Blacks and La Senza: Aggression vs Seduction?

Yesterday saw the first of what will most likely be a wave of pre-pack administrations of high street names when both Blacks Leisure and La Senza went into administration and immediately thereafter their businesses (or at least the profitable parts of it) were sold to willing buyers.  Pre-pack administrations have come in for a lot of criticism on the basis that they often, if not always, return no value to unsecured creditors or shareholders.  However, they have their merits and, in a lot of cases, genuinely achieve the best result possible overall for stakeholders.  Therefore, much to the dismay of some readers, I am not about to launch into vitriolic criticism of the use of pre-packs to save jobs and businesses with unsecureds being left high and dry.
There is, however, one common thread of both the La Senza and Blacks pre-packs which are worth highlighting and, as a landlord, preparing for: lease renegotiations.  In the case of Blacks, the official press release from JD Sports Fashions stated:

"Following the elimination of any underperforming stores and other cost reduction initiatives we believe the business can be run successfully as independent fascias within the Group."

With La Senza, less than half the retail sites leased by the group were bought out of administration with the majority of sites closing down so, it is likely, only the performing stores were part of the original deal.  However bearing in mind the official press release which stated:

"Today’s announcement represents a first step in a long-term commitment to developing the La Senza UK business, which we believe has great potential."

it seems likely that 'new' sites are on the cards.
My prediction is that in both cases landlords will be approached by the new owners to renegotiate lease terms.  What we have is a difference in approach from the new owners; one is seeking to pressure landlords whilst the other is seeking to seduce them.
In the case of Blacks the new owners have probably taken a licence to occupy all the sites and will now meet with the landlords of "underperforming sites" to seek to renegotiate the leases.  This will be the stick or 'Aggression' based approach; if the landlord does not agree the terms the site will be closed and the landlord left with the void costs, which would include empty rates liability, service charge irrecoverability and an unoccupied site which quickly becomes unattractive.
In the case of La Senza whilst landlords of transferring sites might be approached, bearing in mind the number of up front closures, I anticipate that the new owners will approach landlords of some of the closed sites and propose new terms under which they would be willing to re-open.  This is more of a 'carrot' or 'Seduction' based approach offering to relieve landlords of the void exposure.
As a landlord it is important that you are aware of what your negotiating position is in respect of any approaches.  It is worth keeping the following in mind (and get detailed legal advice in respect of them where relevant):

• an administrator has no right to disclaim or unilaterally surrender a lease or otherwise bring a lease to an end earlier than a solvent tenant (only a liquidator has that power).  Therefore rates liability in particular should not fall on a landlord simply because of the tenant going into administration although ultimately liquidation is likely).
• if the property is still being used (and this is particularly important in the case of Blacks) then the lease liabilities arising are likely to be an expense of the administration.
• due to the decision in Goldacre expect there to be significant pressure to get deals done before rent payment dates as administrators in particular will wish to ensure that they can avoid any risk of the next period's rent being payable as an expense in whole.  My view is that a challenge to Goldacre or an attempt to extend it is very likely this year.
• pre-conditions or requirements set out in the lease as things which the landlord can rely on in terms of refusing consent to an assignment apply to an assignment by a company in administration just as much as they do in non-insolvency positions.  Obviously a balance is to be achieved but if you really do not want to consent to an assignment or the proposed terms don't think you will have no choice in the matter.
• the courts will not be quick to grant consent to forfeiture.  In our experience to date courts have given administrators quite a long time to try and assign a lease so even where the proposed assignee cannot meet lease pre-conditions do not assume the courts will be on your side.

La Senza and Blacks might be the first major retailers of 2012 to go to the wall but, if the reports are to be believed, they certainly will not be the last.  Whether buyers of such portfolios use might or seduction methods to seek new lease terms we can only speculate but what La Senza and Blacks show is both approaches are being considered and pursued.  Either way, make sure you use protection!

“Good Harvest” now been tithed?

