BPF & BCO Model Clauses for an FRI Office Lease of Whole

Transcription

1 BPF & BCO Model Cluses for n FRI Office Lese of Whole Ferury 2003

2 BPF nd BCO Model Cluses for n FRI Office Lese of Whole CONTENTS pge pge Introduction 1 - Summry 3 - Model Cluses Commentry Cluses 1 Pying Rent Outgoings nd Services Repir nd Mintennce Altertions, Signs nd Reinsttement Disposls Insurnce Costs Rent Review Definitions - 48 BPF/BCO Model Cluses for n FRI Office Lese of Whole Ferury 2003

3 - 1 - BPF nd BCO Model Cluses for n FRI Office Lese of Whole INTRODUCTION The BPF nd the BCO 1 We, the British Property Federtion (BPF) nd the British Council for Offices (BCO), re jointly responsile for wide rnge of office interests, from lndlords nd tennts to contrctors nd professionls. As prt of our efforts to improve the efficiency nd ttrctiveness of the office sector, we hve worked together to prepre these model cluses for fully repiring nd insuring (FRI) office lese of whole without service chrge provisions. 2 These model cluses hve een produced following n extensive consulttion process. We re committed to pulishing model cluses which will ecome widely regrded s eing fir nd resonle for oth lndlords nd tennts. 3 The model cluses hve een drfted for n FRI office lese of whole, ut they cn lso pply to other types of property. For exmple, with firly minor chnges, they cn e used for retil, industril nd wrehouse property. If the repiring oligtion is chnged nd service chrge provisions re dded, the cluses cn pply to internl repiring multi-let uildings. 4 Lndlords my well e offering mixture of terms of occuption to the tennt, including rek cluses, upwrds/downwrds rent reviews, serviced office solutions nd trditionl FRI lese. The model cluses re designed for tht trditionl FRI lese. The need for model cluses 5 There is growing cceptnce tht the documents used in the commercil property nd construction sectors should e stndrdised. As long s they re fir, stndrd documents cn ese the trnsction process. They llow everyone involved to concentrte on key commercil terms, nd ny peculirities of the del, knowing tht mtters which often tke up lot of time consuming dete, ut where stisfctory compromise is often chieved, hve lredy een delt with in wy tht is stndrd throughout the industry. This sves time nd money. Stndrdistion helps prevent disgreement nd enefits the property industry, its dvisers nd, most importntly, its customers. 6 We hve prepred the model cluses for n FRI office lese to extend the consensussed pproch of the BPF s short term commercil lese to longer, more complicted leses designed for tennts who wnt to occupy n office for numer of yers. 7 An FRI lese is complicted finncil document which reflects n importnt greement etween the lndlord nd the tennt. Over the pst few yers, lndlords nd tennts hve ecome concerned out how complicted FRI leses hve ecome - typicl FRI lese cn esily e more thn 60 pges. While some spects of n FRI lese re inevitly complex, we elieve tht other spects cn e more simple. The BPF hs tried to mke its short term lese s esy to red s possile, nd the model cluses of the FRI lese re lso written, s fr s prcticle, in plin English. BPF/BCO Model Cluses for n FRI Office Lese of Whole Ferury 2003

4 - 2-8 Although we elieve tht the wording in FRI leses cn e simpler, we decided tht the concept of stndrd FRI lese ws n unrelistic gol s the circumstnces within the property mrket would never e typicl enough to mke stndrd document prcticle. However, mny prts of n FRI lese cn e stndrdised nd the model cluses, ccompnied y full commentry, reflect this. 9 If lndlord nd tennt decide to use the model cluses, oth sides, together with their professionl dvisers, will e free to concentrte on greeing those prts of the rgin which need to e discussed. With some exceptions, the model cluses set out the resonle conclusions tht re normlly reched in the mrketplce on importnt mtters. If oth sides know tht they will lmost lwys rech n greement on numer of cluses within lese, would it not e etter to gree to tht position t the strt? The svings for oth sides, in terms of time nd money, resulting from using this pproch could e significnt. The need for professionl dvice 10 As shown in the Code of Prctice for Commercil Leses in Englnd nd Wles (see the note elow 1 ), no lndlord or tennt should ever enter into inding contrct, such s lese, without first getting pproprite professionl dvice. Any lndlord or tennt who wnts to use the model cluses must mke sure tht their professionl dvisers explin fully to them ny spects of the greement which re uncler, nd dvise them on ll of their options. 11 Most of the thinking nd ll of the consulttion on the commentry nd the cluses occurred prior to 11 Septemer Clerly the position on insured risks hs ecome more of n issue since then. 12 The Code of Prctice for Commercil Leses sttes tht service chrge oligtions should e pproprite to the length of term of the lese nd the condition of the property. As this is lese of whole property, service chrge oligtions hve not een provided for. Conditions of use 13 This document or ny prt of it my e used unchnged without ny chrge, provided the user cknowledges tht its use is with the consent of the British Property Federtion nd the British Council for Offices. 1 Note: A Code of Prctice for Commercil Leses in Englnd nd Wles is produced y the Commercil Leses Group, comprising the Assocition of British Insurers, Assocition of Property Bnkers, British Property Federtion, British Retil Consortium, Confedertion of British Industry, Forum of Privte Business, Lw Society, Ntionl Assocition of Corporte Rel Estte Executives (UK Chpter), Property Mrket Reform Group, Royl Institution of Chrtered Surveyors nd Smll Business Bureu. In ddition, the Code hs received support from the British Council for Offices, the British Chmers of Commerce, Council for Licensed Conveyncers nd the Federtion of Smll Businesses. It is pulished y RICS Business Services Limited, telephone , wesite: BPF/BCO Model Cluses for n FRI Office Lese of Whole Ferury 2003

