Property SGS 9 Solutions Pack 2020-2021 PDF

Preview

Summary

Download Property SGS 9 Solutions Pack 2020-2021 PDF

Description

LPC: PROPERTY LAW AND PRACTICE

SGS 9 SOLUTIONS PACK

p

PROPERTY LAW AND PRACTICE SGS 9: CONTENTS OF A LEASE 2: ALTERATIONS, USE AND POST-COMPLETION Legal Practice Course

Activity 1 Solution Question 1 Removal of Structural Internal Walls Lease Lease clause 12.1 contains a covenant not to make any structural additions or alterations to the Premises or the Building. This is an absolute covenant. This means that the landlord does not even have to consider giving consent to these alterations and there is no requirement for the landlord to act reasonably. Law Section 19(2) Landlord and Tenant Act 1927 (‘LTA 1927’) does not have any effect on absolute covenants against alterations. There is nothing to prevent Marine Paints (‘MP’) asking the landlord for consent but there is no obligation on the landlord to give consent. If the landlord were to consent, there is no requirement for the landlord to act reasonably and so the landlord could impose any conditions it likes on granting consent e.g. a premium and/or recovery of its legal and professional costs. There is no case law relevant to this lease clause. Landlord’s Title If the landlord does grant consent, the landlord’s title should be checked for any restrictions preventing such structural works. In the Official Copy of Title Number NL56712 there is no restrictive covenant against building but there is a restrictive covenant (covenant (d) in the schedule of restrictive covenants) stating that the consent of the PWB is required (such consent not to be unreasonably withheld) to apply for any planning permission. Local Authority However, as these works are internal, it is unlikely that planning permission would be required. Section 57(1) Town and Country Planning Act 1990 (‘TCPA’) states that “planning permission is required for the carrying out of any development of land.” “Development” is defined in section 55 TCPA to include most building works as well as material changes of use. However, section 55(2)(a) TCPA excludes from the definition of development works which are carried out to the interior only of a building and which do not materially affect the external appearance of the building. It is important to recognise that building regulations consent will still be required as there are likely to be health and safety implications of structural alterations. LAW SCHOOL

19/06/2019 13:06

Page 1 of 6

SGS 9 SOLUTIONS PACK

LPC: PROPERTY LAW AND PRACTICE

Removal of Non Structural Internal Walls Lease Lease clause 12.2 contains a covenant not to make any non-structural additions or alterations to the premises unless the consent of the landlord has been obtained. This is a qualified covenant. Clause 12.2.4 of the lease states that MP has to pay the reasonable fees properly incurred by the landlord in relation to the consent. Law Section 19(2) LTA 1927 upgrades qualified covenants in relation to ‘improvements’ to make them fully qualified covenants. Therefore the landlord has to act reasonably in deciding whether or not to grant consent to the alterations if they are ‘improvements’. The case of Lambert v Woolworth stated that an improvement is seen through the eyes of the tenant. It is therefore assumed that all alterations are improvements. Section 19(2) LTA 1927 also states that the landlord can charge for any legal or other expenses properly incurred in relation to the consent and also for any damage or diminution in value of the premises. Landlord’s title and Local Authority Planning permission is unlikely to be required for the removal of non structural walls (see Chapter 2, paragraphs 1.2 and 1.2.1) and so no consent is needed from the PWB pursuant to restrictive covenant (d). Building regulations consent may still be required.

Removal of Demountable Partitioning Lease Clause 12.2 of the lease states that there is no restriction on removing demountable partitioning. MP does not need to ask for consent to these alterations and so there is no cost implication. However, under clause 12.4, MP should notify the landlord after it has carried out these works. Law As no consent is needed for these works, s.19(2) LTA 1927 has no impact on this clause. Landlord’s title and Local Authority Planning permission would not be needed for the removal of demountable partitioning and so no consent is needed from the PWB pursuant to restrictive covenant (d). Building regulations consent is unlikely to be required but it would be good practice to consult a surveyor for confirmation of this.

