A recent ruling is likely to have significant consequences for guardian property companies (and other landlords) who use licence agreements to place occupiers into properties to protect against squatters and vandalism.  The case of Camelot Property Management Limited and Camelot Guardian Management Limited v Roynon [2017] highlights the importance of carrying through in practice what a document/ licence has set out to achieve.

The matter of whether a licence is really a licence or indeed a lease has long been debated and for some time now it has been widely accepted (following the decision in Street v Mountford [1985]) that the principles of exclusive possession, rent and length of term govern how a ‘licence’ will be regarded by the courts.

The recent Camelot case did not set to change these principles but has offered valuable insight as to what is required in order to prevent ‘exclusive possession’ from arising and turning a ‘licence’ into a lease or formal tenancy.

The ‘licence’ agreement with Mr Roynon for the occupation of two rooms in a former old people’s care home contained the following restrictions:

• No overnight guests
• No unsupervised guests
• No more than 2 guests at a time
• All guests to be escorted from the property at the end of each visit

The court held that the provisions of the agreement did not accurately reflect what happened in reality. Whilst the licence stated that no exclusive possession would be given, Mr Roynon had in fact been given keys to two rooms to which no other guardians had access and which no one entered without his permission.

Regular inspections of the rooms by Camelot were not held to be sufficient to counter his exclusive possession and Mr Roynon had therefore acquired an assured shorthold tenancy rather than a ‘licence to occupy’.

The case highlights the need to put into practice what a document/ licence has set out to achieve and where no exclusive possession is intended, landlord’s must make sure that the living arrangements are not contrary to the formal agreements put in place.

Anyone using guardians or short term occupiers to prevent buildings remaining empty should carefully balance the risks of allowing people into occupation with the rise of professional squatters and other unwanted occupiers who could look to take advantage of such situations.

Contact Caroline for more information.

Whether you are the landlord or the tenant, you need to think carefully at the time of signing a new lease about what happens when the lease comes to an end.  A manufacturing company, for example, who has invested in the installation of specialist plant and machinery at a property, will want that lease to continue, to provide it with the comfort it needs to carry on operating its business without fear of having to relocate at the end of its term. Another tenant, providing business services and taking the lease of an office, for example, may not have the same concerns. They may not see the property as critical to their business in the same way as the manufacturing company does.  The landlord on the other hand needs to think about its long-term plans for its property and be aware that unless it opts out of the Landlord and Tenant Act 1954 (the Act), security of tenure is automatically given to the tenants of most new commercial leases.

It can be crucial, therefore, for landlords to consider whether its tenants should have protection under the Act, especially when they might want to take possession of the property at the end of the lease. The tenancy becomes protected unless the parties contract out of the Act.

The protection given to tenants is twofold: First, the tenancy does not come to an end on the term end date of the lease and continues until it is terminated according to the procedures set out in the Act. Second, tenants are given the right to apply to court for a new lease once the fixed term of their current lease has expired. A landlord may only oppose an application on certain statutory grounds.

Security of tenure does not apply across the board to all tenancies however and there are certain tenancies that are excluded from the protection of the Act. Nevertheless, security of tenure applies to most commercial leases with a term over six months unless contracted out.

For a landlord to regain possession of the property at the end of a term, it must serve a statutory notice to terminate the tenancy. Such a notice must be served not less than six months, nor more than twelve months, before the date of termination specified in the notice itself. The date of termination cannot be before the term end date in the lease. The landlord must be able to demonstrate one or more of the following statutory grounds:

• The tenant has failed to comply with its repair and maintenance obligations
• The tenant is persistently late with rent
• The tenant is in substantial breach of their obligations
• The landlord has offered and is willing to provide or secure the provision of suitable alternative accommodation for the tenant’s requirements
• The tenant is a sub tenant of part of the landlord’s building and the landlord could get more rent by leasing the whole of the building rather than part
• The landlord intends to demolish or reconstruct the whole or any part and could not reasonably do so without obtaining possession of the property and/or
• The landlord intends to occupy the property.

If a landlord envisages that it will want possession of its property at the end of a lease term, then contracting out of the Act is crucial. In practice, the landlord will serve a warning notice before the lease or agreement for lease is completed and the tenant will reply with a statutory declaration. The warning notice must be in a prescribed form and the lease must contain reference to the exclusion agreement, the notice and the declaration.

