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Business Tenancy Law
01/June/2014
A business tenancy is a commercial contract, which means the parties are deemed to know what they are doing. The terms and conditions that the parties agree before the lease is signed and completed are subject to a combination of legislation which may or may not be overriding, and the body of case law for the interpretation of actual wording and phrasing.
Business tenancy law comprises legislation (Acts of Parliament, including Orders and Regulations) and case law derived from court rulings on particular issues which in many instances set a precedent and constitute evidence in support of an opinion.
Case law is the set of existing rulings that have made new interpretations of law and can be cited as precedent. Legal principles are often enunciated and embodied in judicial decisions.
For the most part, the interpretation of the construction of the wording and phrasing in leases, including lease analysis, is based upon an understanding and appreciation of case law. In my computerised law library, I have details of thousands of cases, with information and articles from reputable sources. I also subscribe to leading on-line law resources.
Whether case-law is reported or unreported, it could be binding.
To quote Lord Denning, writing in the foreword to the microfiche edition of The Court of Appeal Transcripts 1951-1980:
… every decision of the Court of Appeal on a point of law is binding on all courts of first instance and on the Court of Appeal itself. No matter whether the decision is reported in the regular series of Law Reports, or is unreported, it is binding. Once you have the transcript of an unreported decision, you can cite it as of equal authority to a reported decision, so it behoves every counsel or solicitor to find, if he can, a case – reported or unreported – which will help him advise or win his case.
Generally, I find Clients are not that interested in the details of a particular case (unless, of course, it's a matter they themselves took to court). Of greater interest and much more importance is how a particular case could and might affect their own situation. With business tenancies, use of and reliable on precedent is not necessarily sacrosanct, because much may depend upon the particular circumstances or facts surrounding the case, and often each new situation has to be assessed on its merits. The interpretation of the construction of leases is fashionable. Literal interpretation may have given way to a presumption in favour of reality, but not necessarily in all instances.
Typical matters where I am consulted on the legal aspects include whether time is of the essence for a rent review, the validity of notices, the wording of Calderbank offers, how best to defeat landlord opposition to renewal of a tenancy, whether better to take a long term lease with a break clause or a short lease with an option to renew, how to obtain more than the statutory compensation on non-renewal, reducing service charges, the effect of the Competition Act on the permitted user clause. Negotiation for rent review, include dispute resolution procedure and lease renewal including expert witness reports is also heavily dependent upon case law.
Business tenancy law comprises legislation (Acts of Parliament, including Orders and Regulations) and case law derived from court rulings on particular issues which in many instances set a precedent and constitute evidence in support of an opinion.
Case law is the set of existing rulings that have made new interpretations of law and can be cited as precedent. Legal principles are often enunciated and embodied in judicial decisions.
For the most part, the interpretation of the construction of the wording and phrasing in leases, including lease analysis, is based upon an understanding and appreciation of case law. In my computerised law library, I have details of thousands of cases, with information and articles from reputable sources. I also subscribe to leading on-line law resources.
Whether case-law is reported or unreported, it could be binding.
To quote Lord Denning, writing in the foreword to the microfiche edition of The Court of Appeal Transcripts 1951-1980:
… every decision of the Court of Appeal on a point of law is binding on all courts of first instance and on the Court of Appeal itself. No matter whether the decision is reported in the regular series of Law Reports, or is unreported, it is binding. Once you have the transcript of an unreported decision, you can cite it as of equal authority to a reported decision, so it behoves every counsel or solicitor to find, if he can, a case – reported or unreported – which will help him advise or win his case.
Generally, I find Clients are not that interested in the details of a particular case (unless, of course, it's a matter they themselves took to court). Of greater interest and much more importance is how a particular case could and might affect their own situation. With business tenancies, use of and reliable on precedent is not necessarily sacrosanct, because much may depend upon the particular circumstances or facts surrounding the case, and often each new situation has to be assessed on its merits. The interpretation of the construction of leases is fashionable. Literal interpretation may have given way to a presumption in favour of reality, but not necessarily in all instances.
Typical matters where I am consulted on the legal aspects include whether time is of the essence for a rent review, the validity of notices, the wording of Calderbank offers, how best to defeat landlord opposition to renewal of a tenancy, whether better to take a long term lease with a break clause or a short lease with an option to renew, how to obtain more than the statutory compensation on non-renewal, reducing service charges, the effect of the Competition Act on the permitted user clause. Negotiation for rent review, include dispute resolution procedure and lease renewal including expert witness reports is also heavily dependent upon case law.