5 - 3 - Summry of the BPF nd BCO Model Cluses for n FRI Office Lese of Whole The following three pges re summry of our model cluses. Any lndlord or tennt who wnts to use the model cluses should, with their professionl dvisers, red the model cluses nd the ccompnying commentry. 1 Pying rent c The min rent must e pid on the norml qurter dys nd on time. If it is lte, there is no period of grce nd interest is due t 3% over se rte. Other pyments must e mde within 10 Business Dys of demnd. But interest will run from the dte of demnd if not pid in those 10 Business Dys. The tennt my not set off. 2 Outgoings nd services The tennt must py ll outgoings, chrges for services nd chrges for shred fcilities used, ut not the lndlord's cpitl txes. 3 Repir nd mintennce c The tennt is under strightforwrd repiring oligtion. Internl decortion is every fifth yer, externl every third. In oth cses, it needs to e done in the lst six months of the term. Breches need to e remedied within resonle time. If the lndlord hs to remedy in defult, its costs re recoverle s det. 4 Altertions nd signs c d New uildings, new structures, ltertions in the externl design nd ppernce nd most structurl ltertions, re prohiited solutely. The tennt my mke other ltertions (including some minor structurl ltertions) with consent not to e unresonly withheld. Internl demountle prtitioning my e put up nd removed without consent. Signge is llowed with consent (not to e unresonly withheld). 5 Disposls There re no specified grounds under which the lndlord cn refuse consent to ssign, leving the question of whether prticulr refusl is lwful or not to the test of resonleness. BPF/BCO Model Cluses for n FRI Office Lese of Whole Ferury 2003

6 - 4 - c d e f There re some conditions tht the tennt must oserve efore the lese cn e trnsferred, for exmple, n utomtic Authorised Gurntee Agreement (sve on lese renewl) nd pying ny unpid sums due to the lndlord. Group compnies re llowed to shre occuption. The tennt my underlet the whole with consent not to e unresonly withheld. The tennt my underlet prt on excluded tenncies with consent not to e unresonly withheld. Underletting is t the mrket rent, not the higher of pssing rent nd mrket rent. 6 Insurnce c The lndlord covennts to insure. The lndlord covennts to reuild if it is destroyed. Rent suspension pplies until reinsttement or if there is n insurnce rek cluse until the end of the loss of rent insurnce period. 7 Costs The tennt covennts to py ll the costs tht result if the tennt reches ny of the terms of the lese. In reltion to other mtters, the costs must e resonle. 8 Rent review c d e f g h There is no reference to est or est rent resonly otinle. The hypotheticl term is 10 yers. It is ssumed tht the lndlord nd the tennt hve complied with their lese covennts. The Premises re ssumed to e in stte redy to tke fitting out works. Rent concessions re ssumed to hve een used up to the extent they equte to trditionl fitting out period only. Aritrtor or expert is mtter of choice, ut the choice is to e mde t the strt of the lese. Interest on lte reviewed rent is t se rte. Time is not of the essence. 9 Definitions Business Dy Conduits BPF/BCO Model Cluses for n FRI Office Lese of Whole Ferury 2003

7 - 5 - c d e f g h i j k l m Group Compnies Insurnce Cost Insurnce Rent Insured Risks Interest Rte Occupile Unit Occupier Plnt nd Mchinery Principl Rent Rents Term BPF/BCO Model Cluses for n FRI Office Lese of Whole Ferury 2003

8 - 6 - BPF/BCO MODEL LEASE CLAUSES FOR AN FRI OFFICE LEASE OF WHOLE WITHOUT SERVICE CHARGE COMMENTARY Introduction 1 The purpose of this commentry is to help lndlords, tennts nd their professionl dvisers who wnt to use the model cluses for n office lese of whole in their own preferred stndrd form. The model cluses hve een prepred fter extensive discussions within oth orgnistions nd we hope tht they reflect fir compromise on rnge of importnt issues tht lndlords nd tennts often hve to discuss. To mke sure tht this is the cse, we hve crried out n extensive consulttion exercise to test people's opinion of the model cluses. 2 By using this pproch, we elieve tht it should e possile to remove unnecessry negotition, dely nd expense from the trnsction process. If oth sides know tht they will lmost lwys rech compromise on numer of issues, why not gree to tht position t the strt? The model cluses im to provide tht option. 3 In this commentry, we hve explined the resoning ehind ech cluse. We hve tried to rech resonle compromise for most situtions, lncing the interests nd views of the lndlord nd the tennt. However, it is importnt to rememer tht there my e circumstnces where the tennt or lndlord cnnot follow the principle ehind model cluse. If this is the cse, the lndlord or tennt must explin nd justify why they cnnot do so. 4 In selecting the prts of typicl FRI office lese tht will e covered y the model cluses, we hve tried to identify those res where compromise is lmost lwys reched. 5 We hve prepred the model cluses ssuming 15 yer FRI lese for whole office uilding. As result there re no service chrge provisions. The Code of Prctice for Commercil Leses sttes tht lndlord's control over chnge of use should not e more restrictive thn necessry to protect the vlue of the property nd ny neighouring property of the lndlord. As this is n office lese of whole, no user cluse hs een drfted. 6 Mny of the model cluses contin words nd expressions tht need defining. You my hve your own stndrd definitions which you my prefer to use, ut for convenience we hve drfted some definitions to fit the cluses. BPF/BCO Model Cluses for n FRI Office Lese of Whole Ferury 2003

