The Case of Georgian Town House Lease - Essay Example

The case of Georgian town – House Lease 1. Introduction In order to understand the rights of both parties involved in a tenancy agreement we should primarily identify the nature of this agreement and its role within the legal framework of a particular region. At a first level, it should be noticed that the tenancy agreement is a contract. For this reason, any problem related with the application of its terms should be regulated primarily by the agreement of the parties as it is incorporated with the contract (where any issue should be clearly analyzed). The specific issue is highlighted by the court in the case of Legal & General Assurance Society Ltd v Expeditors International (2007) where it is stated that ‘for example, the requirement found by the House of Lords to be part of the tenancy agreement in Liverpool City Council v Irwin [1977] AC 239 - that the lessor was to be responsible for repairing and lighting the common parts - could only be an implied term; it had to be spelt out and written in by the court; it was additional to, not part of, the express terms’ (par. 48). The principles of law regarding the tenancy agreements can be applied whenever there are no provisions made within the contractual agreement for the resolution of a specific dispute. This view has been also supported by the court in the case of St Ermins Property Company Ltd v Patel & Ors (2001) where it is stated that ‘Landlord and Tenant Act 1954: Section 1 of the 1954 Act provides that on the termination, in accordance with the provisions of Part I, of a tenancy to which that section applies, the tenant shall be entitled to the protection of the Rent Act subject to and in accordance with those provisions’ (par. 8) In the case under examination, three are the main issues that need to be made clear for the landlord: the responsibilities (if any) of the tenant to proceed to the repair of the damages caused to the property, the possible right of the landlord to ask for a rent review (if applicable) and the right of the landlord to ask for the termination of lease. In order for these problems to be resolved, it is necessary that the contractual agreement (lease agreement) is carefully reviewed in order to identify the rights of the landlord and the responsibilities of the tenant regarding the above mentioned issues. The assumptions of the courts in relevant cases will be also used (where appropriate) in order to support the credibility of the suggestions made to the landlord for each of the above described issues. 2. General aspects of tenancy in relation with the lease of the Georgian town – house The lease of the specific property began in 1994 and it is stated that it will be last for 25 years. On the other hand, the application of the tenancy law (Landlord and Tenant Act 1954) has not been excluded by the parties (at least as it can be assumed through the text of the lease agreement). There are specific periods during which the landlord can ask for a rent review while there is also a term that the lease can be terminated in the 16th year (i.e. in 2010) under the terms that a relevant notice is given to the tenant. At a first level it should be noticed that there are no facts that could be justified the termination of the lease before the end of the time stated in the contractual agreement. Any possible differentiations from the above assumption will be presented and evaluated. Regarding the rent review, the general assumption is also that there is no right of the landlord to ask for the rent review at this point of time; however in this case again a few notifications are made regarding a possible right of the landlord to ask for the rent review even if this review can be asked only in 2009 (in accordance with the terms of the lease agreement). As for the repairs, it seems that the obligation of the tenant to cover the relevant cost can be based directly on the terms of the tenancy agreement. 3. Repairs – obligations of tenant At a fist level, the obligations of the tenant to proceed to the repairs required during the duration of the lease can be derived from the tenancy agreement. Indeed, in accordance with the relevant article of the agreement (as presented in the case study) the tenant should have the responsibility for the repair of any damage that has been caused to the property because of the lease. The fact that the original tenant assigned their interest to the current tenant cannot lead to the differentiation on the above assumptions. In fact, the original tenant have the responsibility to cover the relevant cost while the current tenant could be possibly asked to participate (partially or totally to the relevant expenditure). In addition, a right of the landlord to ask for compensation could exist. The responsibility of the tenants to proceed to specific repairs of the property have been highlighted by the court in the Simmons & Ors v Dresden (2004) case where a reference to the South African case of Gemmell v. Goldsworthy [1942] SASR case is made: ‘This conclusion is not affected by the fact that the agreement in the present case contains a term to paint every two years; the performance of that term does not displace Gemmell's duty to "keep up" the painting under the