Mixed User Buildings and Service Charges
25/June/2013
When a building comprises ground floor commercial premises let on a business tenancy, and upper part residential flat sold on a long lease, there are two ways for the landlord to recover the costs and expenses incurred by the landlord in connection with repair and decoration of the common parts of the building, such as main structure walls, foundations, roof, etc.
One way is a ‘pay-as-you-go’ clause in both leases whereby the respective tenants separately covenant to reimburse the landlord whenever expense is incurred. The other is a service charge, payable part in advance, the balance after the end of each yearly accounting period.
Even though when repairing, etc., covenants are only partly the tenant’s responsibility, there may not be a reciprocal covenant on the landlord to carry out the work. The CML likes defined responsibility, basically for the landlord to also covenant, but to be obliged might not suit the landlord. Even if it were implied that if the tenant were not responsible at all, so surely the landlord would be, there is a practical difference between enforcing an implication and actual.
An advantage of ‘pay-as-you go’ is that the landlord may not be obliged to the tenant; the disadvantage is having to pay for the work before recovering from the tenant. With a ‘proper’ service charge, where an interim payment is in advance, the balance at the end of the charge accounting year, the landlord would have money up front and/or in the kitty.
For what might seem routine matters, landlords frequently encounter resistance from tenants when applying the wording in a lease literally. Services charges, along with building insurance, are amongst the thornier issues between landlord and tenant, and with mixed-user properties services charges can be fraught with difficulty.
The commercial property market is largely unregulated and a lease is a commercial contract which means the parties are deemed to know what they are doing. Residential property is largely regulated and oriented towards consumer-protection legislation. The main reason, I suspect, is that residential tenants pay using net income after tax, whereas for businesses leasing commitments are tax-deductible.
With commercial property, interpretation of the lease is a separate issue, but otherwise it doesn’t matter how open-ended a cost commitment, the courts are unlikely to interfere. Not so with residential property where regardless of any contractual agreement, the Landlord and Tenant Act 1985 (as amended) requires the landlord to comply with a formal consultation procedure in connection with qualifying works, failing which the maximum amount recoverable from the lessee is £250.
The Landlord and Tenant Act 1985 is to ensure residential tenants are not required to pay for unnecessary or defective services, and/or for the payment for necessary services to be provided to an acceptable standard. The gist of Daejan Investments Ltd v Benson and others [2013] is that failure to comply with the minutiae of the consultation procedure ought not be an opportunity for lessees to wriggle out of payment. However, per Phillips v Francis [2012] a landlord has to consider overall expenditure on qualifying works, the whole of which determines whether the leaseholders have to be consulted, even though the charge would be £250 or less for each individual leaseholder.
Long leaseholders may like to regard themselves owners, they are not: all they have is use of the space inside the premises, together with the right for the purpose stated in the lease for the duration of the term (subject to any rights on expiry). Everything else belongs to the landlord (subject to any exceptions) so arguably it is socially fair and reasonable when the landlord wants to carry out works at the tenant’s expense for the tenant to have a say in how much should be expended.
Generally, the landlord wants to do the works; tenants may be less inclined to make the first move when they know it is going to cost them. With mixed-user buildings, where the business tenancy may include tenant-enforceable covenants and/or tenants undeterred by legal proceedings it is a question of who wants the works done and the urgency.
In a matter I dealt with for a landlord of a mixed-user building, the residential lessee wanted repairs done urgently because the state of the building was deterring his prospective (sub)-tenants. He informed my client it was the landlord’s responsibility but would get the work done provided the landlord would reimburse approximately £5000. I advised that despite the lessee having indicated footing the bill, the work couldn’t go ahead until the consultation had been complied with, otherwise the lessee could refuse to pay more than £250. I wrote to the lessee to explain. I was told I could forget any suggestion of him paying my fees, let alone another surveyor for supervising the works. In response, I provided a copy of the lease whereupon I was questioned whether the fees were reasonable. As the matter progressed and insistency of urgency intensified. It transpired the estimates the lessee had obtained were verbal, so I set about obtaining written estimates from the several contractors, The lessee said the lowest price should be accepted, but the works proposed by the contractor would have resulted in an improvement not a repair, so not recoverable. Mentioning that, while scaffolding was erected, my Client could get some other work done, in the event the lessee told us to forget it, he would get the work done at his own expense.