The Court of Appeal today issued its judgment in K/S Victoria Street v House of Fraser (Stores Management) Ltd & Ors [2011] EWCA Civ 904 (27 July 2011).  Some might call this case “son of Good Harvest” and it was the Court of Appeal’s first chance to consider the decision made by Mr J Newey in Good Harvest Partnership LLP v Centaur Services Ltd.  Those of you who have been reading my blog for a while may remember that I got excited about the first instance decision in House of Fraser as Mr Randall QC opted to follow Good Harvest even though he felt that the reasoning in it was flawed!

I will not bother to go into the detail of Good Harvest and what it means to both landlords and tenants as to do so would simply trod over such well-trodden ground that it is a bit of a quagmire.  I have read the decision of the Court of Appeal and, unsurprisingly bearing in mind the Court in this case was headed by the Master of the Rolls, LJ Neuberger, an exceptionally well respected judge with particular expertise in Real estate, it is a well reasoned decision.  In some ways what is most fulfilling about this judgment is that it has expressly been given to address the uncertainties created by the Newey J decision in Good Harvest.  In fact in one part of the judgment it reads:

“We would hope that those responsible for drafting leases are aware of these conclusions, and that, as a result, the 1995 Act should not lead to many practical difficulties of the sort discussed above.”

The Court is speaking to me and my peers and telling us clearly, “we have told you what the law means now you have no excuses for further screw-ups”!

The decision of the Court of Appeal provides much needed clarity and confirms the following:

1. Any agreement which seeks to require a guarantor of a tenant under a lease to guarantee the obligations of an assignee of the tenant will be void.
2. Even where a landlord merely require a guarantor of a proposed assignee and it is the assignee/assignor who suggests the current guarantor (i.e. the landlord did not require it) as a guarantor of the assignee, that will be void.
3. Any guarantee entered into as a result of an agreement along the lines suggested in points 1 or 2 will not be enforceable.
4. A guarantor can, where reasonable so to do, be required to guarantee the obligations of a tenant as assignor of a lease in an authorised guarantee agreement (the GAGA survives).

Of biggest comfort to landlords (and commercially minded tenants) will be point 4.  It had been suggested in Good Harvest that a guarantor could not be required to enter into an AGA.  If this view had been repeated then it would have resulted in landlords always insisting on the assignee being the most financially sound entity in any group.

The judgment did raise some issues which need to be considered practically so that practitioners seek to ensure that they do not run unnecessary risks with their drafting.  I would highlight the following:

1. Provisions in leases which effectively allow intra-group assignments where the TopCo remains on the hook cannot be made to work.  It seems to me that they simply become unenforceable since the tenant cannot comply with the obligation to provide the guarantee and without it one would revert to the usual consent provisions in the lease. So tread carefully here.
2. The Court has blessed the concept of the current guarantor guaranteeing the outgoing tenant’s covenants in the AGA. However, it did not bless a guarantor guaranteeing the assignee’s obligations directly but less this open.
3. A provision in the original guarantee which seeks to extend the guarantee to a guarantee of any covenants by the tenant in an AGA on an assignment may be vulnerable to challenge.
4. The court cast doubt as to whether a landlord can automatically require on any assignment the outgoing tenant to enter into an authorised guarantee agreement.  This is potentially interesting in the insolvency scenario where landlords often seek to rely on such provisions to refuse consent on the basis that an administrator will not enter into an AGA.

So, Good Harvest has been suitably tithed by the Court of Appeal.   The law has been clarified for the better and the investment community can sleep a little more soundly tonight.  However, a word of warning, there are many existing leases out there which will fall foul of the anti-avoidance provisions of the Landlord and Tenant (Covenants) Act 1995 even after this decision.  The clarity afforded by this decision means a discount in value must be applied to those leases that do.

JJB proposed CVA: Will it succeed?