9 - 7 - COMMENTARY 1 Pying rent 1.1 Oligtion to py This sucluse contins the oligtion to py. You should reserve VAT s rent so the tennt does not hve to py unnecessry stmp duty. There will lwys e dete out whether other pyments, for exmple, insurnce premiums, should lso e reserved s rent. Reserving items s rent entitles the lndlord to distrin for non-pyment. Tennts will usully find this cceptle for the principl rent nd VAT, ut my e reluctnt to gree this for other pyments. The method of pyment is not specified. This recognises the fct tht some tennts re reluctnt to py y stnding order or direct deit, leving it up to the tennt nd lndlord to gree the pyment method In the cse of multi-let uilding the insurnce rent should lso include the service chrge (nd the rent suspension should pply ccordingly). c Insurnce rent should include the cost of insurnce vlutions, s we elieve tht, in n FRI lese, it is resonle for the tennt to py this cost s long s vlutions re not crried out more often thn once in every three yer period. Lndlords nd tennts hve strong nd conflicting views on whether insurnce commission should e kept for the enefit of the lndlord or pssed to the tennt. Either wy, the lese should del with the issue. If the lndlord's policy, for exmple, is to pss on the discount, ut not ny relted commission to the tennt, then sy so, lthough doing so will force successors to dopt the sme policy VAT cn e delt with here or in seprte VAT cluse. 1.2 Pyment dtes The tennt must py the principl rent in dvnce. In most cses, the pyment dtes will e the usul qurter dys. If there is rent-free period, the tennt will need to py the sum due on the Rent Commencement Dte. The lndlord does not need to demnd the principl rent ecuse the tennt knows when the principl rent is due Becuse insurnce rent nd the service chrge will not necessrily hve set pyment dtes, we elieve these pyments should e pid within 10 usiness dys of the lndlord's written demnd. The tennt will hve to py interest on lte pyments (see cluses nd 2.3). A longer period of time (such s 15 usiness dys) my e pproprite for some corporte tennts, ut the tennt nd lndlord need to gree this on del-ydel sis. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

10 - 8 - MODEL CLAUSES 1 Pying rent 1.1 Oligtion to py The Tennt shll py to the Lndlord The Principl Rent every yer, nd proportiontely for ny prt of yer The Insurnce Rent VAT on the Principl Rent nd the Insurnce Rent to the extent lwfully due on ny sums demnded y the Lndlord. 1.2 Pyment dtes The Tennt shll py to the Lndlord The Principl Rent in equl instlments in dvnce on 25 Mrch, 24 June, 29 Septemer nd 25 Decemer in every yer. The first pyment is the sum pportioned for the period from nd including [the rent commencement dte] to the dy efore the next qurter dy nd shll e mde on [the rent commencement dte] The Principl Rent on the due dte, whether or not demnded Insurnce Rent within 10 Business Dys fter written demnd. BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

11 Set-off 1.4 Interest It is importnt from lndlord s point of view tht the tennt cn not exercise rights of set-off to preserve the income strem. If such cluse is either not included in the lese or not drfted properly nd therey csts dout on the security of the income strem, some lndlords my feel tht the investment vlue of the premises my e ffected. The tennt will enefit from ny overriding sttutory right regrdless of whether it is referred to in the lese, ut some tennts my prefer it to e specificlly mentioned The tennt will lwys know when the principl rent is due (usully on the trditionl English Qurter Dys) so it is resonle tht if those pyments re not pid when they re due, interest should pply immeditely. c d In the cse of other pyments, which my not e regulr, tennts should e given 10 Business Dys to mke the pyment (ut see ove). Ten usiness dys gives the tennt the opportunity to py nd, if they do, no interest will e chrged. But, if no pyment is mde fter tht grce period, interest will e chrged from the dte when the written demnd ws mde. The reference to "efore nd fter judgement" is necessry to mke sure tht the contrctul rte under the lese pplies from the dte of the court judgement to the dte of the ctul pyment. Interest is not compounded qurterly ut it is clculted on dily sis The lndlord is entitled to refuse ny pyment of rent to ensure tht it does not wive its right to re-enter nd forfeit for the rech. Trivil reches re excluded. If the lndlord is found to hve een wrong, the tennt will not hve to py ny interest. If the lndlord is found to hve een correct, interest will e due. To recognise tht this cluse my cover different types of sitution, interest is pyle t the se rte. Inevitly the use of words such s "mteril" is compromise etween competing views rnging from the lndlord wishing to hve the right to refuse pyment on ny rech nd the tennt not wishing the lndlord to hve the right t ll. 1.5 VAT There is usully little dete over wht the incentive or "penl" interest rte should e. In the current economic environment we elieve tht 3% over the se rte is fir compromise. By lw, VAT invoice must e delivered within 30 dys of the supply, ut mny lndlords will supply the invoice with the rent demnd or shortly fter tht. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

