Law of Business Leases - Term Paper Example

Law of business leases Module Scenario What are the steps that Mr. Ash would take to for the rent arrears and what are the consequences. Sheffield development Ltd (SD) as the previous freeholder of the premise has granted lease of the premises to the RDS Ltd that was to run for 25 years starting from 25th march 1991. The RDS Company had agreed to pay rent during the term of the contract. At the same time, one of the directors of RDS, Mr. Geoffrey entered a covenant with the landlord that he will pay the rent of the rooms occupied throughout the 25 years term. In this case study, SD transferred the freehold reversion to Mr. Ash in 1995. On the other hand, RDS was to later assign the lease to XYZ Company Ltd. The landlords often have to deal with the tenants who default on the lease or sub lease agreements. It is important that Mr. Ash takes early actions to collect the rent it always follows a very predictable pattern that starts with a series of late payments, that proceeds to paying only part of the rent and finally leading to complete default of the payment of the rent. When the tenants delay in making rent payment just like in the case of XYZ Ltd, Miss Beech and Mr. Cherry, the first option is the person that guaranteed Mr. Cherry payment to be approached Law of (Property Act 1925). Since freehold reversion was transferred to Mr. Ash in 1995, there are three remedies that can be available to him and they include: Disdain of the rent arrears Re-entering into lease agreement and terminating the lease Affirming the lease but sue for the rent arrears. Rent distress This is the best strategy to be used if Mr. Ash needs to preserve the lease and the tenant has sufficient goods in premises that can cover the cost of the rent arrears. The right to rent distress is only available to the owner of the immediate reversion of the lease agreement that will end immediately he or she assign sells or transfer the reversionary interest to another party. The rest distraint involves the landlord seizing the goods that was pledge against the unpaid rent. This is basically a self help remedy that enables the landlord to take the goods of the tenants that are found on the leased premises as some form of security so that the rent arrears can be paid in full. Distress is a right of the landlord that was created under the common law defining the relationship of the tenant and the landlord (commercial credit Corp Ltd v. Harry D. Shields Ltd. (1980), 122 D.L.R. (3rd). It is important to note that the right to distress is the only right under which a landlord is allowed to hold the goods of his tenants and can be applied upon nonpayment of any amount. The landlord has a right to use the rent distress instruments in case of nonpayment of any amount. According to Wallace v. Fraser (1878), 2 S.C.R. 522, the right of distress can be taken way or limited by the courts in lease if the landlord has forfeited the lease. This is because the two rights can all be enforced as they would be inconsistent. The rent distress can take several forms that include removal of the goods from the premises for safe keeping, hiring a an agent to ensure that the goods and equipment does not leave the building or obtaining undertaking from the tenant that they will not remove any of the goods till the rent arrears is paid in full (Derby Reach Restaurant Ltd. V Odyssey Holdings Ltd (1995), 10 B.C.L.R (3d) 29 (C.A.) at 37-38. Based on the law that governs the subletting and assignment, the right to sublet of part with a share of the rented building rest can need the consent of the landlord to be executed. There are some instances where the tenant may ask the landlord for the consent to sublet. When there is an absolute bar, the tenant can refuse to provide the consent of subletting without providing any reason at all. according to the (landlord and tenant Act, 1927), the section 19(1)) clearly indicate that the landlord must give consent for such activities in the building as assignment, subletting , parting with possession of mortgaging and there is a provision that indicate that such a request should not be unreasonably withheld by the landlord. But during this process, the landlord is entitled to the expenses from the tenants that include the solicitors and the surveyor’s fees. So that the rent is not affected, the precondition that need to be met include the fact that the assignee is required to be able to make a convent or have an asset of 1 million pounds. In order to execute the right to rent distress, it is import to note that the landlord or any appointed bailiff has not rights to break into the leased premises as such actions may lead to the forfeiture of the lease and the activity of taking hold of the defaulters property illegal (Beaver Steel Inc. v. Skylark Ventures Ltd. (1983), 47 B.C.L.R 99 (S.C). The entry to the premises must be with the permission of the tenant through either opened or unlocked doors or other authorized areas that are open like the open window (Tutton v. Darke (1860), 157 E.R 1338). XYZ actions for seeking Mr. Cherry’s rent arrears and the consequences According to the law of property act section 146, rent arrears may cause the landlord to enforce forfeiture. This may include not only the breach of the contract but claiming compensation for the breach. In the event that the tenants fail to comply by the notice that has been issued within the indicated time, the landlord can proceed with the forfeiture. It is important that the