Landlord and Tenant: Commercial Leases - Case Study Example

Topic: L T - C L Part-II of the Landlord and Tenant Act 1954 provides a framework for the renewal and termination of business tenanciesin England and Wales. The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 has modernised the workings of the Act, making the renewal and termination of business tenancies easier. The detailed changes to the working of the 1954 Act taken effect from 1 June 2004, as do accompanying changes to the statutory notices and changes to the Civil Procedure Rules. The 1954 Act broadly gives business tenants security of tenure. The landlord may oppose renewal on limited, specific grounds set out in the 1954 Act. Among these are grounds where the tenant has failed to pay the rent or meet other lease obligations, but the landlord may also seek possession on certain specific grounds where the tenant is not "at fault". High Street Properties Ltd (HSP) would be the landlord of shopping parade in South West London by purchase. To modernisation and refurbishment to improve the rents HSP may send a notice under Part II of the Landlord and Tenant Act 1954 and The LTA 11954, Part 2 (Notices) Regulations 2004. Tenants have lots of provision to protect it. Order#: 162902 Deadline: 2007-04-12 18:45 Style: APA Language Style: English UK Answer: This question raises some issues from commercial lease. In order to answer this question it is necessary to discuss landlord's rights against lease property, tenant's right, and forfeiture of terms of lease contract. High Street Properties Ltd (HSP) intends to purchase and refurbish a shopping parade in South West London built in the 1930s from another property investment company. The properties need modernisation and refurbishment to improve the rents significantly. HSP 2 has to consider the terms of the contract, covenant of the commercial lease contract. From the question it is clear that the High Street Properties Ltd will not be the original contracting party. Thus it also required checking with if there are any Sub-lets among the tenants. HSP should establish 'privity of estate' with the tenants by purchasing the shopping parade. However, here it is important when HSP intends to purchase. If HSP intends to purchase before June 2004, they will seek Part II of the LTA 1954. Otherwise, HSP has to follow The Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004 because from 1 June 2004, substantial changes to the legislation relating to business tenancies will come into effect. The Artical "Analysing the Changes 3" by JOYCE, J.' 2005 questioned law and surveying professional as to their opinion on the amandments introduced. The article provides the results from a survey, which was sent to members of the Property Litigation Association, the Royal Institute of chartered surveyor and the Chancery Bar Association. Of the two hundred and thirty one responses recieved the majority of respondents had felt the amendments had been successful and were easy to implement. They amount to the most radical amendment to this legislation, since it was introduced 50 years ago. The LRA 4 1967 has a significant effect. But this question of fact completely ignore about the era or year. So in this require discussing all the possible circumstance. a) First of all HSP will be determined whether they are business tenant or not. Royal Life Saving Society v Page 5 In this case Court determined who would be the business tenant. The Court held that the doctor's professional use was incidental to his residential use. In Street v Mountford 6 Lord Templeman suggested that there are three characteristics of a lease, these are exclusive possession, a determinate period, for a rent or other consideration. Exclusive possession means that the tenant has control over any one who enters the premises and can exclude everyone, including the landlord. BELL, C.D., 2002. GARNER, S., and FRITH, A., 2004 define the essential elements of Business tenancy. In Cheryl Investments Ltd v Saldanha 7 the court held that this was a business tenancy as the business use was a significant purpose for which the tenant was occupying the flat. If HSP establish the tenants are business tenant HSP has provision under these Acts. If HSP purchase the property then HSP has to establish that the benefit and burden pass from original landlord. HSP has to think about the existing tenant, as they want to increase the rent and refurbish the properties. Before purchasing they have to sure that they can evict the tenants or property may oppose the renewal of a tenancy. Important issues such as the responsibility for carrying out repairs to the business premises will depend upon the agreement. Necessarily, these covenants are binding between the original landlord and the original tenant- being contained in a deed or binding contract to which they are party- and they can be enforced by either of them using a normal contractual or proprietary remedy, for example, an action on the contract for damages, or an action on the lease for forfeiture. However, one of the great advantages of the leasehold state is that these covenants are capable of running to both purchasers of the original landlord's reversion and to purchasers of the original tenant's lease. If HSP can show that 'repair' was the covenant HSP can sue against the tenant. In Ivory Gate v Spetale 8 the sureties claimed that they were not liable for rent since the date of the writ, as that had operated to determine the lease. The Court of Appeal disagreed. The