term to repair – that is to say, should the inside or outside painting become defective or destroyed; Gemmell would be liable, under the term to repair, to make good those defects notwithstanding he had recently painted the premises under the term to paint; the term to paint every two years is absolute and unconditional. It had to be done whether it was apparently necessary or not, whereas the duty under the term to repair was to "keep up" the condition of the painting during the intervening period of two years only if and when it was necessary and proper to do so’ (par. 37). The specific issue was examined by Shahar et al. (2005, 484) who came to the conclusion that ‘the law often awards recovery that is neither purely cost-based nor purely benefit-based and instead equals either the greater or lesser of the two measures; these hybrid approaches to recovery distort compensation and incentives’. Regarding this issue it is held by the court in the case of Simmons & Ors v Dresden (2004) that ‘as I have already indicated, in many instances the facts as to the actual condition of some part of the Premises when possession was delivered up by the Tenants were not in dispute; even where there was a dispute as to whether a particular matter amounted to a breach, usually the issue was not what its condition actually was, but whether the matter complained of was of such significance as to mean that in respect of it there was a breach of covenant’ (par. 51). In other words, the level at which the court would recognize to the landlord a right to be compensated by the tenant for any damage made to the property cannot be precisely estimated; the relevant right of the landlord could be also recognized and admitted as being active especially in case that a severe damage to the joints of the property is found to have taken place. 4. Review of rent – analysis and suggestions As stated above the review of rent in the specific lease is specifically described within the contractual agreement. More specifically, it is noticed that the landlord has the right to review the rent ‘at the end of the 5th and the 15th years of the term’ (see case study). In order for this right of the landlord to take effect, it is required that the tenant will be appropriately notified in advance for the planned rent review. Regarding the specific issue, it is noticed in a report published by RYA (2008) that ‘most leases now incorporate upwards only rent review clauses which allow for increases in rent every three or five years; this means that landlords are guaranteed a good return on their property whatever happens to open market rents; it is open to the tenant to ask for upward and downward rent reviews within new leases to take advantage of any drop in open market rentals’. However, in the specific case, the right of the tenant to ask for a review refers to two specific periods of time: in the 5th and the 15th years since the beginning of the tenancy. If taking into account the common practice, the relevant agreement could be possibly regarded as negative for the landlord; however as this term is clearly stated within the contract, it should be applied regarding all its aspects even if partially unfair for the landlord. 5. Lease termination – causes and procedure Generally, the law seems to recognize additional rights to the tenants of lease tenancies. More specifically, in the case Howard De Walden Estates Ltd v Les Aggio & Ors the Court admitted that ‘Successive Acts of Parliaments have increased the rights of holders of long leases as against their landlords. Thus, the Leasehold Reform Act 1967 gave owners of houses the right to purchase the freehold (the right of leasehold enfranchisement) and the right to extend their leases for fifty years’ (par. 1). On the other hand, the termination of the ‘main tenancy’ would lead to the termination of all sub-tenancies. In this case, the ‘second’ tenant should be also responsible to leave the property in case that a right of the landlord to ask the termination of the lease would exist. The above view is in accordance with the suggestions of the Law Commission in its report of 2004 in which it is stated that ‘the forfeiture of a tenancy terminates all interests which derive out of it: "the branches fall with the tree"; as a result, sub-tenancies fall in on termination of the head tenancy, and mortgages of the leasehold interest meet the same’. Moreover, it is supported that ‘A tenant cannot terminate a commercial lease before the lease term is over without facing liability unless there is a provision in the lease which allows for early termination’ (Legal Match, 2008). In the case of St Ermins Property Company Ltd v Patel & Ors (2001) the court held that ‘Section 4 of the 1954 Act provides, so far as material, that: "(1) The landlord may terminate a tenancy to which section one of this Act applies by notice given to the tenant in the prescribed form specifying the date at which the tenancy is to come to an end (hereinafter referred to as 'the date of termination'), being either the term date of the tenancy or a later date: Provided that this subsection has effect . . . subject to . . . the interim continuation of tenancies pending the disposal of applications to the court’ (par. 29). In accordance with the above, none of the parties could ask for the termination of the lease at this point of time. In other words, unless an agreement would take place between the two parties the lease could not be terminated before the time clearly stated at the tenancy agreement. 