notice makes a formal demand on the tenants to clear the rent arrears. The other way o collecting the rent arrears is to impose high interest on the late payment of the rent. This provides the incentives to pay the rent in time. Based on the Billson v Residential Apartments relief, the the tenants has a right to relief for nonpayment if he pays all of the arrears plus all other costs that are incurred by the landlord. The first step that can be taken by XYZ to get the rent arrears from Mr. Cherry is to use the claims against the guarantor. This is because Mr. Cheese undertook a guarantee for the rent payment for Mr. Cherry incase he was unable to pay the rent. According to White, (2010), some commercial leases may contain the provision that require the guarantor to enter into a new lease with the landlord incase the the person that is given the sublet fails to honor the rent payment and if the lease agreement has not expired. Such an agreement will therefore require Miss Cheese to enter into a new lease for the remaining period of the time. According to 365175 B.C Ltd v. Malmute Recreation Ltd, [2000]B.C.J No,904, it is important that in case the commercial lease contemplates the right for entering into a new lease with the guarantor, the landlord must meet all the preconditions that are required in exercising these rights or one my loose the right all together. In this case, XYZ Ltd is required by law to provide a notice to Mr. Cherry of the intention to with a new lease agreement with the guarantor for remaining balance of the term that accompanies the termination of the existing lease. This is the best option especially when the preservation of the lease does not help the Xyz to meet it financial obligation to the landlord and it would encourage default payments of rent. It is also effective when the company XYZ has an interest in the building or there are no sufficient goods on the premises to meet the rent arrears. In order to terminate the lease before the lease expires, the landlord can always use the right to re-entry. Scenario 2 (i) The legal principles from cases that shows whether the roof should be replaced or patched-up The legal definition of the repair of the business premises connotes that at the end of the lease agreement, the tenant should ensure that the damage done on any part of the building are repaired so that the building is left in a state that it was found [Calthorpe v. McOscar (1924)]. The covenant between SD and RDS indicated that RDS undertook to keep the both the interior and exterior of the buildings structures in a good state of repair at termination of the lease. The legal meaning of the term repair therefore does not imply perfection or the pristine condition that it was found but a state in which major dilapidation like the leaking roofs are repaired. According to Gray and Gray (2005), the standard of repair refers to restoring the building in a state that the intending new occupier will reasonably be satisfied with based on the intended use of the building. It therefore means that incoming tenant need to be able to agree on the lease on the same terms as with the ended lease and accept the same terms of repair that are contained in the original lease. According to the Gibson Investment Ltd v. Chesterton plc (2002), the terms good and substantial repair is used in the context of a high class office that is located in a prime location in Birmingham means that the building must be restored back to the state that is appropriate to meet the needs of such a building (Forrester and Edwards, 2007). It is important to note that repair has been differentiated from the other activities like the replacement, renewal or improvement of the building premises. According to Lucott v. Wakely (1911), the covenant of repair simply require that the tenant gives the landlord what he took and no more. Although repairs may take a form of restoration, renewal and replacement of the parts of the facility of object that has been broken, it is imperative that repair is distinguished from the need to reconstruct the entire object or that is under discussions. (ii) Explain why XYZ may have a case for claiming that no damages are due for the internal dilapidations. The XYZ will definitely have a case against Mr. ash the lease agreement that was transferred to him defined the covenant of repair as keeping the structure , both exterior and interior of the demised premises in the a good state of repair. At the termination of the lease agreement, although there were numerous internal dilapidation that was brought by the damaged walls, ceilings and the leaking roofs. Mr. Ash’s building surveyor served indicated that the entire cost of the dilapidation amounted to 250 pounds that included the full costs of repair plus the replacement of the leaking roof. It is there’re right for XYZ limited to claim that there were no internal damages for the building was under repair because according to Joyner v Weeks (1891), the court held that he the damages in a premise that is at the end of the lease is termed as the disrepair of the landlord. This should be placed on as the cost that required putting the premise back to the good condition. The common rule for the measure of the damages for the dilapidation and is considered as the responsibility of the landlord. According to conquest v Ebbetts (1896) H.L. the damages for the disrepair at the end of the lease agreement is not only the cost of repair but is referred as the diminution values. The lands and tenant