Pitfalls in Tenant Underlets: Repair and Liability Issues

1. Office Agents Society Repair and potential pitfalls Difficulties for landlords arising when a tenant underlets • Nick Dalgleish and Simon Pestell • September 2016

2. OAS TRAINING OAS Training Who we are: Nick Dalgleish, Associate Real Estate Thames Valley Email: Nick.Dalgleish@shoosmiths.co.uk Tel: 03700 868217 Simon Pestell, Senior Associate Property Litigation Thames Valley Email: Simon.Pestell@shoosmiths.co.uk Tel: 03700 868899

3. OAS Training The national UK law firm • 153 partners and 736 legal advisers • Turnover of £107m to end April 2016 • UK Law Firm of the Year 2015 – The British Legal Awards • Real Estate Legal team of the Year finalist – Estates Gazette Awards 2016 • Joint first for UK M&A deal activity – Experian Deal Review & League Tables 2015 • Accredited for Outstanding Innovation – Best Legal Adviser Report 2015 • #1 in Employee Satisfaction Survey and rated a ‘Best Employer’ for twelfth consecutive year in 2016 – Legal Week • Gold Standard status – Investors in People • Best talent initiative – Business Leadership Summit & Awards 2016 finalist • Authorised by the Financial Conduct Authority (FCA)

4. OAS TRAINING OAS Training • Tenant covenants to repair • How to pass liability to undertenants • Overview of remedies for breach of covenant: • During the term • After the term ends Today we will cover:

5. OAS TRAINING OAS Training • Meaning of standard obligations: • Full repairing lease • “In repair” • Method of repair • Check no overlap • Detailed definition of premises Tenant covenants to repair

6. OAS TRAINING OAS Training • Different standard of repair may apply • Direct covenant with landlord? • Schedules of condition • Inherent defects • Insured risks • Approval of works Underlease repair covenants

7. OAS TRAINING OAS Training • Forfeiture • Damages • Self Help/Notices to Repair • Specific Performance Remedies During the Lease Term

8. OAS TRAINING OAS Training • S.146 Notice • Beware leases over 7 years with 3 years left to run • Effect on undertenants – relief? Damages: • Diminution in value cap • Effect on undertenants Remedies During the Lease TermForfeiture:

9. OAS TRAINING OAS Training • Notice to Repair/”Jervis v Harris” Notice - Debt claim - No diminution cap - Gets results, but tenant must be good for the money • Effect on undertenants Specific Performance: • Effect on undertenants Remedies During the Lease TermSelf Help:

10. OAS Training • Schedule and Dilapidations Protocol • Basic Amount = Reasonable cost of works + loss of rent • Limited by Section 18 Landlord and Tenant Act 1927 - 18(1) ‘first limb’ - diminution in value cap - 18(2) ‘second limb’ – demolition/substantial structural alterations • Impact of protected undertenant in occupation Damages After Lease End:

11. OAS TRAINING OAS Training • Valuation Date • Supercession/Landlord’s intention Damages After Lease End:

12. OAS TRAINING OAS Training • Underletting for whole of headlease term • Surrender of headlease • Variations and surrenders of underlease • Consents • Landlord and Tenant Act 1954 • Disclaimer of headlease Other Issues Relevant to Underleases:

13. Questions? OAS Training OAS TRAINING