12 Set-off 1.4 Interest The Tennt (suject to ny sttutory right) shll not exercise ny legl or equitle rights of set-off, deduction, tement or counterclim whtsoever to reduce its liility to py the Rents If ny of the Rents (whether or not formlly demnded), or ny other sum of money, pyle y the Tennt under this lese hs not een pid: in the cse of the Principl Rent (nd ny VAT), on the dte when pyment is due; nd in the cse of ny other Rents or sums, within 10 Business Dys of written demnd; the Tennt shll py interest clculted on dily sis on the unpid sum t the Interest Rte for the period from nd including the dte when pyment: ws due (in the cse of the Principl Rent nd ny VAT); or ws demnded (in the cse of ny other Rents or sums); until the dte the Lndlord receives pyment (oth efore nd fter ny judgement) If the Tennt is in mteril rech of ny oligtion in this Lese nd the Lndlord refuses to ccept pyment of ny of the Rents so s not to wive tht rech, the Tennt shll py interest on such sum t the Interest Rte for the period from nd including the dte when pyment: 1.5 VAT ws due; or would hve een due if demnded on the erliest dte on which it could hve een demnded; to the dte when the Lndlord ccepts pyment. This oligtion is without prejudice to ny other rights, remedy or power ville to the Lndlord. If it is susequently estlished tht the Tennt is not in mteril rech of oligtion under this Lese, no interest shll e due on ny Rent, pyment of which hs een refused y the Lndlord All sums which the Tennt hs to py to the Lndlord under this Lese re exclusive of VAT If the Tennt is required to py ny sum to the Lndlord under this Lese y wy of reimursement or indemnity, the Tennt shll lso py the Lndlord sum equl to ny VAT incurred y the Lndlord on tht sum, except to the extent tht the Lndlord otins credit for VAT under sections 24, 25 nd 26 of the Vlue Added Tx Act The Lndlord shll send to the Tennt VAT invoice within 10 Business Dys of receiving pyment in respect of ny sums pyle y to the Lndlord y wy of input VAT. BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

13 Outgoings nd services 2.1 Outgoings To llow the lndlord to cover ll its expenditure on the premises the tennt grees to py for ll outgoings. The tennt is not responsile for ny tx the lndlord hs to py, such s corportion tx or cpitl gins tx. There is no need to refer to VAT here s VAT is delt with specificlly elsewhere. 2.2 Services The tennt does not hve to py the lndlord for ny lost rting relief. The tennt is not responsile to the lndlord for outgoings nd connection chrges in reltion to services supplied direct y third prty. But it will e responsile for services provided y the lndlord. The definition of services will need to e wide enough to include ll services including unforeseen services which my rise during the term (for exmple, internet chrges). 2.3 Shred fcilities This follows the principles in cluse regrding the timing of pyments. 3 Repir nd mintennce 3.1 Repir c d This will require the tennt to put the premises in repir to the extent they re not. It does not require, nor should it require, the tennt to do ny more thn ensure tht the premises re t ll times in good stte of repir. It will not require the tennt to reuild or to renew the whole of the premises. But it will require the tennt to renew nd replce constituent prts of the premises where those constituent prts re eyond economic repir nd where, within the context of the premises s whole, the works would resonly e viewed s works of repir rther thn s n improvement of the whole. In some circumstnces, such s when letting new or refurished uilding, it my e pproprite for the tennt to protect itself from mteril defects, y n pproprite method such s wrrnties or insurnce. This is mtter for negotition, ut we elieve tht whtever solution the negotition chieves should e delt with nd covered y n greement for lese nd not the lese s, in most cses, the need for tht protection will diminish nd fll wy efore the end of the lese. It my e more pproprite for the originl developer nd/or the professionl tem (or oth) to e responsile for this. Where the prties hve the time, inclintion nd re prepred to commit the resources nd py the extr costs, schedule of condition could e prepred nd the repiring oligtion linked to it. This could e prticulrly useful for older uildings. The Code of Prctice for Commercil Leses sttes tht repiring oligtions should e pproprite to the length of term of the Lese nd the condition of the property. As this is 15 yer Lese of the whole, we elieve tht these repiring oligtions re pproprite. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

14 Outgoings nd services 2.1 Outgoings The Tennt shll py ll existing nd future rtes, txes nd other outgoings pyle during the Term in respect of the Premises or y the owner or Occupier nd, in the sence of direct ssessment on the Premises, shll py to the lndlord fir proportion of ny such outgoings. The Tennt is not required under cluse 2.1 to py ny tx (other thn VAT) rising s result of the receipt y the Lndlord of the Rents nd other sums tht re pyle under this Lese or ny tx rising on ny disposition of the reversion to this Lese. 2.2 Services The Tennt shll py to the Lndlord fir proportion of ll the chrges for services provided to the Premises y the Lndlord, including ny connection nd hiring chrges, nd meter rents. 2.3 Shred fcilities The Tennt shll py to the Lndlord, within 10 Business Dys of written demnd, fir proportion of ll resonle costs nd expenses properly incurred y the Lndlord in connection with ny Conduits, structures, ccess or exit routes, equipment or other fcilities which elong to, or re cple of eing used or enjoyed y, the Premises in common with ny djoining property nd, if not pid, such costs nd expenses shll e det due to the Lndlord. 3 Repir nd mintennce 3.1 Repir The Tennt shll repir the Premises nd keep them in good nd sustntil repir nd condition except ny dmge cused y n Insured Risk (sve to the extent tht pyment of ny insurnce moneys is withheld ecuse of ny ct or omission of the Tennt or ny Occupier). BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

15 Decortion In most cses, the decortion pttern set out here should e pproprite. As this is 15-yer lese, no decorting will e done in the 14 th nd 15 th yers. For leses of different lengths, pproprite wording my e needed to mke sure tht there is no oligtion to decorte two yers running. 3.3 Plnt nd mchinery This cluse my not e needed in sic uildings. But certinly for complex uilding, the lndlord hs legitimte interest in mking sure (nd checking) tht plnt nd mchinery which is used for efficiently running the uilding is properly mintined. If the definition of the premises includes plnt nd mchinery, the tennt must mintin it ut the specific oligtion voids (possily unmeritorious) rgument tht non-functioning toilet is not disrepir in the context of the whole. However, if there re potentilly expensive items of plnt nd mchinery (such s new lift), there should e dete efore the lese is signed out whether the tennt should py for these s the tennt's shre could e disproportiontely high. Some other compromise rrngement my e more pproprite. 3.4 Dy-to-dy mintennce This is good housekeeping cluse. It should e relevnt to most situtions. It mkes the ssumption tht conduits hve een defined s those tht only serve the premises. 3.5 Remedying reches If notice is served sking the tennt to put something right, they must comply with it. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