A colleague has just sent to me a copy of the announcement by JJB regarding its proposed CVAs.  Only a month ago I wrote a blog regarding the possibility of HMV proposing a CVA which contained some advice for Landlords.  Thus far it has not happened and, I have been told that my expectations may have been too high since HMV remains profitable despite its troublesome retail sites.
However, from the sidelines JJB is now proposing a CVA the mainstay of which appears to be an attempt to get rid of underperforming sites.  The announcement states the following:

"The key objectives of the CVA proposal will be to:

• enable the closure over the next 12 months of up to 45 stores which are underperforming (the "Category 1 Stores");
• enable a review to be carried out in relation to the remaining stores, with an option to close over the next 24 months up to a further 50 stores which are also underperforming (the"Category 2 Stores");
• enable the Company to continue to pay rates on closed stores in the period up to the first break date under each lease;
• vary the terms of the leases of the Category 1 Stores and Category 2 Stores such that rent will be payable on a monthly, rather than a quarterly, basis;
• reduce the amount of rent payable in respect of stores which will be closed in due course for a period of up to 12 months for the Category 1 Stores and a period of up to 24 months for the Category 2 Stores (if the stores are closed after the end of the relevant period, no further rent will be payable);
• enable landlords of the stores for closure to require the Company to vacate and determine or assign the lease of the relevant property upon at least 30 days notice; and
• vary the terms of the continuing leases such that rent will be payable on a monthly, rather than a quarterly, basis for a period of 24 months."

In November 2009, following the first successful CVA by JJB I blogged on "Tenant CVAs - what makes them successful?".  In this blog I identified a number of common themes which ran through the successful CVAs.  Let's look at those in the context of the JJB announcement:

1. No additional store closures over and above those that had already closed (i.e. landlords knew if their site was closed) - the new JJB proposal leaves 95 stores at threat of closure.  The landlords of those stores may or may not be identified at the outset creating significant uncertainty.  New JJB Proposal fails the test
2. No rent reductions on stores remaining open although movement to monthly rent payments - the new proposal is that rents will be reduced on Category 1 and Category 2 Stores and that on these stores rent will be payable monthly.  On the remaining 150 stores the rent will remain the same.  Double whammy for landlords of Cat 1 and Cat 2 stores.  New JJB Proposal largely fails the test
3. On closed stores the tenant would continue to pay the rates (landlords were protected from this oppressive liability) - this appears to be the proposal on the JJB CVA.  Test passed
4. A pot of money (normally equal to 6 months' rent) was distributed between the landlords of closed stores as compensation - there is nothing in the announcement suggesting such a pot and the implication is there will be none.  Test failed

Therefore, based on my previous views as to what makes a Tenant CVA proposal acceptable to Landlords it is doubtful that the JJB proposal passes the test.

So what should you do if you are a Landlord who has a property let to JJB?  Well, all I can do is re-iterate what I said in my blog on the possibility of an HMV CVA:

• first and foremost do not go it alone - unless you are a significant creditor your ability to block or seek changes in the proposals will be fruitless unless others share your views. Therefore find out who the other landlords are and talk to them
• take legal advice - CVAs amount to binding contracts on both the company and the creditors. Some proposals can mean that the CVA is liable to challenge for "unfair prejudice" but the law is complex
• take valuation advice - especially if your property is one which JJB seeks to dispose of as you need to understand what this would mean in terms of reletting
• act quickly - waiting until the week before the meeting to read the proposals and ask a lawyer to advise you on what it means for you is a case of too little too late. My advice to all of JJB's landlords is to take action now so that you are well prepared in the event a CVA is proposed
• beware breach of your loan covenants - if you have borrowed against the property then any action you take is likely to require the endorsement of your bank.  Also, agreeing reductions in rent could put you in breach of interest cover tests so you will need to check your loan documentation too

Of course the formal CVA proposal has not yet been published so the final form may differ from the outline proposals.  If you are a Landlord who is affected then please feel free to contact me.

HMV appoint KPMG - CVA on the way?

