less than 6 months and more than 12 months of the expiry date and indicate the termination date to coincide with the termination date of the lease contract between the landlord and the factory next door. This is vital because the landlord must not only state his ground on the opposition form under the grounds allowed by s 30 of the Act, but also prove that the same ground exists at the time the application and its opposition is being heard by court. This was the dictum established in the case of Betty’s Cafe v Phillips Furnishing Stores Ltd [1959] AC 20; [1958] All ER 607. B. Unit 22, Desolation Row Shopping Centre PROBLEM Kelly Holmes, tenant of Unit 22, Desolation Row Shopping Centre, wrote a letter on 20 January 2011 reacting to the interim schedule of dilapidations served to her by Megadosh Management requiring her to perform certain external and internal repair works on her unit. Ms. Holmes is presently going to consult her lawyer. BACKGROUND The contract of lease between the Landlord and the tenant makes a distinction in Schedule 1 thereof the inclusions and exclusions of the subject demise. Included are: all internal surfacing materials of the floors, walls and ceilings within the demise; the front shop, fascia and all doors, windows and window frames; plant, fixtures and things; vertical one-half of the non-structural walls separating it from the other demise; all of the non-structural walls that are not shared with other demises, and; all conducting media being used exclusively by the leased demise. Excluded are: the airspace above the demise; walls, floors and ceilings that bore the load of the structure other than those specifically included, and all structural parts of the centre. The repair obligations of the tenant are also specified as follows: to keep the demise in good and substantial repair and good working order; to replace fixtures, fittings, plant or equipment that need to be replaced with new articles of similar quality and kind. RECOMMENDATIONS The request to conduct external repairs on the structural roof and change to low energy bulbs should be dropped, but the request to replace damaged plasterwork on the walls should be pursued. RATIONALE The Landlord has legal basis to demand for the repair of the damaged plastered wall because the contract expressly indicates the maintenance of the surfacing of internal walls as one of the responsibilities of the tenant. The phrase “in good and substantial repair and good working condition” requires a very high level of obligation to keep the demise in good and working condition than just merely repairing it as was held in Welsh v Greenwich London Borough Council [2000] 49 EGLR 118. This does not mean, however, keeping the property in perfect repair as was held in Proudfoot v Hart [1890] 25 QBD 42. The Court, in Day v Harland Wolff [1953] 2 All ER 387 commented about the difficulty of defining the word ‘repair’ when it stated, “In the end, no doubt, the dividing line between work of repair and work of that kind of maintenance which is not repair is not easy to draw,” but cited Dredge v Conway, Jones & Co [1901] 2 KB 42, which considered “whitewashing an internal ceiling” as constituting and giving “repair” a wider meaning. In North-Eastern Ry Co v Berriman [1946] 1 All ER 267, the Court defined it as “putting right that which has gone wrong. It does not include the mere keeping in order by oiling, brushing or cleaning something, which is otherwise in perfect repair and only requires attention to prevent the possibility of its going wrong in the future.” Repairing damaged plaster is important to maintain the integrity and safety of the wall and to keep moisture from seeping and damaging its internal structure. In the event, the tenant fails to abide by his obligations under the lease contract, he will be liable for breach thereof, and entitles the landlord to a claim of damages. Moreover, the landlord may use it as a ground to refuse a new tenancy under the Landlord and Tenant Act 1954. The Landlord cannot demand repair of the external part of the structural part of the roof because it not within the contemplation of the lease and said lease contract expressly excluded structural parts of the building as within the ambit of the tenant’s obligation to repair. The Landlord cannot demand a change of bulbs because fixtures, such as bulbs, can be replaced only if they are damaged or are no longer functioning, in accordance with the terms of the contract of lease. Doing so would amount to an improvement of such fixtures, which is outside the contemplation of the contract in so far as the obligation of the tenant for keeping the demise in substantial repair and good working order, and not replacement due to damage. In Gibson Investments Ltd v Chesterson plc [2003] EWCH 1255 (Ch), which tackled the difference between repair and improvement, a tenant can only be liable for improvement, even if improvement is not written into the lease contract, if such improvement is incident to the repair and there is no way of making repair without the accompanying improvement. In the present case, changing the light bulbs is unwarranted because the present lighting system is still in working condition and continues to serve its purpose. Failure to change the lighting fixtures does not compromise the structural safety of the demise in any way. C. 147 Streatham High Street PROBLEM Tor and Elsergard Hiolternionen, lessors of 147 Streatham Street, wrote a letter dated 28 January 2011 indicating their desire to surrender the lease due to business downturn. The keys to the property were enclosed and the lessees were demanding the return of their rent deposit. BACKGROUND The Hiolternionens lease is a lease on assignment granted on 4 June 2004 by the original lessee Scratchy Videos, which had leased the premises for 20 years starting on 25 June 1995. The lease contract includes: full repairing obligations by the tenant, deposit for rent and other obligations in the sum equivalent to 6 months rents, which is refundable at the termination of the lease, and; a provision allowing the tenant to terminate the lease on 24 June 2011 or any date thereafter, provided the lessee notifies the lessor not less than 6 months before the intended date of expiry, pays all rents and performs all other obligations up to the date of expiry. RECOMMENDATIONS The surrender is not valid because it does not abide by the term of the contract, which expressly requires a 6-month notice. On the basis of the date of surrender, the