16 Decortion The Tennt shll whenever necessry, ut in ny event not less thn once in every period of five yers during the Term nd lso during the lst six months of the Term, in good nd workmnlike mnner using good qulity mterils nd in ccordnce with good prctice t the relevnt time prepre nd decorte or otherwise tret, s pproprite, ll internl prts of the Premises, such decortion nd tretment in the lst six months of the Term to e executed in colours nd mterils pproved in writing y the Lndlord (such pprovl not to e unresonly withheld) The Tennt shll whenever necessry, ut in ny event not less thn once in every period of three yers during the Term nd lso during the lst six months of the Term, in good nd workmnlike mnner using good qulity mterils nd in ccordnce with good prctice t the relevnt time prepre nd decorte in colours nd mterils pproved in writing y the Lndlord (such pprovl not to e unresonly withheld) or otherwise tret, s pproprite, ll externl prts of the Premises The Tennt shll not e required under this cluse to decorte or tret the Premises more thn once in ny 12 month period. 3.3 Plnt nd mchinery The Tennt shll: keep ll Plnt nd Mchinery properly mintined, nd in good working order nd condition; nd renew or replce ll prts of the Plnt nd Mchinery when necessry. To do this, the Tennt shll employ relile contrctors regulrly to inspect, mintin nd service ll Plnt nd Mchinery. The Tennt shll keep full records of ny work crried out nd mke them ville to the Lndlord if the Lndlord sks to see them. 3.4 Dy-to-dy mintennce The Tennt shll: c d keep the Premises in clen nd tidy condition; regulrly (nd when needed) clen oth sides of the windows nd window frmes nd ll other glss in the Premises; mke sure ll ruish is stored properly nd remove ll ruish from the Premises t lest once week); nd keep ll Conduits in good condition nd cler t ll times. 3.5 Remedying reches The Tennt shll: llow the Lndlord t ll resonle times to enter the Premises to view its condition; nd comply with ny notice served y the Lndlord requiring the Tennt to remedy ny rech of its oligtions relting to repirs, decortion, dy-to-dy mintennce or ltertions. BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

17 Specifying period of 20 usiness dys to put things right hs the dvntge of mking things certin, ut we felt it ws etter to refer to resonle periods of time in the lese to llow flexiility ccording to the type of prolem. As mtter of prctice, the lndlord should set out the resonle period of time in the notice. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

18 If the Tennt does not comply with ny notice within resonle time, the Tennt shll llow the Lndlord to enter the Premises to remedy the rech The Tennt shll py to the Lndlord, s det nd on demnd, the costs nd expenses properly incurred y the Lndlord in exercising its rights under this cluse. 3.6 Yielding up the Premises At the end of the Term, the Tennt shll yield up the Premises ck to the Lndlord in line with the Tennt's oligtions in this Lese The Tennt uthorises the Lndlord to remove from the Premises ny Tennt's fixtures nd fittings nd ny other items left t the Premises nd dispose of them on such terms s the Lndlord thinks fit. 4 Altertions signs nd reinsttement 4.1 Prohiited ltertions The Tennt shll not: erect ny new structure on the Premises; or lter the height, elevtion or externl ppernce of the Premises, or mke ny ltertion which ffects the structure of the Premises or ny Plnt or Mchinery, or ny mechnicl or electricl systems, except s llowed under cluse Other ltertions The Tennt shll not mke ny other ltertion to the Premises without the prior written consent of the Lndlord (such consent not to e unresonly withheld). BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

19 Altertions to the structure nd plnt nd mchinery This hs een included to meet tennts' concerns tht totl restriction on structurl ltertions is unworkle in prctice. 4.4 Altertions tht do not need permission As the model lese cluses re designed for n office lese of whole, the tennt is utomticlly given the right to put up nd move internl demountle prtitioning without permission. Tennts nd lndlords will hve specific views on whether the tennt should show the plns to the lndlord nd whether the lndlord (or ny one else such s the insurer) needs to hve copy ut in ny event the tennt should supply the copies to the lndlord. The lndlord nd tennt should discuss nd gree this cluse specificlly, ccording to their own requirements. 4.5 Signs nd dvertisements Tennts re llowed to disply notices tht they need for their usiness, ut lndlords need resonle level of control over mtters which could ffect the outside ppernce of the uilding. This is unlikely to e contentious in the cse of B1() office letting (ut my e n issue for n A2 office lese), lthough some tennts my require personl concession for their own corporte logo on n office uilding too. 4.6 Reinsttement Any lndlord s fixtures should e replced. If it is fesile to do so, list of the lndlord s fixtures nd fittings should e greed t the strt of the lese The Code of Prctice for Commercil Leses sttes tht the lndlord's control over ltertions should not e more restrictive thn necessry to protect the vlue of the property nd ny neighouring property of the lndlord. At the end of the lese, tennts should not e required to reinstte unless resonly required. We elieve tht the principles within the model lese cluses for n office lese of whole reflect these principles. It my e tht some lndlords would prefer to del with reinsttement in ny licences to e grnted. If so, pproprite wording will e needed to del with it. NOTE: Whether the tennt should replce crpets nd ceiling tiles will depend on the type of premises. The tennt nd lndlord must decide whether they should or should not e replced on cse-y-cse sis. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