service of a writ claiming forfeiture did not its own have the effect of bringing the lease to an end. In this case the lease did not come to an end until the receivers surrendered it to the landlord. Accordingly the sureties were liable for arrears of rent. Maryland Estates Ltd v Joseph 9and GS Fashions Ltd v B&Q Plc 10 The Court of Appeal's judgment means that the tenant will find it more difficult to calculate exactly how much has to be paid in order to ensure that all arrears are cleared, including those arising during the course of the proceedings. However, it avoids the absurdity of the tenant paying off the arrears immediately before the hearing, requiring the landlord to issue further proceedings immediately in order to recover sums, which had fallen due after the date when the earlier proceedings were started. It is necessary to consider that Part II of the 1954 Act permits landlords and tenants to negotiate initial lease terms freely. Once parties have agreed to a lease, however, the tenant normally enjoys security of tenure: a statutory right to renew the tenancy when it comes to an end. Under this act landlord increase the rent. The rent will be the open market rent for new lettings If HSP wish to grant a new tenancy, complete a form and send it to the tenant to evict them. If tenants wish to oppose the grant of a new tenancy, use form 2 in Schedule 2 to the LTA 1954, Part 2 (Notices) Regulations 2004. This notice is intended to bring tenancy to an end on the date given in paragraph 2. Section 25 contains rules about the date that the landlord can put in that paragraph. But the problem arise, Where a Section 25 Notice is given by the landlord, or the tenant makes his own Section 26 Request, then, the tenant is still entitled to apply to the Court for a new tenancy 11. HSP's position has shown diagram as follow- * Some tenants not paying rent and service charges on time. The RA 12 1977 provides security of tenure the landlord can only obtain possession, by proving certain grounds set out in the Act the mandatory and/or discretionary grounds are listed in sc. 15. In this case, HSP has to be aware that they claims possession against a protected or statutory tenant must establish: (i) The effective termination of the contractual tenancy and (ii) That one or more of the statutory grounds for possession apply. However, HSP's goal to refurbish the properties and obtain higher rents from tenants. So they may invoke remedy under Landlord & Tenant Act 1954 Part II and The Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004, they also seek remedy under The Landlord and Tenant (Covenants) Act 1995. In relation to commercial lease there is an extension to s 19 of the Landlord Tenant Act 1927 under s 22 of LTCA 1995. This allows a measure of control for the landlord over assignment of the lease by the tenant 13. The law allows the landlord the right to withhold consent in specified circumstances. The new provisions allow the parties to enter into an agreement specifying the circumstances in which landlord may withhold consent, for example the landlord can request that the new tenant shall provide certain financial guarantee before the assignment is made. However, in all cases where the land is seeking to forfeit the lease because of the breach of covenant, other than a breach of the covenant to pay rent (which include a covenant to pay a service charge if the lease declares that the charge is to be treated as rent: as was not the case in Delbounty), the procedure specified in s 146 LPA 1925 must be strictly followed, together with additional procedural safeguards introduced in the case of long lease of dwellings by s 168 CLRA 2002. Also, of course, the lease must contain a right of re-entry. May be the Court will consider few cases as a precedent. In Expert Clothing Service and Sales Ltd v Hillgate House Ltd 14, Which in essence recognise that a covenant was 'capable of remedy' if the damage of the breach had caused, could be rectified. Thus, breaches of most positive covenants can be remedied because the tenant can do that they have not done, for example, by carrying out repairs 15. The Current issues are commercial lease issue. So, the tenants who are trying to continue their small business may be they have no intent to leave. It would be just and reasonable to allow the lease to survive despite the breaches of covenant -Shiloh Spinners v Harding16. Several matters will be relevant in determining whether relive should be given: for example, the drastic effect that a successful forfeiture has per se; the value of the lease when compared with the damage caused by the breach. Some tenants not paying rent and service charges on time. The tenants are all small businesses and their leases end at different times. From this statement it is not clear when the lease will be end. Now is the time to consider what will be the Consequences if the tenant wishes to claim adverse possession against landlord then time will only run when his lawful right to be there has run its course. So time will only run when the lease has expired and the tenant does not pay rent or acknowledge the landlord's title 17. However, it depends on that the lease was registered or unregistered lease. If the lease is unregistered then its important whether they wants to surrender the lease or not. [Fairweather v St Marylebone Property Co Ltd 18]. If the lease is registered, time will running after the lease end. However, the important cases are Spectrum Investments Co v Holmes 19. What will be