Page 2 of 6

8/27/2020 4:40:00 PM/OH

LAW SCHOOL

LPC: PROPERTY LAW AND PRACTICE

SGS 9 SOLUTIONS PACK

Change of Use to a Warehouse Lease Clause 13.1 of the lease states that MP cannot use the premises except as offices (the ‘Permitted Use’) or such other use as the landlord may consent to. This is a qualified covenant. MP needs the landlord’s consent to change the use of the premises to a warehouse but there is no obligation on the landlord to act reasonably. Law Section 19(3) LTA 1927 does not upgrade this qualified covenant to a fully qualified covenant. Section 19(3) LTA 1927 does, however, state that the landlord cannot charge a premium for granting consent unless the change of use also requires a structural alteration to the premises. Therefore, if the change of use to a warehouse also involves removal of a structural wall, the landlord could charge a premium or increase the rent as a condition of granting the consent. Whether or not the change of use involves a structural alteration, s.19(3) LTA 1927 states that the landlord can charge for any legal or other expenses incurred in relation to the consent and also for any damage or diminution in value of the premises. Landlord’s title and Local Authority Section 57(1) TCPA states that “planning permission is required for the carrying out of any development of land.” “Development” is defined in section 55 TCPA and includes “the making of any material change in the use of any buildings or other land.” MP wants to change the use from offices (Class E(g)(a)) to a warehouse (Class B8). As this is a change from one use class to another, this would be a material change of use. Planning permission would normally be required for a material change of use but, as this change will be applied for in the transitional period, if it was permitted by the GPDO using the use classes under the Town and Country Planning (Use Classes) Order 1987 prior to its amendment on 1 September 2020 by the Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020, no application for planning permission would be needed. The pre-1 September UCO 1987 categorised offices as Class B1. The GPDO permits a change from Class B1 to Class B8 if the change of use relates to less than 500 square metres of the premises. We would need to take instructions on how large the premises are. If they are over 500 square metres, then planning permission will be required. As discussed above, consent of the PWB is required (such consent not to be unreasonably withheld) to apply for any planning permission. Under clause 14.3 of the lease, the landlord’s consent (not to be unreasonably withheld) is also required before MP makes any application for planning permission. If MP will be carrying out building works in order to materially change the use, building regulations will be needed (see SGS 2).

LAW SCHOOL

19/06/2019 13:06

Page 3 of 6

SGS 9 SOLUTIONS PACK

LPC: PROPERTY LAW AND PRACTICE

Question 2 Documentation The consent to the removal of structural and non-structural walls would be documented by a licence to alter between the landlord and the tenant. The licence to alter would contain covenants from the tenant to get all necessary permissions for the works (i.e. planning permission, building regulations approvals, consent from the PWB) and to carry out the work to a good standard with good quality materials etc. The tenant would want to make sure that any increase in value of the premises attributable to the works is disregarded on rent review so that the tenant does not end up paying additional rent for improvements that it has paid for itself. The landlord will also normally require a covenant from the tenant that the premises will be reinstated at the end of the term (i.e. the walls put back to the way they were). The landlord will also make sure that the licence stipulates that the tenant will pay all of the landlord’s legal and professional fees. It is possible for the landlord to grant a temporary change of use by way of a licence but it is more usual for the user clause of the lease to be changed permanently by way of a deed of variation. The licence to change use is a licence from the landlord to the tenant documenting its consent to the proposed change of use. The tenant covenants with the landlord to get all the necessary permissions for the change of use, pay the landlord’s legal and professional fees incurred in giving its consent and to pay the landlord a reasonable sum if the tenant reduces the value of the landlord’s premises (or neighbouring premises belonging to the landlord).