20 Altertions to the structure nd plnt nd mchinery The Tennt my with the Lndlord's prior consent (such consent not to e unresonly withheld) mke minor ltertions to the structure of the Premises nd to the Plnt nd Mchinery to the extent they re necessry to implement ltertions permitted y cluse 4.4 provided they do not dversely ffect the structurl integrity of the Premises or the opertion of such Plnt nd Mchinery. 4.4 Altertions tht do not need permission The Tennt my without the consent of the Lndlord: erect, lter nd remove internl demountle prtitioning which does not involve cutting into the lod-ering prts of the Premises or which does not dversely ffect ny Plnt nd Mchinery within the Premises s long s the Tennt sends to the Lndlord two copies of its detiled plns nd specifictions showing the work within five Business Dys of it eing completed; mke minor ltertions to the Plnt nd Mchinery s long s they do not dversely ffect the structurl integrity of the Premises or the opertion of ny Plnt nd Mchinery. 4.5 Signs nd dvertisements The Tennt shll not: erect ny signs, notices, dvertisements, lettering or nnouncement of ny kind, which cn e seen from outside the Premises without the prior written consent of the Lndlord (such consent not to e unresonly withheld); or dvertise nything in the windows. 4.6 Reinsttement Before the end of the Term, the Tennt shll: replce ny fixtures which re dmged nd cnnot e repired or re missing or destroyed with new ones of similr type nd qulity; nd remove ny signs nd ll tennt's fixtures nd fittings, furniture nd elongings nd repir to the resonle stisfction of the Lndlord ll dmge cused y removing them; nd (sve to the extent resonly required in writing y the Lndlord) remove nd mke good ny ltertions or dditions mde to the Premises during the Term, or ny prior period of occuption y the Tennt or its predecessors, nd reinstte the Premises in good nd workmnlike mnner to the Lndlord s resonle stisfction. BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

21 Disposls 5.1 Generl restriction These generl words prevent the tennt from deling with the premises other thn in the wy llowed y the cluse. 5.2 Assignment of whole The provisions of the 1995 Lndlord nd Tennt Act significntly ffect this cluse. Essentilly there re circumstnces in which the lndlord cn specify tht it is resonle to refuse permission. Hving mde decision s to whether the lndlord will gree to the ssignment, sed on either those circumstnces, or resonleness generlly, the lndlord cn specify conditions which must e complied with efore the ssignment tkes plce. Individul lndlords my hve resons for specifying circumstnces for refusing permission ut we elieve tht in most cses there is no need to specify ny prticulr circumstnces which would prevent n ssignment s long s the lndlord cn ct resonly in withholding permission. Some of the min circumstnces which my count s grounds for instnt refusl nd which re often discussed, ut which we hve not included, re set out elow. c d e Assignees which re not resident, or incorported, within the United Kingdom. This my e difficult to enforce in reltion to Europen compnies nd seems inpproprite, s generl rule, for modern lndlord nd tennt reltionships. Issues such s reciprocl enforcement rrngements should e delt with s they rise. Diplomtic immunity (sve to the extent potentil ssignee hs lwfully wived their rights) is difficult issue. It my e tht the lndlord cn resonly withhold consent nywy if the orgnistion hs record of non-complince. Except in certin loctions it seems inpproprite for there to e totl exclusion. A diminution in the vlue of the reversion test seems inpproprite for ll ut the most exceptionl circumstnces. The requirement tht the ssignee must e of t lest the sme finncil sttus s the outgoing ssignee seems inpproprite for most norml lese situtions. Other finncil tests gin seem inpproprite for routine office lettings s they cn e covered y resonleness nd it is difficult, if not impossile, to find test or series of tests tht pply to ll situtions. However, for lettings which re purely finncilly driven where the return is linked only to the covennt strength of the tennt, specific tests my need to e negotited on del-y-del sis. Some lndlords my still prefer to see reference to the proposed ssignee eing of sufficient finncil stnding (in the resonle opinion of the lndlord) without further security ut inevitly this cn prove contentious with mny tennts s it could limit the pool of potentil ssignees. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

22 Disposls 5.1 Generl restriction The Tennt shll not ssign, chrge, underlet or prt with possession or shre the occuption of, or permit ny person to occupy, or crete ny trust in respect of the tennt's interest in, the whole or ny prt of the Premises, except s my e expressly permitted y this cluse. 5.2 Assignment of whole The Tennt shll not ssign the whole of the Premises without the prior written consent of the Lndlord which, suject to cluse 5.3, shll not e unresonly withheld. The Code of Prctice for Commercil Leses requires tht, unless prticulr circumstnces justify greter control, the only restriction on ssignment of the whole should e otining the lndlord's consent, which is not to e unresonly withheld. The model lese cluses reflect tht principle. BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

23 f g h Non-pyment of rent is clerly identifile rech nd my well e the only circumstnce which it would e sensile to include s n instnt ground of refusl. But we elieve it is eqully s effective s condition to the ssignment tking plce (ie, tht unpid rent is pid) rther thn s circumstnce for refusl. Circumstnces such s the repiring covennt hving een complied with my e difficult to operte in prctice ecuse of the inevitility tht mny uildings re often in disrepir (leit minor) t ll times. A reference to mteril or sustntil reches is similrly difficult ecuse, inevitly, the usiness flexiility given to the tennt y the ssignment cluse my depend on the interprettion of this wording t the time. Although some industry groups hve recommended in the pst tht no trnsfers re llowed intr-group, we elieve tht there should not e complete restriction. The tennt s need for commercil flexiility is more importnt thn the simplicity of complete restriction. Lndlords my still fll ck on: i ii iii resonly ojecting to trnsfer if it were clerly designed to dilute the tennt s covennt strength; imposing conditions, if resonle to do so; nd if pproprite, greeing extr wording if the circumstnces so require. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