the step of HSP, it depends on HSP really purchase the shopping parade or not. The tenants are all small businesses and their leases end at different times. Timing is one of the most important issues here. The HSP can invoke termination of lease under The Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004, Schedule 2, however, the whole of Section 29 has been rewritten. It discuss about Landlord's applications to the court for an order for the termination of the current tenancy without the grant of a new tenancy. If the tenants fail to pay rent, the landlord almost invariably has a right to retake possession of the premises. He may do so under a "proviso for re-entry" in the tenancy agreement or by invoking one of the statutory procedures to regain possession for non-payment of rent. Under the 2004 Reforms, it is expressly provided that a tenancy for a term of years certain will not be continued under the 1954 Act, where the tenant was not in occupation at the time when, apart from the 1954 Act, the tenancy would come to an end by effusion of time. This merely makes express what is presently implicit [Esselte v Pearl Assurance]20 HSP normally can serve notice to terminate to the tenant at least six months but not more than 12 months before the date on which he wants the tenancy to end - as specified in the notice on the special form. Though the Landlord and Tenant Act 1954 has provision to evict tenant, it is not its main aim. The aim of the 1954 Act is to provide protection for business tenants by preventing the landlord from terminating the tenancy. During the term of the tenancy the tenant has complete security of tenure unless he fails to pay the rent or breaks some other term or condition of his tenancy agreement or if the agreement specifically provides for an early ending. If Court allows new tenancy, they have to pay new interim rent. The interim rent is the Section 34 market rent which would be determined for the new tenancy assuming that it commenced on the appropriate date i.e. the earliest date which could have been specified in the landlord's notice or the tenant's request, and not on some later date. The CA held that the stipulation as to the business name was "the fundamental basis upon which the parties concluded the sale of the business and the lease of the premise 21. The procedure under section 28 of the current Act provides a remedy for the tenant's breach of a material covenant of the tenancy agreement as well as for his non-payment of rent. When a tenant breaches a provision of a lease he may forfeit his right to the tenancy and give the landlord a right of re-entry. This will not occur on the breach of any provision. So HSP take this provision a right of re-entry under section 28, if the tenants do not pay charges and do not repair the premises. The HSP shall have a right of re-entry only in three cases: where the provision that is breached is a condition; where a right of re-entry is clearly attached to a provision; and where a right of re-entry is conferred by statute 22. In the recent case of Wroe (t/a Telepower) v Exmos Cover Ltd 23, the Court of Appeal held that a tenancy by estoppel did not arise in circumstances where the appellant had not acted to its detriment in reliance on the respondent's representation that a tenancy existed. Estoppel arises in equity when one party makes representations which are intended to be relied upon and, in fact, are relied upon by another party to their detriment. The doctrine of estoppel prevents a party, because of his own act, from denying the consequences of his act. In Chartered Trust PLC v Davies 24 The landlord owned a small shopping centre consisting of five shops, three of which were accessed by a passage from the main road. The CA held that the landlord had derogated from grant in not enforcing a covenant in the pawnbroker's lease preventing him causing a nuisance, or in not making regulations, which would have had the same effect. The Court of Appeal had to consider whether as a matter of law, a landlord was under a duty to prevent other to breach covenant. Hilton v James Smith & Sons (Norwood) Ltd 25 the CA did not interfere. The tenant was therefore released from her obligations under the lease, although in less severe circumstances presumably damages might be an appropriate remedy. From a landlord's point of view this conclusion is perhaps surprising, for two reasons. Firstly, it was not entirely clear before this case whether a landlord could be liable to one tenant for nuisance caused by another. Secondly, and perhaps more importantly, the use of the doctrine of repudiation in relation to leases is unusual, although it is becoming increasingly common in relation to commercial contracts. In Hampshire v Wickens 26, Lord Jessel MR indicated that the following covenants and conditions are always 'usual' such as A covenant to pay rent, A covenant to keep the premises in repair and deliver them up in repair at the end of the term, a covenant to permit the landlord to enter and view the state and condition of the premises. A tenant is the 'owner' of land, albeit temporarily and subject to restriction but equally he is a consumer contracting for the provision of 'service'. In Bruton v London & Quadrant Housing Trust 27, have upheld the existence of contractual, non-proprietary rights lease where the landlord has no proprietary estate from which to grant a proprietary lease. Under the procedure set down in LTA 1954, part-II Amendment (Regulation 2004) section 29(3), previously the tenant