Act 1927 section 18(1), the measure of damages for the terminal dilapidation is considered as similar to the damages that are caused by dilapidation in the common law this principle is also seen in Craven (Builders) Ltd v Sec of State for Health (2000). And the landlord and Tenant act 1927 section 18(1) also argues that the damages for the breach of the agreement to repair the premises during the continuation of the lease or to do the repair at the end of the lease should not exceed the amount of the value of reversion. XYZ ltd have an argument since the act further states that damage for the repairs will not be recovered in case of breach of the covenant to put the building in repair or leave the building in repair if it is shown that the premises however the state of repair they might be would shortly after the end of the lease for tenancy have been pulled down or undergo structural alterations that would render meaningless the importance or need to undertake the repair (Defective Premises Act 1972). According to the Hannson v Newman (1933) C.A, the court would need determine the value of the property at the time the tenant was entering the premises and the value of the property at the end of the lease if there would be no breach of covenant, the difference between the two values is the amount of the damage that is catered for by the landlord. Scenario 3 Explain the ‘presumption of reality’ in rent review and then explain the likely effect of the following the rent review clause in the rent of Engineers 4U on the first review (in 2006) When XYZ granted a sublease of the first and second floors to the engineers 4U that would run for 15 years. The presumption reality, which is the terms of the notional lease that is presumed to be the same as that of the actual lease according to the case of Basingstoke and East Deane BC V Host Group (1987), the user covenant appears in the notional lease especially if it is restricted to the public house only unless it is excluded very specific wording. This has the effect like having a defined length of notional term. This is the term that is equal to the term that was originally granted and is therefore taken to mean that the nortional lease starts from the date of the commencement of the lease agreement (Chancebutton v Compass Services UK and Ireland). It a lease may be done in accordance to the presumption reality but it when it comes to wording of the lease agreement, it would not be based on reality by indicating the specific date that review date would be done. In this case, in which XYZ granted a sublease of the first and second floors to the engineers 4U that would run for 15 years, XYZ may be restricted from making rent reviews according to the market values. This is because, according to Plinth and property investment Ltd v Mott Hay and Anderson (1979) the user covenant have very depressing effect of the landlord making the reviews to meet the market standards. Since the lease covenant specifically indicated the use of the offices as for consulting engineers, this clause put a bar on the Engineering Company to use the offices for any other reasons apart from the consulting work. The result is that the opportunity to make reviews by 2006 was also depressed to about one third of the market value. But XYZ can still have the rent review since it is stated on the lease that it will be done by the fifth and tenth year. This is observed in the case of Postel properties v Greenwell(1992) in which the person doing the valuation was expected to assume that the premises can be used for any other retail purposes as much as it was indicated in the lease covenant that the premise is restricted to be used for sale of high quality china ware. In the case of Norwich union life Assurance Society v BR Board (1987), having much restriction on the lease covenant will depress the rental values. This case established that a covenant that restricted rebuilding reduces the value of the rent significantly by about a quarter of the market rate. Bibliography Forrester, P., and Edwards, C., 2007. Service charges in commercial property RICS code of practice, Commercial Property Professional Group of the Royal Institution of Chartered Surveyors. Gray, K., and Gray, S.F., 2005. Elements of Land Law (Oxford: OUP) White, A., 2010. Asset management, commercial property journal, pp.130-133 Cases 365175 B.C Ltd v. Malmute Recreation Ltd, [2000] B.C.J No, 904, Basingstoke and East Deane BC V Host Group (1987) 2 EGLR 147, CA Beaver Steel Inc. v. Skylark Ventures Ltd. (1983), 47 B.C.L.R 99 (S.C Billson v Residential Apartments Ltd ([1992] 1 AC 494, HL) T, Calthorpe v McOscar ([1924] 1 KB 716, CA Chancebutton v Compass Services UK and Ireland EWHC 1293 (Ch) Commercial credit Corp Ltd v. Harry D. Shields Ltd. (1980), 122 D.L.R. (3rd) Ebbetts v Conquest [1896] A.C. 490 HL Craven (Builders) Ltd v Secretary of State for Health [2000] 1 EGLR 128 Derby Reach Restaurant Ltd. V Odyssey Holdings Ltd (1995), 10 B.C.L.R (3d) 29 (C.A.) at 37-38. Gibson Investments Ltd v Chesterton plc - [2002] All ER (D) 67 Hanson -v- Newman [1934] Ch 298Joyner v Weeks (1891), Lurcott v Wakely & Wheeler [1911] 1 KB 905, CA Norwich Union v. British Railways Board (1987) 2 EGLR 137, a 150 Plinth property investment Ltd v Mott, Hay and Anderson (1978), 247 EG 1167 Postel Properties Ltd v. Greenwell (1992) 47 EG 106 Wallace v. Fraser (1878), 2 S.C.R. 522 Statues Landlord and tenant Act, 1927 Defective Premises Act 1972 Landlord and Tenant Act 1985 Law of Property Act 1925 Read More