24 BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

25 Assignment conditions These re the conditions which need to e complied with efore n ssignment cn tke plce, once the identity of the ssignee hs een greed in principle y the lndlord Where resonle, the lndlord my require: rent deposit. How long the deposit will e kept for will need to e greed t the time. It my e pproprite, in certin circumstnces, to include service chrge s well. Although service chrge is vrile sum, wheres the principl rent is fixed sum, it is clerly sum in respect of which the lndlord my wnt some security. If the service chrge cn e estimted with degree of ccurcy, therefore, it my e pproprite for the service chrge to form prt of the rent deposit; or nk gurntee. In some circumstnces it my e pproprite to limit the nk to n English clering nk ecuse it mens tht there would e no need for foreign compny opinion which is yet more pperwork nd could dely mtters. We recognise however, tht nk gurntees generlly re not lwys stisfctory solution to the covennt sttus issues There hs een much dete over whether the requirement tht the tennt should enter into n uthorised gurntee greement (AGA) should e n solute requirement or one tht is suject to the test of resonleness. The dete is likely to continue. On lnce, most lndlords, nd mny tennts, seem to ccept the requirement for n utomtic AGA except in the cse of protected lese renewls. However, when implementing this cluse, note tht the Code of Prctice for Commercil Leses urges lndlords to consider only requiring n AGA when the ssignee is of lower finncil stnding thn the ssignee t the dte of the ssignment. There re differing views on whether the form of the AGA should e specified in dvnce. It my e unstisfctory to specify the form of legl words for n AGA tht my e given t ny time during lengthy lese term ecuse it tkes wy the flexiility of chnging the form of wording if, for exmple, the Court decides tht prticulr form of gurntee wording is ineffective, or indeed, more onerous thn the prties currently elieve. On the other hnd s mny leses lredy specify the form of gurntee to e given y n ssignee s surety, extending the principle to the AGA should not e contentious if lndlord or tennt would prefer to specify its form. NOTE: There continues to e differing views out whether it is possile to require gurntor of the tennt s oligtions to gurntee the AGA. We elieve tht the intention of the Act nd its provisions llows the gurntor to e required to gurntee the AGA, ut the issue is not free from dout. As result, if this provision is to e included (nd it will not e pproprite in every lese), lndlords my wnt to include severility cluse to mke sure tht if it is found to e vlid, it is only this provision which is vlid, nd not the whole liention cluse. As pending decision of the Court the issue is not free from dout, some lndlords might continue to seek dditionl protection. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

26 Assignment conditions For the purposes of Section 19 (1 A) of the Lndlord nd Tennt Act 1927 it is greed tht ny consent of the Lndlord to n ssignment of the whole of the Premises my e suject to: (where resonle) condition requiring the proposed ssignee to deliver to the Lndlord upon completion of the proposed ssignment: c sum y wy of deposit equivlent to the Principl Rent plus VAT resonly estimted y the Lndlord to e prospectively pyle for period of [ ] from the dte of completion of the proposed ssignment, ccompnied y duly executed deed of deposit in such form s the Lndlord resonly requires; nd/or nk gurntee in fvour of the Lndlord from nk, nd in form, first pproved in writing y the Lndlord (such pprovl not to e unresonly withheld); nd/or gurntee from gurntor who is, nd in form which is, resonly cceptle to the Lndlord condition tht the Tennt shll, prior to completing the proposed ssignment, execute nd deliver to the Lndlord n uthorised gurntee greement, s referred to in Section 16 of the Lndlord nd Tennt (Covennts) Act 1995 in form which the Lndlord resonly requires condition tht ny gurntor of the Tennt's oligtions gurntees to the Lndlord, in form which the Lndlord resonly requires, tht the Tennt shll comply with the uthorised gurntee greement nd indemnify the Lndlord ginst ny rech. BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

27 By mking pyment of unpid rent condition the lndlord knows tht the ssignment cnnot go hed until the rent hs een pid It is lwys fir for the lndlord to impose other resonle conditions in the circumstnces. So (for exmple) for some tennts it my e pproprite for them to e gurnteed y directors or other individuls. Further, it ws felt, on lnce, tht rectifiction of other reches of covennt prior to the ssignment should e delt with in this wy rther thn hving specific reference to, for exmple, complying with mteril reches. 5.4 Underletting of whole The tennt cn underlet the whole of the premises with the consent of the Lndlord such consent not to e unresonly withheld. Except in pproprite circumstnces, tennts should hve the flexiility to grnt protected underleses of the whole The lndlord my require gurntor for n undertennt ecuse the undertennt my request new tenncy t the end of the contrctul term. 5.5 Underletting of prt Lndlords recognise tht for lese of whole office uilding, the tennt will proly need the flexiility to underlet prt of it. There re vrious resonle restrictions, such s mximum numer of underlettings, to mke sure tht the premises do not ecome mini investment for the tennt in circumstnces where if the lndlord hd to tke over the lese, it would hve mny individul lessees. In tht sitution, the lndlord will not hve hd the sme level of control over selecting these individuls s they hd with selecting the originl tennt or its ssignees Wht is n Occupile Unit will vry from uilding to uilding If the lndlord resonly so requires, the tennt must otin n cceptle gurntor for ny proposed undertennt. If underlettings of prts re not to enefit from security of tenure, the lndlord my well not e resonle in requiring gurntor Underlettings of prt of the uilding should e excluded from the security of tenure provisions of the Lndlord nd Tennt Act 1954 to void sitution for the lndlord t the end of the term where it my hve some tennts demnding to sty on nd some who do not. It my lso e felt prudent to provide in the lese tht ny term grnted y n underlese is limited to certin period not exceeding the end of the contrctul term. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