In my post earlier this month on VAT increases and snow - the Perfect Storm I noted how HMV had plans to close 60 stores.  What I did not mention at the time were my suspicions as to how they might seek to achieve this - through the use of a company voluntary arrangement (CVA).  The unconfirmed news today that HMV have appointed KPMG as debt advisors increases the likelihood of this significantly; in my mind KPMG are the Kings of CVA.  From a restructuring point of view I hope that is viewed as a compliment (as if not I expect to be getting some irate calls from people I know there!).
KPMG were behind the successful CVAs for well know names including JJB Sports, Blacks Leisure and the Suits You shops.  Prior to these successes the general view was that CVAs were inappropriate for retail businesses but these successful CVAs changed all that.  See my blog on what makes a retail CVA acceptable back in 2009.

So why am I so convinced that HMV will attempt a CVA?  Well the facts are all lined up perfectly:

• a business model suffering from a serious squeeze on all sides
• an internet business which is probably being dragged down by the retail units
• a significant number of unprofitable retail sites which HMV needs to close

Why will a CVA work well?

• it will allow HMV to cut a deal with all the landlords on the sites it is closing without needing to agree individual deals
• a handful of difficult landlords (especially likely where some of the landlords are in effect individuals) can be forced to accept the terms of the CVA
• trade creditors and suppliers can be left effectively untouched ensuring they will support the proposals and the business which is crucial

What should I do if I am a landlord affected by a CVA proposal?

• first and foremost do not go it alone - unless you are a significant creditor your ability to block or seek changes in the proposals will be fruitless unless others share your views.  Therefore find out who the other landlords are and talk to them
• take legal advice - CVAs amount to binding contracts on both the company and the creditors.  Some proposals can mean that the CVA is liable to challenge for "unfair prejudice" but the law is complex
• take valuation advice - especially if your property is one which HMV seeks to dispose of as you need to understand what this would mean in terms of reletting
• act quickly - waiting until the week before the meeting to read the proposals and ask a lawyer to advise you on what it means for you is a case of too little too late.  My advice to all of HMV's landlords is to take action now so that you are well prepared in the event a CVA is proposed

Whether or not a CVA is proposed it will be fascinating to see how HMV deals with its current woes - will it rock or will it bomb? 

Good Harvest Take 2

As many of you know on 23 February 2010 Mr Justice Newey shook the foundations of Landlord and Tenant relationships with his first instance decision in Good Harvest Partnership LLP v Centaur Services Ltd. In that decision he held that certain provisions in the lease in question which sought to require the tenant's guarantor to guarantee the obligations of the incoming assignee were in breach of the anti-avoidance provisions of the Landlord and Tenant (Covenants) Act 1995. This limb of the decision was, in the large part, unsurprising.
However, in that decision he also cast significant doubt as to whether any obligation on a guarantor of a tenant to guarantee the obligations of the tenant pursuant to an authorised guarantee agreement (AGA) would be enforceable; this was not expected and has worried landlords and their lawyers.
There was, and is, a large body of opinion that the statements by Newey J were simply wrong and do not stand up to scrutiny. Hopes for a clarification from the Court of Appeal were dashed when, having appealed against the decision, Good Harvest settled just before the appeal was heard leaving the doubts unanswered.
On 1 November 2010 Mr John Randall QC sitting as a deputy High Court judge issued summary judgment in K/S Victoria Street v House of Fraser (Stores Management) Ltd and others ([2010] PLSCS 278) regarding the enforceability of provisions which provided that on an intra-group assignment the current parent company guarantor must stand as guarantor of the assignee. In line with the Good Harvest decision Mr Randall QC held that this requirement was in breach of the anti-avoidance provisions of the LTCA 1995 and should be struck out of the document.
However, interestingly, Mr Randall QC stated that he had come to the decision to follow the ruling in Good Harvest notwithstanding that the reasoning in Good Harvest was flawed.
Once again success for a tenant regarding the unenforceability of a provision seeking to keep a guarantor on the hook post assignment but once again a case which does not reflect the more common situation whereby a guarantor (as part of its original guarantee or as a condition of an assignment) guarantees the tenant (not the assignee's) obligations pursuant to the AGA. The view remains that certainly where the guarantee is contained in the original guarantee and probably where it is entered into at the time of the assignment such an arrangement should not fall foul of the anti-avoidance provisions of the LTCA 1995 and should survive a challenge. Of course the devil is in the detail.
Any ruling to the contrary would have a significant detrimental effect on the ability to rely on guarantors to prop up weaker covenant tenants.