Where the landlord wants to undertake works, then the consultation procedure must be satisfied with the residential element before the work is started. Where the commercial tenant wants the landlord to do the works as a matter of urgency, the landlord might have to decide whether preferable to endure the inevitable delay in getting the go-ahead from the residential tenant or go ahead regardless in order to pacify the commercial tenant and avoid any proceedings.
One way is a ‘pay-as-you-go’ clause in both leases whereby the respective tenants separately covenant to reimburse the landlord whenever expense is incurred. The other is a service charge, payable part in advance, the balance after the end of each yearly accounting period.
Even though when repairing, etc., covenants are only partly the tenant’s responsibility, there may not be a reciprocal covenant on the landlord to carry out the work. The CML likes defined responsibility, basically for the landlord to also covenant, but to be obliged might not suit the landlord. Even if it were implied that if the tenant were not responsible at all, so surely the landlord would be, there is a practical difference between enforcing an implication and actual.
An advantage of ‘pay-as-you go’ is that the landlord may not be obliged to the tenant; the disadvantage is having to pay for the work before recovering from the tenant. With a ‘proper’ service charge, where an interim payment is in advance, the balance at the end of the charge accounting year, the landlord would have money up front and/or in the kitty.
For what might seem routine matters, landlords frequently encounter resistance from tenants when applying the wording in a lease literally. Services charges, along with building insurance, are amongst the thornier issues between landlord and tenant, and with mixed-user properties services charges can be fraught with difficulty.
The commercial property market is largely unregulated and a lease is a commercial contract which means the parties are deemed to know what they are doing. Residential property is largely regulated and oriented towards consumer-protection legislation. The main reason, I suspect, is that residential tenants pay using net income after tax, whereas for businesses leasing commitments are tax-deductible.
With commercial property, interpretation of the lease is a separate issue, but otherwise it doesn’t matter how open-ended a cost commitment, the courts are unlikely to interfere. Not so with residential property where regardless of any contractual agreement, the Landlord and Tenant Act 1985 (as amended) requires the landlord to comply with a formal consultation procedure in connection with qualifying works, failing which the maximum amount recoverable from the lessee is £250.
The Landlord and Tenant Act 1985 is to ensure residential tenants are not required to pay for unnecessary or defective services, and/or for the payment for necessary services to be provided to an acceptable standard. The gist of Daejan Investments Ltd v Benson and others [2013] is that failure to comply with the minutiae of the consultation procedure ought not be an opportunity for lessees to wriggle out of payment. However, per Phillips v Francis [2012] a landlord has to consider overall expenditure on qualifying works, the whole of which determines whether the leaseholders have to be consulted, even though the charge would be £250 or less for each individual leaseholder.
Long leaseholders may like to regard themselves owners, they are not: all they have is use of the space inside the premises, together with the right for the purpose stated in the lease for the duration of the term (subject to any rights on expiry). Everything else belongs to the landlord (subject to any exceptions) so arguably it is socially fair and reasonable when the landlord wants to carry out works at the tenant’s expense for the tenant to have a say in how much should be expended.
Generally, the landlord wants to do the works; tenants may be less inclined to make the first move when they know it is going to cost them. With mixed-user buildings, where the business tenancy may include tenant-enforceable covenants and/or tenants undeterred by legal proceedings it is a question of who wants the works done and the urgency.
In a matter I dealt with for a landlord of a mixed-user building, the residential lessee wanted repairs done urgently because the state of the building was deterring his prospective (sub)-tenants. He informed my client it was the landlord’s responsibility but would get the work done provided the landlord would reimburse approximately £5000. I advised that despite the lessee having indicated footing the bill, the work couldn’t go ahead until the consultation had been complied with, otherwise the lessee could refuse to pay more than £250. I wrote to the lessee to explain. I was told I could forget any suggestion of him paying my fees, let alone another surveyor for supervising the works. In response, I provided a copy of the lease whereupon I was questioned whether the fees were reasonable. As the matter progressed and insistency of urgency intensified. It transpired the estimates the lessee had obtained were verbal, so I set about obtaining written estimates from the several contractors, The lessee said the lowest price should be accepted, but the works proposed by the contractor would have resulted in an improvement not a repair, so not recoverable. Mentioning that, while scaffolding was erected, my Client could get some other work done, in the event the lessee told us to forget it, he would get the work done at his own expense.
Where the landlord wants to undertake works, then the consultation procedure must be satisfied with the residential element before the work is started. Where the commercial tenant wants the landlord to do the works as a matter of urgency, the landlord might have to decide whether preferable to endure the inevitable delay in getting the go-ahead from the residential tenant or go ahead regardless in order to pacify the commercial tenant and avoid any proceedings.