28 A condition tht ll sums pyle to the Lndlord under the lese re pid prior to the proposed ssignment eing completed; Such other conditions s my e resonle in the circumstnces. 5.4 Underletting of whole The Tennt shll not underlet the whole of the Premises unless: if the Lndlord resonly so requires, the Tennt otins gurntor resonly cceptle to the lndlord for ny proposed undertennt; the underlese complies with those of the provisions of cluse 5.6 which relte to underlettings of whole; nd the prior written consent of the Lndlord is otined (such consent not to e unresonly withheld). 5.5 Underletting of prt The Tennt shll not underlet ny prt of the Premises other thn on the following conditions: the Premises shll not t ny time e in the occuption of more thn [ ] occupiers, the Tennt nd ny group compny which is permitted to shre occuption under cluse 5.7 counting s one; the prt of the Premises to e underlet comprises n Occupile Unit only; if the Lndlord resonly so requires, the Tennt otins gurntor resonly cceptle to the Lndlord for ny proposed undertennt; the underlese complies with those of the provisions of cluse 5.6 which relte to underlettings of prt the underlese incorportes n greement, uthorised eforehnd y the Court, excluding sections 24 to 28 of the Lndlord nd Tennt Act 1954 in reltion to such underlese; nd the prior written consent of the Lndlord is otined (such consent not to e unresonly withheld). BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

29 Underlettings generlly Underlettings do not hve to e t the higher of the mrket rent nd the rent pyle under the lese s we elieve tht is restrictive nd my led to discount t rent review if, t the relevnt review dte, new leses generlly do not contin such provisions. Clerly, the definition of "Occupile Unit" will vry ccording to the premises The undertennt cnnot underlet gin to void chin of underleses occurring The lndlord must decide whether they wnt to pprove the form of the underlese or not so the cluse does not provide for this. Note: There re differing views on the question of whether the underlese should contin identicl conditions for rent review. The first is tht this is imprcticl ecuse on new underlese, mrket terms will proly dictte tht it should e five yer rent review pttern. This cn e prticulrly difficult if the underlese is grnted shortly efore review. The other view is tht in negotition for n underletting, undertennts often cknowledge tht they hve little choice ut to ccept tht they re deling with pre-existing sitution which they cn do little to chnge. So, the rent tht is to e greed my need to tke ccount of the fct tht there my e review soon. This cn e chieved s long s in cluse it is cler tht the open mrket rent is the rent to e otined for the premises to e underlet in ccordnce with the provisions of cluse 5.6 (therey ringing in, if relevnt, the imminence of ny rent review). BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003

30 Underlettings generlly The Tennt shll not underlet the whole of the Premises or underlet n Occupile Unit t fine or premium or t rent less thn the open mrket rent of the Premises or, in the cse of n Occupile Unit, of the Occupile Unit in question, in ech cse t the time of such underlese Before the grnt of ny permitted underlese, the Tennt shll procure tht the undertennt enters into the following direct covennts with the Lndlord:- c d not to ssign or chrge ny prt of the premises to e underlet; not to dispose of or shre the occuption of or permit ny person to occupy the whole or ny prt of the premises to e underlet sve y wy of n ssignment of the whole of the premises to e underlet; not to ssign the whole of the premises to e underlet without the prior written consent of the Lndlord, such consent not to e unresonly withheld; to perform nd oserve ll the tennt's covennts contined in: i ii this Lese (other thn for the pyment of the rents) so fr s the sme re pplicle to the premises to e underlet; nd the permitted underlese, nd tht ny gurntor for the undertennt gurntees to the Lndlord tht the undertennt shll comply with such covennts nd indemnify the Lndlord ginst ny rech Every permitted underlese shll contin: c d provisions for the review of the rent pyle under it on n upwrds only sis corresponding oth s to terms nd dtes with the rent review provisions in this Lese; covennt y the undertennt (which the Tennt covennts to enforce) prohiiting the undertennt from doing or llowing ny ct or thing on, or in reltion to, the premises underlet inconsistent with, or in rech of, this Lese; condition for re-entry on rech of ny covennt y the undertennt; nd the sme restrictions s to ssignment, underletting, chrging nd prting with or shring the possession or occuption of the underlet premises, nd the sme provisions for direct covennts nd registrtion, s re contined in this lese (with ny necessry chnges). BPF/BCO Model Cluses for n FRI Office Lese of Whole: MODEL CLAUSES Ferury 2003

31 Occuption y group compnies This gives the tennt the flexiility to llow occuption y group compny s long s certin protections for the lndlord re oserved. It my not lwys e prcticl for some corporte tennts to give (nor desirle for lndlords to receive) wht could e mny nd frequent notices. 5.8 Mngement of underlettings Most of these provisions re self explntory, ut we comment on specific ones s follows: Most lndlords would not wnt the right to prticipte in underlese rent reviews, ut some my do The tennt should not vry the terms of ny permitted underlese in such wy s to mke it fil to comply with the requirements of the lese. The lndlord will wnt to prevent the tennt from mking vritions therey creting n underlese tht would not hve een greed to in the first plce (cting resonly). There is no requirement for initil underleses to e pproved. Some lndlords my wish to see one nd if so, cluse would e convenient plce to insert such cluse It is importnt tht the rent is not pyle more thn one qurter in dvnce to void sitution rising wherey the tennt receives, for exmple, one yer s rent up front, then goes into liquidtion, leving the undertennt in occuption. 5.9 Chrging This cluse recognises the commercil relity tht tennts my need to crete floting chrges over the premises Registrtion Some lndlords my prefer to refer to ssignments, underleses, mortgges, rther thn disposition. BPF/BCO Model Cluses for n FRI Office Lese of Whole: COMMENTARY Ferury 2003