6. Conclusion and recommendations In accordance with all the issues developed above, Apuleius Limited (landlord) has a series of rights regarding the particular lease. At a first level, it should be noticed that the landlord has the right to proceed to alterations of existed tenancy agreement if there is a risk of damage of the structural framework (joints) of the property. The study of McAllister et al. (1999, 353) showed that ‘the concession level of the landlord will be a function of four variables: expected landlord’s cost of void, probability of tenant relocation, landlord’s risk preference and the effects of the bargaining process’. In other words, the landlord – if planning to proceed to changes regarding the existed tenancy agreement – should take into consideration a series of issues related with the specific agreement. In practice, the choices given to landlord for each particular problem – as described above – would be the following ones: a) repairing works: these should be paid by the tenant since the necessity of these works has been verified by an engineer; on the other hand, any attempted change to the internal structure of the property should be appropriately approved by authorities (it should be checked primarily whether the attempted changes would influence the property’s stability); b) the review of rent would not be applicable at current stage; in accordance with the tenancy agreement the rent review should be made at specific points of time during the lease but such a review did not take place on time (in order for this rent review to be justified it should take place at 2009 (15 years since the beginning of the lease) after a relevant notification to the tenant the first two months of 2009); for this reason the objections of the tenant can be characterized as justified; however, in case that the lease would be continued and the tenant would change the use of the property; even partially adding internet services there could be possible a right of the landlord to ask for rent review since the terms of the agreement would have been differentiated; in this case if the tenant would not agree with the suggested review the landlord would ask for the termination of the lease; c) the termination of the lease is not considered as possible at least at this particular stage; only if the findings of the engineer suggest that there is a severe damage of the property during the lease such a claim would be justified; however the engineer seems to proceed to general assumptions and guidelines stating that ‘the joints have probably not been permanently damaged by the load’ (see case study); only if another examination and evaluation of the place would prove that the damage caused by the lease is permanent (or if the tenant would break his obligations to proceed to the necessary repairs) then a right of the landlord to ask for the termination of the lease would appear. Of course, in case that the tenant violates any other term of the contractual agreement, such a right of the landlord would appear. Under current conditions the landlord seems to have no particular right to ask for the termination of the lease. His participation in a specific firm, the Apocolocyntosis Limited, cannot lead to the assumption that he has the right to ask for the termination of the lease. Perhaps only under the terms that the landlord himself would use the property (as a shareholder of this firm) then the termination of the lease could be asked by the tenant (in this case a compensation might be payable to the tenant for the pre-mature termination of the tenancy agreement). References Legal Match (2008) Can a Commercial Lease Be Terminated Before the Lease Term Is Over without Liability?, available at http://www.legalmatch.com/law-library/article/commercial-lease-early-termination-lawyers.html Law Commission. Termination of Tenancies for Tenant Default (Consultation Paper) [2004] EWLC 174(7) (15 December 2003) McAllister, P., Tarbert, H. (1999) Bargaining, utility and rents: Analysing the effect of potential lease termination on rent negotiation outcomes. Journal of Property Investment and Finance, 17(4): 353-364 RYA (2008) Rent reviews [online], available at http://www.rya.org.uk/WorkingWithUs/clubs/premises/rentreviews.htm Shahar, O., Mikos, R. (2005) The (Legal) Value of Chance: Distorted Measures of Recovery in Private Law. American Law and Economics Review, 7(2): 484-522 Case law Howard De Walden Estates Ltd v Les Aggio & Ors [2007] EWCA Civ 499 (24 May 2007) [England and Wales Court of Appeal] Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2007] EWCA Civ 7 (24 January 2007) Liverpool City Council v Irwin [1976] UKHL 1 (31 March 1976) United Kingdom House of Lords Decisions St Ermins Property Company Ltd v Patel & Ors [2001] EWCA Civ 804 (25 May 2001) [England and Wales Court of Appeal] Gemmell v. Goldsworthy [1942] SASR 55 Simmons & Ors v Dresden [2004] EWHC 993 (TCC) (18 May 2004) England and Wales High Court (Technology and Construction Court) Read More