The Act is highly technical and legal advice should always be sought in relation to any specific matter. The Sherrards property team are able to advise landlords (as well as tenants) on key considerations in relation to security of tenure.

To find out more, please speak to Caroline Vernon. 

Being connected to the internet is something we almost take for granted these days. Tenants looking to move into new premises are likely to assume that adequate connections will already be available or reasonably straightforward to set up.  This isn’t necessarily the case and before you find yourself unable to get your business up and running in your new premises, check out the position as you may need to enter into a wayleave agreement.  It is worthwhile doing this and getting the landlord involved as soon as you can.

While modern buildings should have fibre optic cabling installed, older buildings may not. Having connection at a level and speed required for business purposes may mean entering into a telecom agreement (a wayleave agreement) with the service provider for the installation, or upgrading, of cabling within the building.  This can take time and involve multiple parties.

While tenants should have rights to connect into existing service media in the building in their lease, this may not extend to new cabling.  This may mean seeking the consent of the landlord to run cabling through common parts of the building. The telecoms provider will also want to know they can access and maintain their kit once installed and connected.

A wayleave agreement or telecoms lease will usually need to be entered into between the tenant, the service provider and the landlord. The landlord will want to be involved in the process to protect their position as far as possible to ensure that the service provider only has the rights they are entitled to and the landlord can control as best they can removal of the kit from their building when required.

Landlords should be aware that telecommunications providers have statutory rights which are heavily weighted in their favour. It can take over 18 months to secure the removal of telecommunications apparatus from premises with the landlord needing to prove grounds to do so.  Operators are also allowed to assign their rights, upgrade the equipment or share with other providers without the landlord’s consent.

Before refurbishing or redeveloping a property in the medium to long term, a landlord will need to factor in the rights of telecoms providers within the building if their equipment is to be removed. There need to be adequate ‘lift and shift’ provisions in place in any wayleave or telecommunications lease to require providers to move the equipment to allow the landlord to refurbish the premises. Contact Isabel for more information.

Sterling is weak and Brexit is lingering. Business uncertainty, particularly the risk of tenant insolvency, is undoubtedly one of the biggest concerns for UK commercial landlords in the current climate. 2018 has seen increasing indicators of stress and change in the retail and restaurant sectors in particular, with tenants entering into CVA’s (company voluntary arrangements), administration & negotiating store closures.

All is not doom and gloom – indeed some report that we are seeing an evolution of the “store” and the high street which may present its own opportunities. Whatever the weather, projecting ahead to what are likely to be testing times, commercial landlords might want to consider how better to safeguard their position on grant of leases, going forward.

Here are our top tips:

1. Heads of Terms

Negotiating and agreeing heads of terms is a critical time in any transaction. Getting lawyers involved at this stage can put the landlord in good stead for covering key matters relating to the specific circumstances of the parties, the property and the transaction. Getting it right at this stage often avoids the need for renegotiation later down the line which can carry the risk of a ‘no deal’ and wasted costs.

2. Rent Deposit

Quite routinely, a landlord will collect a lump sum as security from the tenant on the grant of a lease which is held for the duration of the term. It can be used by the landlord to cover any unpaid rent or damage to the property caused by the tenant. There are various ways to hold a rent deposit but a landlord faced with the increased risk of tenant insolvency will want to consider a requirement for the rent deposit to be held using a charge structure. Using a charge structure means the landlord will be a secured creditor (of the rent deposit sum) in the event the tenant becomes insolvent (such as falling into administration, liquidation, or entering into a CVA).

If a charge structure is not used, there can be greater restrictions on whether and how commercial landlords can draw down and use the rent deposit sum, where valid, if the tenant becomes insolvent.

Of course, the other consideration to factor in is the amount of deposit that will be taken. Depending on the financial strength of the tenant and the term of the lease, a landlord will want to negotiate an amount which is an adequate security buffer – and preferably hold that under a charge structure.

3. Guarantors

Landlords will often, as additional security, require a guarantee from (1) a personal guarantor or (2) a parent company so that there is a further party to pursue if the tenant breaches the lease. A tenant who is in financial difficulty might fail to pay rent or fail to comply with its repair obligations, leaving a dilapidations liability. In this situation a landlord can often be left with an immediate cashflow problem. Furthermore, long term, if the property is significantly damaged or dilapidated, the landlord could be left out of pocket. Having other parties of financial worth to pursue is essential.