McGoldacre: A Scottish lilt on rent and admin expenses

In January 2010 I posted a blog on the decision in Goldacre (Offices) Limited -v- Nortel Networks UK Limited (in administration) in which the High Court ruled that where an administrator uses a leasehold property for the benefit of the administration on a rent payment day then the whole quarter's rent is payable as an expense of the administration.
Now a court in Scotland has produced a carbon copy in slightly different circumstances. In its decision in Cheshire West and Chester Borough Council -v- Springfield Retail Limited (in administration) the in the Outer House of the Court of Session Lord Menzies held that the fact that the person in actual occupation was neither the administrator nor the company in administration but rather a licensee of the company in administration, was not relevant and that since the licensee had been let into occupation by the administrator as part of a sale of the business then the rent was due as an expense.
Frankly the decision does not come as a surprise. It would be strange if the court had held that administrators could allow a third party into occupation of a leasehold property and that in doing so they would not be liable for the rent as an expense. To do so would create a significant arbitrage opportunity whereby third party licensees could run businesses out of leasehold property of companies in administration where the landlord had no contractual right to rent from the licensee and only an unsecured claim against an insolvent company.
Therefore, in reality the case tells us nothing new and does not answer a number of fundamental questions which the decision in Goldacre raise including:

1. If the administrator goes into occupation the day after a rent payment day will none of that period's rent be payable as an expense?
2. Are dilapidations arising during the period of administration an expense of the administration?
3. If there is a sub-tenant in occupation who carries the credit risk of that sub-tenant defaulting? Does it affect the analysis if the company in administration does not continue to use the remainder of the premises?

Rent is an administration expense - but at what cost?

A recent decision in the High Court (Goldacre (Offices) Limited -v- Nortel Networks UK Limited (in administration) [2009] EWHC 3389 (Ch.)) has confirmed that where an administrator makes use of a leasehold property the rent reserved by that lease will be an administration expense. This is in accordance with most practitioners' prior views.

However, the case did decide some other related points which are, in some ways, surprising as follows:

1. the amount of rent which becomes an expense of the administration does not relate to the area occupied. Use of a small part of the premises demised will make the whole rent reserved an expense of the administration;


2. if the administrator is using the premises on the rent payment date then the whole period's (e.g. quarter's) rent will be payable as an administration expense even if the administrators' use ceases during the relevant period.

These two points could have interesting implications. The corollary of (1) might be that where the premises are part sub-let and the administrators continue to use the other part then it may be that the administrators are exposed to the credit risk of the sub-tenant default. The corollary of (b) might be that where the administrator is not using the premises on the rent payment date then there is no liability for the rent as an expense even if the premises are used for the remainder of the relevant period.

Neither of the above points were directly addressed in the judgment.

It should be noted that the fact that it is now confirmed that rent will be an expense of the administration if the administrators are using the premises does not mean that the administrators have to pay it on the due date and in full. This is still dependent on there being sufficient realisable assets out of which the rent can be paid. This was expressly confirmed in the judgement.

So whilst the case confirms a generally held belief it has muddied the waters for both landlords and administrators in some regards and altered the balance of power slightly but with the administrators arguably still holding the upperhand through the benefit of the moratorium.

FRI Leases in a recession - not always the protection you expect

The Financial Times reported today that "Maintenance Cuts threaten property values". For those who cannot be bothered the article what it says it that whilst UK property is generally let on full repairing and insuring tenant covenants landlords are cutting back on repair and maintaining those parts of the properties for which they have responsibility and for which they recover the cost through the service charge due to fears over whether the costs are recoverable arising from tenant default and increasing voids. Meanwhile, landlords are facing an increasing number of void units in disrepair due to tenants failing to repair and then becoming insolvent.