had to make his application to the court no less then two months, nor more than fore mouths after the Section 25 notice or Section 26 request. The time limit could be extended by agreement, but not once the tenancy had ended 28. b) In order to define tenants under LTA 1954 is necessary to classified commercial lease. There are in turn, two types of commercial leases- periodic and fixed term leases. With a periodic lease there is no agreement there is no requirement for the beginning and end of the lease to be certain. Instead the lease ends on the notice being given either party. On the other hand, a fixed term i.e. lease a seven-year lease, requires definite starting time and ending time 29. In Coppin v Bruce-Smith 30 The tenants, the trustees of the club, served a LTA 1954, part 2 Amendment (Regulation 2004) Section 26 request on the landlord, who served a counternotice stating that he would resist a new lease on ground. Before the hearing, the landlord applied for planning consent for the site, which was refused on the ground of the loss of a recreational open space. The landlord then decided to demolish the buildings and courts on the basis that this would make it easier in the future to obtain planning consent. The CA had to consider whether the landlord had established a 'reasonable prospect' of success using the test in using the test in Cadogan v McCarthy & Stone 31. It was agreed that the landlord would encounter the same objection as previously when applying for planning permission. Accordingly, it held that the landlord could not show the necessary firm and settled intention to demolish the premises and was unable to resist the tenant's application for a new lease. HSP is not prepared to offer tenants a new tenancy, if HSP purchased. Those tenants who are careful to observe all the terms of their leases and other tenants will not get a new tenancy unless they can successfully challenge in court the grounds on which your landlord opposes the grant of a new tenancy. If tenants want to continue to lease they must act quickly. The notes below should help you to decide what action you now need to take. If tenant want to challenge HSP's refusal to renew tenancy, get advice immediately from a solicitor or a surveyor. The aim of the 1954 Act is to provide protection for business tenants by preventing the landlord from terminating the tenancy. In normal circumstances the tenant may not end his tenancy before the agreed expiry date unless the tenant has been in occupation for at least a month, notice to quit can then be given in accordance with the terms of tenancy [L.T.A. 1954 s.24 (2)]. Here it is necessary to say that ending a tenancy to which Part 2 of the Act applies, where the notice under section 25 of the Act contains a copy of a certificate given under section 58 of the Act that for reasons of national security it is necessary that the use or occupation of the property should be discontinued or changed 32. The tenant 33must make a simple declaration in the form set out in paragraph 7 of Schedule 2 to the Order. Here the tenant declares that he or she is proposing to enter into an agreement with the landlord to exclude the tenancy from security of tenure. Under the procedure set down in section 29(3), previously the tenant had to make his application to the court neither less then two months, nor more than fore months after the Section 25 notice or Section 26 request. The time limit could be extended by agreement, but not once the tenancy had ended. If the tenant applies to the court for a new tenancy, the landlord can only oppose the application on one or more grounds set out in section 30(1) of the 1954 Act. These grounds are set out below. The paragraph letters are those given in the Act. The landlord can only use a ground if its paragraph letter is shown in paragraph 5 of the notice 34. Grounds (a) Where under the current tenancy the tenant has any obligations as respects the repair and maintenance of the holding, that the tenant ought not to be granted a new tenancy in view of the state of repair of the holding, being a state resulting from the tenant's failure to comply with the said obligations; (f) That on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding. If the landlord uses this ground, the court can sometimes still grant a new tenancy if certain conditions set out in section 31 A of the Act can be met 35. To obtain such an order, the HSP generally has to satisfy the judge that: 1. The tenant has refused to pay rent or broken an important term of their agreement 2. He can provide the tenant with suitable alternative accommodation. 3. But even when those conditions are met, the judge may rule it unreasonable to make a possession order. The court may decide that the tenancy agreement should allow for rent reviews during the period of the tenancy. The rent set at the beginning of the tenancy. Tenant may not apply to the court for a new tenancy until two months have passed from the date of the making of the request contained in this notice, unless you have already given notice opposing your tenant's request as mentioned in paragraph 6 of this notice (section 29A(3)) 36. S 38A(4) Art 22, Schedule 3 & 4 of LTA 37 1954, Parties to a tenancy wishing to enter into an agreement to surrender no longer have to apply to court for prior approval. The landlord can refuse the grant of a new tenancy if opposed on a limited number of grounds. If the grant of a new tenancy is refused, compensation is payable to the tenant. But only if: - The landlord