Question 3 Extension The proposed extension goes beyond the demise of the lease (see the definition of ‘Premises’ in the lease) and in addition, the extension would be an external structural alteration which is not permitted by the lease (see clause 12.1 of the lease) as this is an absolute covenant. The landlord is therefore not obliged to consent. If the landlord did consent to such a proposal, a deed of variation would be needed to document the increase in size of the demised premises. However, a deed of variation would operate as a surrender and regrant of the lease (as it changes the extent of the premises). This would have SDLT consequences. If the original lease was registered at the Land Registry (see Activity 2), this will give rise to an obligation to inform the Land Registry so that the existing entry can be closed and a new one can be opened. Furthermore, if the original lease was contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954 (as was discussed in SGS 7), the contracting out procedure will not apply to the re-granted lease, resulting in the tenant benefitting from security of tenure (unless the statutory procedure was followed for the re-grant also). It may be better to grant a separate lease of the additional land which would be on the same terms as the current lease and for a contemporaneous term of years as the existing lease; the SDLT liability should be lower and so should the Land Registry fee. Page 4 of 6

8/27/2020 4:40:00 PM/OH

LAW SCHOOL

LPC: PROPERTY LAW AND PRACTICE

SGS 9 SOLUTIONS PACK

Note that the extension will require building regulations consent and depending on the extent of the works, may require planning permission. If planning permission is required then the PWB and landlord’s consent would be required as discussed above.

Activity 2 Part 1 Solution What pre-completion steps will Marine Paints’ solicitor need to take before the lease of the ground and first floors of Delamere House can be completed? 1.

Exchange the Agreement for Lease (i.e. the contract). As there is no premium with this lease there is no deposit to pay.

2.

Send the Completion Information and Undertakings Form (CIUF or TA13) to the landlord’s solicitor to find out the practical details of completion, such as where to collect the keys.

3.

Carry out an OS2 search. The landlord, Portobello Estate Investments Limited, is the registered freehold proprietor of Delamere House, so a priority search at the Land Registry needs to be carried out. As Marine Paints’ proposed lease is only of part of the registered freehold title, an OS2 search of part is appropriate, rather than an OS1 search of whole. The OS2 will freeze the landlord’s registered title so it cannot grant a lease of that part of the building to a third party before Marine Paints completes the lease.

4.

Update the Companies House search of the landlord to make sure there are no solvency issues with the landlord.

5.

Request the counterpart lease signed by Marine Paints and also request the completion monies from Marine Paints which is usually the first quarter ’s rent, service charge and insurance rent payments; ensure they are received in cleared funds ready for completion.

6.

The parties are then ready to complete the lease. Both the original and counterpart lease are swapped between solicitors and the first quarter’s rent, service charge and insurance rent payments are sent to the landlord’s solicitor.

7.

Shortly after completion of the lease the solicitor for Marine Paints will receive the landlord’s signed part of the lease and will send Marine Paints a copy for its records. Then it’s time to contemplate post completion formalities.

LAW SCHOOL PLEASE RECYCLE

19/06/2019 13:06

Page 5 of 6

SGS 9 SOLUTIONS PACK

LPC: PROPERTY LAW AND PRACTICE

PROPERTY LAW AND PRACTICE SGS 9: CONTENTS OF A LEASE 2: ALTERATIONS, USE AND POST-COMPLETION Legal Practice Course

Activity 2 Part 2 Solution WHAT STEP?

WHERE?

Pay SDLT & file SDLT1 / Land Transaction Return

HMRC

Register Lease

Land Registry

WHAT FORM? SDLT1

AP1

ENCLOSURES? Cheque for SDLT if not sent by telegraphic transfer or online

Certified copies of: 1. Lease (including Prescribed Lease clauses) 2. Bank consent 3. SDLT5 PLUS 4. Land Registry fee

HOW LONG? Within 14 days of the “effective date”, here completion Within priority period of OS2 search (i.e. within 30 working days from date of OS2 search result)

CONSEQUENCES OF FAILING TO MEET RELEVANT TIME LIMIT?  Penalty for late submission of form  Possible interest liability for late payment  Cannot register Lease at Land Registry without SDLT5 acknowledgement  Third party interests may obtain priority, even if created after completion, if they are registered in the meantime  Until registration of the Lease, they are only beneficial owners; the legal title does not transfer until registration is completed  As the Landlord’s title is registered, the Lease will be automatically noted on the Landlord’s title if there is an application to register the Lease itself (s.38 Land Registration Act 2002) (It will be for the Landlord to notify its mortgagee of the completion of the new Lease.)

Page 6 of 6

8/27/2020 4:40:00 PM/OH

LAW SCHOOL...