The failure by landlords to carry out anything but the most urgent of repairs is, of course, a double edged sword for a landlord. It exposes the landlord to the risk of tenants seeking to enforce landlords' repairing obligations (although this might be unlikely save where the disrepair is likely to damage the tenant's business). More importantly, it makes reletting the unit at the best rent very difficult since the centre in which the unit is quickly becomes dilapidated and less attractive to potential tenants. Hence, one could argue that failing to repair is only prolonging the pain for the landlord. In truth, however, landlords will probably wait until real signs that the market is picking up before deciding to carry out repairs. The timing does need to be right since if a competing location is in better repair and condition it may prove more attractive and take away potential new tenants.

Repair of individual units is even more tricky for landlords. Is there any point in carrying works of repair to a vacant unit with little chance of letting. On the other hand what chance is there of letting a unit in disrepair and what effect will this have on rent. Some landlords may opt to wait until a potential tenant is found and then agree to put the property in repair (or pay a reverse premium to the tenant to do this). This means that the level of rent should not be affected. However, a tenant looking to move in quickly (especially in the run-up to Christmas to make the most of the holiday trade) is more likely to opt for a unit ready to go.

Finally, all landlords (and tenants when landlords are carrying out works) would be well advised to check carefully the terms of service charge provisions in the various leases to check what works are recoverable and what are not. How are voids treated? What are the obligations in terms of repair?

Is the FRI lease manifestly unfair?

I sat in a very interesting meeting the other day which was a general discussion on various points in negotiating an agreement for lease and lease when acting for landlords and tenants. Much of the discussion focused on the inter-relationship between warranties, repairing obligations and service charges and then moved on to insurance and uninsured risks. However, what was most interesting was that the discussion touched on a more general issue about the English institutional fully repairing and insuring (FRI) lease - is the whole proposition of an FRI lease not manifestly unfair and unbalanced.

For the uninitiated, in England and Wales the starting point with a lease which will be acceptable to institutional investors is one in which the investor receives all the rent and the tenant is financially liable for every cost associated with the property (apart from "income" tax on the rent). This works by imposing full repairing obligations on the tenant, requiring the tenant to fully re-imburse the landlord for the cost of insuring the building and requiring the tenant to pay, through the service charge, for the cost of repairing parts of the building outside the tenant's demise.

Now let us examine the relative positions and aims of the parties.

The landlord owns the property for the purposes of investment. It receives income in the form of rent and the potential for capital increases resulting from rent increases and/or yield compression. It is very much interested in the long term existence of the property.

The tenant is renting the property as a place from which to conduct its business. It does not care about the building per se. Its income is generated out of the property but not from the property and it does not, in general terms, specifically have to be located within a specific property. It does not benefit from changes in yields and only sufferes from rent increases.

Now let us consider where the risk in relation to the property should lie. The tenant requires occupation to run his business but has no interest in the long term existence of the property and sees no benefit from any increase in value. The Landlord benefits not only from the existence of the property but also from the continuing ability of the property to meet the tenant's needs. As the tenant's business flourishes so does the value of the property as it is likely to be let to a tenant with greater covenant strength. Therefore you would expect that the landlord would bear the risk of need to repair the property or it being destroyed; he is the owner afterall.

However, the FRI lease is such that the only risk the landlord is taking is that the tenant goes bust. All other risks are placed firmly at the tenant's door. Repairs within the demise the tenant will be required to carry out itself. Repairs outside the demise the landlord will carry out but recover the cost from the tenant. If the building is destroyed by an insured risk there is likely to be a rent cesser but this will only be for the period for which the loss of rent insurance is available and after that the rent restarts even if the building is still unbuilt. Uninsured risks, all things being equal, can fall completely on the tenant with the landlord being able to recover the cost of rebuilding through the service charge. So a tenant who decided against being an owner/occupier could actually find itself in a worse position as a result with higher annual costs and the potential for huge liability when something goes wrong.