has opposed or the court has refused the grant of a new tenancy solely on the grounds set out in paragraph (e), (f) or (g) s 30 of LTA 1954; and - There is no agreement, which effectively excludes compensation. Few tenants who are careful to observe all the terms of their leases, they are not breach the covenant or any types of breach of contract. So, it will be hard for HSP to terminate contract to increase rent. However, tenants may claim compensation. There are possible compensation to tenant for disturbance and / or improvements under LTA 1954 as amended by LPA 1969, LGP and LA 1980. If the landlord is an authority possessing compulsory purchase powers 38 the tenant may be entitled to a disturbance payment under Part III of the Land Compensation Act 1973. Section 40A contains provisions which deal with the imposition and effect of the duty when there has been a transfer of the HSP's or tenant's interest. If a person on whom a notice has been served has transferred his interest in the premises or any part of them to some other person and gives the person who served the notice, notice in writing (a) of his transfer of his interest; and (b) of the name and address of the person to whom he transferred it, then, on giving that notice, he ceases, in relation to the premises, or to that part, to be under any duty imposed by Section 40A. If tenant apply to the court, then tenancy will continue after the date given in paragraph 2 of this notice while your application is being considered (section 24). You may not apply to the court if HSP has already done so (section 24(2A) and (2B) 39. The Act has twice been subject to review by the Law Commission. The first was in 1969 and the recommended amended implemented by The Law of Property Act 1969 and the second in 1992. The 1992 report by the commission explained the background to the review. The aim of reform proposal is to improve the working act by amending some of its details while leaving its fundamentals undisturbed; this should increase its usefulness and eliminate unnecessary formalities. The Law Commission, the Office of The Deputy Prime Minister laid before Parliament a draft order under the Regulatory Reform Act 2001 containing the amendments to the 1954 Act. In December 2002 Parliament approved the recommendation. The ODPM's objects to "modernize and streamline procedures, for the benefit of tenants and landlords alike" At lat it can be said that HSP send notice under Section 25, or the tenant makes his own Section 26 Request, then, the tenant is still entitled to apply to the court for a new tenancy, and, indeed, in the absence of agreement, is still required to do so in order to maintain his right to a new tenancy. At last it can be said that tenant has enough right to protect HSP. Even they can claim compensation, also possible to apply for adverse possession. LTA Part-II 1954 the provisions are complex but basically a Business Tenant can obtain a new lease at a fair market rent if the Tenant has abided by the terms of the Lease and the Landlord does not genuinely wish to redevelop the site or want the Property for their own business use 40. Bibliography: 1. Bell C. D. The Land of Real Property, 2nd Ed. (Oxford University Press London 2002) p122. 2. Stake R. E., The Art of Case Study Research, 3rd (Stage Publication London 1995) p17. 3. Pawlowski M, Leasing Commercial Premises 1st edition (London: Estates Gazette 2000) 4. Garner. S. & Frith A. A Practical Approach To and tenant 4th edition, (Oxford University Press 2004) p-217. 5. Bell J. Doing Your Research Project: A Guide For First-Time Researchers In Education And Social Science 3rd edition (Buckingham: Open University Press 1999) p78 6. Naoum G.S. Dissertation Research and Writing: For Construction Students 1st edition (Oxford Butterwort-Heineman 1991) 7. Pawlowski M. Leasing Commercial Premises 2nd edition (London: Estates Gazette 2002) 8. Sealey, L. S. & R. J. A. Hooley, Commercial Law- Text, Cases & Materials, 3rd Edition (London, Butterworths, 2003) p 76, 78. 9. Gray & Gray, Elements of Land Law, 4th edition, (London: Oxford University Press, 2004) p334. 10. Margaret Wilkie & Peter Luxton, Land Law, 5th edition, (London: Oxford University Press, 2005-2006) 11. Mark Thompson, Modern Land Law, 1st edition, (London: Oxford University Press, 2004), p 308. 12. Jacqueline Martin & Chris Turner, Unlocking Land Law, 1st edition, (London: Hodder & Stoughton, 2004) p 432. 13. Newsletter, Thinking of taking on Business premises Renting business premises: a short guide, (Office of the Deputy Prime Minister: London, Crown copyright 2004) 14. Government Handout, A review of the 1954 Act reforms" published in Estates Gazette on 17 December 2005. 15. Fredrich A. Landlording: A History, Available at: < http://www.landlordzone.co.uk/history.htm > 16. Graham Bores, Good Title - Property News, Under The Landlord And Tenant Act 1954 Landlords Can Only Refuse The Grant Of A New, available at: < http://wwww.dechert.com > 17. Darbyshire, Penny. Eddey on the English Legal System, 7th edition. (London: Sweet and Maxwell, 2001.), p234 18. De Cruz, Peter. Comparative Law in a Changing World. (London: Cavendish Publishing Limited, 1999) p 115. 19. Hadfield B. & Maurice S. "United Kingdom." In Legal Systems of the World. A Political, Social, and Cultural Encyclopedia. Herbert M. Kritzer, ed. Santa Barbara, (California: ABC CLIO.2002) p 371. 20. Zimmermann, Reinhard, and Simon Whittaker. Good Faith in European Contract Law. (Cambridge University Press, 2000) p 53 Read More