Law of Business Leases
in this part of the project you are required to undertake an appraisal of legal problems encountered within the subject property,Witham House, Bristol. The property is an eight-storey office block, and is adjoining the retail and office accommodation
The legal scenarios are set out below. There is a question for each scenario.
Scenario 1
Bristol Developments Ltd (BD), the previous freeholder of the premises, had granted a lease of the premises to RDS Ltd (RDS) commencing on March 25 1994 for a term of 25 years. In the lease, RDS covenanted to pay the rent during the contractual term. At the same time Geoffrey, a director or RDS, entered into a covenant with the landlord guaranteeing the payment of the rent throughout the term.
BD transferred the freehold reversion to Mr Ash in 1997. In 2003, RDS assigned the lease to XYZ Ltd (XYZ).
In 2007 XYZ sublet floors 3-8 to Miss Beech for a term expiring 7 days before the head lease. Miss Beech assigned the sublease to Mr Cherry in 2013 and entered into a guarantee agreement with XYZ guaranteeing Mr Cherry’s payment of the sub-rent.
Mr Cherry has failed to pay the installments of rent that were due on 24 June 2016, 29 September 2016 and 25 December 2016. XYZ have also been in financial difficulties and partly because of Cherry’s failure to pay the subrent they were unable to pay the installment of rent due to Mr Ash on 25 December 2016.
Assume all assignments and sublettings were granted the necessary consents.
Scenario 2
The facts are as in scenario 1 except that Mr Ash has now forfeited XYZ’s lease for rent arrears and other breaches and the subleases have also been brought to an end. In the lease granted by BD, RDS covenanted ‘to keep the structure, exterior, and interior of the demised premises in a good state of repair’. At termination of the lease there are numerous internal dilapidations (damage to walls, ceilings, floors and windows etc) and the roof was found to be leaking in places.
Mr Ash’s building surveyor has served a terminal schedule of dilapidations on XYZ which sets out the breaches and the costed remedies. The internal repairs are costed at £150,000 and the replacement of the roof is costed at £100,000. Mr Ash therefore claims damages from XYZ of £250,000 – the full costs of repair.
After taking professional advice XYZ has responded that:
(i)
the leaks can be repaired by patching-up at a cost of £10,000 – there is no need to replace the roof and so XYZ’s damages liability in respect of the roof is limited to £10,000;
(ii)
in respect of the internal dilapidations, no damages are due as the building is ripe for refurbishment to bring it up to modern standards.
Scenario 3
In 2004 XYZ granted a sub-lease of floors 1 and 2 to Engineers 4U for a term of 15 years (expiring seven days before the head lease). The user covenant provides that the premises shall be used for the business of consulting engineers only. The property has planning permission for Class B1 use under the Town and Country Planning (Use Classes) Order. There is a rent review clause in the sublease which provides, amongst other things, the following:
the expression review date means either the expiry of the fifth or the tenth year of the term for the purpose of ascertainment of the fair market rack rental value on those dates;
the ‘fair market rack rental value’ means the higher of the passing rent and the annual rental of the demised premises which might be reasonably demanded by a willing landlord from a willing tenant if let on the relevant review date on the open market for a term of years certain equivalent in length to the term of this lease with vacant possession at the commencement of the term…..such lease being on the same terms and conditions (other than the amount of rent and the user covenant and excluding the provisions of this present clause relating to rent review) as this present demise without the payment of any fine or premium.
QUESTIONS
Scenario 1
Who may Mr Ash seek the arrears of rent from and what steps must he take or have taken beforehand? What may be the consequences of such action?
Who may XYZ seek Mr Cherry’s arrears of rent from and what steps must be taken beforehand, if any? What may be the consequences of such action?
(You do not need to write about the legal remedies for rent arrears.)
Scenario 2
(i)
Set out the legal principles from the cases which govern the issue of whether the roof should be replaced or patched-up, and
(ii)
Explain why XYZ may have a case for claiming that no damages are due for the internal dilapidations.
Scenario 3
Explain the ‘presumption of reality’ in rent review and then explain the likely effect of the following phrase in the rent review clause on the rent to be determined for Engineers 4U on the first review (in 2009) paying particular attention to the words in brackets:
‘being on the same terms and conditions (other than the amount of rent and the user covenant and excluding the provisions of this present clause relating to rent review) as this present demise’
Note that in answering this question it is important to identify the length of the notional lease.
(For the purposes of this question it is irrelevant whether the 2009 review has taken place or not and you are not required to write about whether it is too late to initiate that review and backdate the increase.)
Submission Details
Your analysis of these issues should be in a report of no more than 3000 words in length. Relevant cases and statutes must be cited.