Of course, the above is a worst case scenario but it is one which is likely to represent the legal position on a significant number of leases in the market today. The UK is unusual in its total lack of legislation in seeking to prevent landlords from placing the full burden and risk on the tenant. In Germany, for example, it is against the law for landlords to seek to recover the cost of structural repairs through the service charge; this is a risk the landlord took when he bought/developed the building.

Matters have in the last 20 years moved somewhat from the position highlighted above. Tenants have seen much success in toning down liability for things such as uninsured risks and liability to repair latent defects but the the risk is still most firmly with the tenant. So all you tenants out there, a little less criticism of the tenant lawyer who seeks to negotiate a lease and is reprimanded by his client for delaying the deal; the detail could very well matter.

Is this fair? As always it depends on who you ask. In reality it is market forces and perhaps as a result of the current downturn tenants and their lawyers will use the opportunity to further push the pendulum back towards the landlord in terms of carrying the risk. However, I doubt very much that it will swing too far. The fact is that tenants don't appear to care that much - maybe that is because occupiers are businesses who are used to taking larger risks than the institutional property owner funds who tend to be risk averse. Fair it might not be but so what.

Commercial Lease Code - let's be radical

The news that the 2007 Commercial Lease Code has not proved any more well known than its predecessors has been met with dismay by the Government. Larger, institutional landlords did embrace to some degree the Code and did their best to publicise it. However the fact remains that much of the country's commercial estate is owned by small landlords and managed by small agents who have no interest in publicising the code as all it would do is damage their negotiating position and, in the case of agents, raison d'etre. So the prospect of legislation looms closer.
What I am about to say may shock you but . . . bring on the legislation. But not in half measures. Let's not tinker around the edges. Let's be radical.
I propose that for all leases of an area less than a certain minimum and/or a rent below a certain level (eg. £50k per annum) there should be a statutory prescribed form of lease. It could have the following:

• a minimum 2 year and maximum 10 year term
• Index-linked upwards only rent
• Security of tenure
• Repair to standard at date of first lease
• Assignment with consent not to be unreasonably withheld ("ntbuw")
• Underletting of whole with consent ntbuw
• Specific user with change permitted within same use class ntbuw subject to estate management considerations
• No alterations apart from internal non-structural with consent ntbuw
• Service charge drafting would be fixed by reference to the RICS Code

These are just suggestions but you get the idea. It may be that a few variations of the leases would be needed for different types of property and rental structures but all of this is achievable.
Why do this? Well the amount of time and money that is spent in the negotiation of heads of terms and subsequent documentation of those heads is one good reason. All landlords and tenants would need to agree would be the rent and term.
But the benefits go further. When an investor is reviewing a portfolio of properties low value leases would not need to be reviewed for consistency as the terms would be dictated by law. Certificates of Title could be reduced in size. Lawyer review time would be cut leaving more time to do the deal. Disputes would be dealt with more easily since the wording could quickly be interpreted by the courts and the number of disputes would fall. Everyone would benefit to some degree at some point.
The downside? Mainly in reduced flexibility although quite how much flexibility would be lost is questionable. Agents might need to reduce fees to reflect the lack of terms to negotiate but they would still be needed to find the tenants and get them signed up. Lawyers would lose out on fees as our services would not be required for straightforward leases but we would still be needed to negotiate agreements for lease, licences for alterations, etc.
So I say let's legislate, let's be radical, let's create the standard lease.