Buyers of property to let less deserving of protection
01/June/2011
Per Scullion v Bank of Scotland plc (t/a Colleys) [2011] the Court of Appeal has overturned the High Court decision that for buy-to-let residential property the valuer was liable to the purchaser.
The CA held that although the valuer had been negligent and the purchaser had relied upon the valuer’s report (amongst other advice) when deciding to proceed, the purchaser did not establish foreseeability of damage or a sufficient degree of proximity between himself and the valuer.
Nor did the purchaser show that it would be "fair, just and reasonable" to impose (on the valuer) a duty of care to the purchaser. The Court held there were important distinctions to be made between valuations for buy-to-let purposes and those made for home buyers.
The court commented that those buying properties to let, were less "deserving of protection by the common law against the risk of negligence than those buying to occupy as their residence."
The CA held that although the valuer had been negligent and the purchaser had relied upon the valuer’s report (amongst other advice) when deciding to proceed, the purchaser did not establish foreseeability of damage or a sufficient degree of proximity between himself and the valuer.
Nor did the purchaser show that it would be "fair, just and reasonable" to impose (on the valuer) a duty of care to the purchaser. The Court held there were important distinctions to be made between valuations for buy-to-let purposes and those made for home buyers.
The court commented that those buying properties to let, were less "deserving of protection by the common law against the risk of negligence than those buying to occupy as their residence."
Point of Law
01/June/1985
In Shirlcar Properties Ltd v Heinitz & Another [1982], the Court stated stated that use of the expression ' subject to contract' did not constitute effective notice to set a rent review procedure in motion when formal notice had to be given. Use of the expression 'without prejudice' is widely misunderstood and so it comes as no real surprise to find that many surveyors are unable to grasp the effect of such wording when concluding rent review negotiations.
An offer made 'without prejudice' is binding if acceptance of the offer is made. By adding the words ' subject to contract,' however, the presumption that the parties intend to create legal relations may be expressly negatived. From Rose & Frank v ] R Crompton Ltd [1923], "the words of the preliminary agreement in other respects may be apt and sufficient to constitute an open contract, but if the parties in so agreeing make it plain that they do not intend to be bound except by some subsequent document, they remain unbound though no further negotiation be contemplated. Either side is free to abandon the agreement and to refuse to assent to any legal obligation .... "
When concluding negotiations, it is common for valuers to head the correspondence 'without prejudice' (and/or) 'subject to contract.' In such cases, the concluded rental will be subject to the valuer's recommendation of acceptance. This reservation in itself is sufficient evidence that no formal agreement has been reached, even if the recommendation refers to the need for 'Board approval' reckoned to be a formality. Until an offer is made without reservation, it is not agreed and some valuers and parties feel that withdrawal from the 'conclusion' is tantamount to unethical or unprofessional behaviour against the spirit of negotiation. Such opinion is, of course, the prerogative of the aggrieved party but it does not affect the legal position and, whereas such practice may conflict with expectations, valuers must recognise that the law applies as much to the interpretation of rent review covenants as it does to negotiations.
An offer made 'without prejudice' is binding if acceptance of the offer is made. By adding the words ' subject to contract,' however, the presumption that the parties intend to create legal relations may be expressly negatived. From Rose & Frank v ] R Crompton Ltd [1923], "the words of the preliminary agreement in other respects may be apt and sufficient to constitute an open contract, but if the parties in so agreeing make it plain that they do not intend to be bound except by some subsequent document, they remain unbound though no further negotiation be contemplated. Either side is free to abandon the agreement and to refuse to assent to any legal obligation .... "
When concluding negotiations, it is common for valuers to head the correspondence 'without prejudice' (and/or) 'subject to contract.' In such cases, the concluded rental will be subject to the valuer's recommendation of acceptance. This reservation in itself is sufficient evidence that no formal agreement has been reached, even if the recommendation refers to the need for 'Board approval' reckoned to be a formality. Until an offer is made without reservation, it is not agreed and some valuers and parties feel that withdrawal from the 'conclusion' is tantamount to unethical or unprofessional behaviour against the spirit of negotiation. Such opinion is, of course, the prerogative of the aggrieved party but it does not affect the legal position and, whereas such practice may conflict with expectations, valuers must recognise that the law applies as much to the interpretation of rent review covenants as it does to negotiations.