date of termination can take effect the soonest only on 29 July 2011. The keys should be returned to the tenant, until the rent issue and repair issues are threshed out. DISCUSSION Surrender of lease is one of the modes of terminating a lease, along with effluxion of time, forfeiture, notice, merger, enlargement, disclaimer, frustration and repudiatory breach of contract (Dixon 2011 pp. 259-260). However, under the original contract of lease, any surrender of the lease must be made six months before the intended date of termination and the present lessees fall short by at least month. In the case of Artworld Financial Corporation v Safaryan and Others [2009] EWCA Civ 303, the landlord, a British Virgin Island company, was denied in its claim for the rent for the remainder of the contract because it was adjudged to have made a surrender of the lease by operation of law. Its tenant had earlier surrendered the lease after the landlord failed to solve the property’s heating swimming pool problems. It was determined by the court that implied surrender of lease by the landlord can be inferred from its reaction to the lessee’s surrender: it accepted the keys; it gave the tenant an inventory report; it parked one of its vehicles in the property, and; the property was redecorated. It would not be advantageous to the Landlord, in this case, to accept a lease surrender considering that there are issues that need to be sorted out such as the rent for the remaining time after June to July. If the Landlord implies an acceptance of surrender, he may not be entitled to claim the rent for the remaining month. As to the rent deposit, it can only be returned at the date of termination of the lease as the contract expressly states. It is supposed to guaranty the payment of rent and repair obligations of the tenant, the full default of which can only be determined at the end of the term when the landlord inspects the property and makes an inventory thereof. D. 57 Chapel Road PROBLEM The proprietor of Pronto Pants, EricPants, wrote a letter dated 19 January 2011 requesting permission for a lease assignment of the 57 Chapel Road property to a John Present. In addition, Mr Pants reminded the firm of its missed opportunity for a rent review last 25 December. BACKGROUND Under the lease contract, the original tenant needs prior consent in writing from the landlord before assignment of the lease can be made. In addition, the tenant is restricted in his use of the building to retail of men’s clothing, which may be changed to another purpose of the same specific retail nature if properly approved by the Landlord in writing. RECOMMENDATIONS The assignment should be granted notwithstanding that a “gift shop” is not specific enough in keeping with the indicated nature of use in the contract, which must be for specific retail. RATIONALE According to the original contract of lease, the tenant could not use the property on lease except for the retail sale of gentlemen’s clothing or for such other specific retail purpose subject to the approval of the landlord. Although the gift shop is not as specific a retail purpose as the retail sale of gentlemen’s clothing because such a set-up contemplates the sale of a variety of miscellaneous items, gift shops are known to sell only certain specialised and souvenir items that can be given as presents. Refusing it may likely result in “unreasonable withholding of consent.” In the case of Iqbal v Thakrar [2004] EWCA Civ 592; [2004] 36 EG 122, the contract of lease between the landlord and lessee contained, more or less, a similar phrase “consent not to be unreasonably withheld” to the present case, although the former concerned alterations. The landlord’s refusal to give his consent in the proposal to alter the premises and be converted to a restaurant was the fear that it would damage the structure of the building, especially the upper floors of which he had planned to convert into residential flats. The Court held that his refusal was not unreasonable and was well-founded. On the other hand, in the related case International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513, the Court laid down the principles of reasonableness of a landlord’s refusal to give consent, which could also be applicable in the present case: protection of the landlord from property damage; refusal for reasons outside a landlord’s property interests is unreasonable; burden of proof of showing unreasonableness of refusal is on the tenant; basis for the landlord’s reasons to refuse need not be proved; refusal if reasonable can be made even if not indicated on the contract; a balance of landlord-tenant interests; pecuniary loss alone cannot be made a basis of refusal, and; the determination of reasonableness is always a question of fact. In the present case, there is no grave basis that relates to his interest in the property for the Landlord to refuse to give his consent to the assignment. As to the rent review, the landlord can still serve his trigger notice even though the rent review date indicated in the rent review agreement is 25 December 2010. This is because it is evident that the review date was not of the essence since it fell on a public holiday and no one is expected to be working on that day, least of all serving notices. In the case of Lanecrest v Asiwaju [2005] EWCA Civ 117; [2005] EGLR 40, 41, the Court ruled that the trigger notice which was served only 12 months after the review date was not of the essence and therefore, valid. References: Artworld Financial Corporation v Safaryan and Others [2009] EWCA Civ 303. Betty’s Cafe v Phillips Furnishing Stores Ltd [1959] AC 20; [1958] All ER 607. Carmel Southend Ltd v Strachan Henshaw Ltd [2007] EWHC 1289 TCC. Code for Leasing Business Premises in England and Wales 2007. Day v Harland Wolff [1953] 2 All ER 387. Dredge v Conway, Jones & Co [1901] 2 KB 42. Dixon, M. (2011). Modern Land Law. 7th Edition, Taylor & Francis. Gibson Investments Ltd v Chesterson plc [2003] EWCH 1255 (Ch) International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513. Iqbal v Thakrar [2004] EWCA Civ 592; [2004] 36 EG 122. Landlord and Tenant Act 1927. Landlord and Tenant Act 1954. Landlord and Tenant Act 1954 (Notices) Regulations 2004. Landlord and Tenant (Covenants) Act 1995. Lanecrest v Asiwaju [2005] EWCA Civ 117; [2005] EGLR 40, 41. North-Eastern Ry Co v Berriman [1946] 1 All ER 267. Proudfoot v Hart [1890] 25 QBD 42. Welsh v Greenwich London Borough Council [2000] 49 EGLR 118. Read More