CRC is coming - time to take action

The Carbon Reduction Commitment is about to bite. It will place obligations on owners and occupiers of buildings to reduce the use of energy thereby reducing the carbon footprint. This will have cost implications and will also need to be addressed in the landlord and tenant relationship.
The BPF has just brought out a guide to the CRC for Landlords and Tenants. All landlords and tenants are urged to read this guide - it's contents may surprise you. Judgement is entity based not property based and once an entity is caught by the rules it will be responsible in respect of any property for which it has the supply contract with the energy provider. A Landlord would be wrong to think that it will be for its tenants, as the main user of the electricity supply, to comply - who is responsible depends on who is the counterparty with the electricity supplier for the property even if the landlord has installed sub-meters so he can recharge tenants based on use.
The guide provides useful tips on how to set-up oneself administratively to ensure compliance can be achieved. The work involved is likely to be time consuming and landlords and tenants should ensure that their leases allow for recovery of such costs through the service charge.
Further questions on recovery need to be considered in respect of the purchasing of "allowances".
The fact that CRC is based on group entities and not on buildings adds significant further complications. This has major ramifications in terms of the need to anticipate changes during a year and also how JV interests are dealt with. For tenants this can mean that as their landlord's identity changes the relevance of CRC and potential cost to it will also fluctuate.
Another issue for tenants who fall within the legislation is the difficulty of managing their energy use in properties where their leases restrict the work they can do. Time for rent review surveyors to sharpen their arguments on this front.
There seems little doubt that the implementation of CRC will greatly increase the burden (both administratively and financially) on owners and occupiers of property. The cost of saving the planet continues to rise - the cost of not saving it is, most would argue, far greater!

Setting the Landlord Free

English land law has a lot of idiosyncrasies; mainly as a result of how it has developed over many centuries. Two of these are the idea of privity of contract and privity of estate. In very simple terms these ideas mean that once you sign up to a lease (whether as landlord or tenant) you remain bound to comply with the terms of the lease even after you have disposed of your interest (either selling the reversion or assigning the lease) and that in order to ensure any new tenant would be directly liable to a landlord direct covenants with the landlord are advisable.
Now any slightly bright spark might notice that this could create a bit of a problem. For example, imagine you (A) take a new lease for 20 years of an office. After 10 years you have outgrown your offices and so you take some new offices and assign your lease to someone else (B). Seven years later that someone else goes bust. You remain liable for the rent in respect of your old premises and whilst you will have, if properly advised, received an indemnity from B since B is now bust this is of little value.
In recognition of this fact an act was passed in 1995 called the Landlord and Tenant (Covenants) Act. The first thing to note about this Act is that it only applies to leases created on or after 1 January 1996. The main effect of this Act was to make it so that Tenants were automatically released from their covenants on assignment of the lease. As a sop to the Landlord lobby a mechanism was inserted so that the landlord could keep the outgoing tenant on the hook as a guarantor of the incoming tenant but this could last for one assignment only.
In terms of Landlords being automatically released the Act did not provide for this - the logic being that leases rarely (if ever) give a tenant any control over a landlord disposing of its reversionary interest and so a tenant could find itself with a straw-man landlord failing to perform significant obligations. However the Act does provide for an ability for an outgoing Landlord to seek a release which must be given if reasonable.
Whilst at one point it was considered that as a result of the Act it was now impossible for Landlords to avoid continuing liability in advance a case in which went to the House of Lords in 2005 confirmed this was not so. In London Diocesan Fund v Avonridge Property Co. Ltd [2005] 1 WLR 3956 the House of Lords confirmed that with the correct drafting there was nothing to stop the Landlord and Tenant agreeing (as was the case before the Act) that once the Landlord has disposed of his reversion to the Lease he would not longer have liability for breaches of the landlord covenants.
Surprisingly, use of this mechanism is not automatic in the market. The most likely reason for this is that very few leases contain particularly onerous landlord covenants so the risk to the landlord of a lease coming back to haunt it is relatively remote. However where a landlord is granting a lease which does contain more onerous landlord covenants consideration should quite probably be had to including such a clause. Lawyers acting for tenants should pick up on the clause and advise their clients of its effect. I suspect most will not be bothered as many might be surprised to have learnt that without this clause they did have a claim.
Another example where this clause may be considered is where an Insolvency Practitioner is granting a lease and wants to ensure that the liability is limited to the period that the reversion remains vested in the insolvent entity.