To a commercial landlords dismay, some insolvency procedures can affect enforceability against a guarantor. CVA’s have been criticised for “guarantee stripping” as case law has left some uncertainty as to whether these can operate to release guarantors of their liability owed to landlords (based on terms agreed in a CVA between an insolvent tenant and its creditors which can bind the landlord).

For the avoidance of doubt, landlords should be mindful to ensure that any guarantees taken are on the basis that they will expressly apply in the event that a CVA or any other voluntary arrangement is agreed by the tenant with its creditors.

Whilst there is no guarantee that this will be airtight – as the point in case law remains somewhat uncertain – having clarity of what the parties intend in an agreement is essential and is more likely to help protect the landlord. Generally speaking, it is important that the guarantees the commercial landlord takes are drafted to maximise strength.

4. Contracting-Out of Renewal Rights

A tenant who has a lease for a term of at least 6 months (or a tenancy without any fixed term) in occupation and operating its business at the property has a statutory right to apply for a renewal of its lease on similar terms. A landlord can only refuse to grant a lease renewal on certain statutory grounds.

If a tenant is financially strapped when it comes to the end of the fixed term, rather than allow a renewal of the lease and have problems trying to evict the tenant, a landlord will understandably want a clear right to regain possession of the property so that it can be re-let on the open market again.

This can be achieved by the tenant agreeing to contract-out of its statutory right of renewal. The procedure for contracting-out is specific and must be followed properly before the grant of a lease to be effective. The reward of getting this right can often avoid unnecessary hassle and costs at the end of the term.

5.Existing Leases & Throughout the Term

There might be some tell-tale signs to look out for during the course of a landlord-tenant relationship which can indicate the tenant is in difficulty. A landlord who sees these signs may well need to start proactively thinking of alternative plans.

The obvious one – late payment of rents – is not the only one to look out for. A tenant might make applications for consent to assign, sub-let or change permitted use. A landlord might simply agree to an assignment or subletting if this means rent is coming in from a more financially reliable tenant or undertenant. Alternatively, a landlord might want to consider agreeing a surrender of the lease with the tenant, at a premium. This can allow both parties to cleanly move on.

The key is to achieve a solution before the tenant falls into an insolvency situation as otherwise the landlord can be at risk of little or no return of monies owed, once insolvency rules kick in. Contact Caroline for more information.

Temporary letting of space is becoming ever more popular in the retail market.  Pop up retail shops in particular have a variety of benefits including the relatively low cost associated with securing and opening them.  By their very nature, they are almost tailor made for the sale of seasonal products, such as those associated with halloween and Christmas. They can also be a great way for new retailers to test the water in the market place and for established companies to try out a new location. They generate awareness of the brand as they are usually located in areas with high footfall.

They also appeal to landlords keen to avoid having empty units in their schemes or on their high streets. In what is a tricky time for retail generally, many will consider offering short term leases to fill voids and encourage growth.

Depending on the bargaining powers of those involved, tenants looking at taking space on a temporary basis may want to think about the following when negotiating heads of terms:

• The term of such a letting is typically between 3 and 6 months. However, anything up to 12-24 months would still be a short-term letting. If a longer term is agreed, the tenant may also need to consider the option of determining the lease before the end of the fixed term.
• Rents based on turnover. If the unit is a success, the retailer pays more, but if not they pays less.
• Capping service charges or fixed rents inclusive of service charges
• Limiting the usual repairing obligations to hand back the premises in the same condition as they were in when taken – by reference to a photographic schedule of condition.

When it comes to documenting a temporary letting, the leases are usually short and simple with fewer obligations on the parties.  If the rents are low and the term short, then stamp duty land tax and registration at the land registry are generally not relevant. Given the nature of the letting, property searches and extensive due diligence can usually be dispensed with.  This means a less expensive conveyancing process as well as a low-cost set-up.

Article also featured in The Retailer spring 2019 edition.

To find out more, please contact Stephanie Kierans. 

Watch House Coffee started life at a small yet cosy ‘watch house’ on London’s famous Bermondsey Street, historically a shelter for men guarding St Mary Magdalane Church graveyard at night. Further locations followed at a former spice factory near Tower Bridge and on Fetter Lane in the City, where you can enjoy your coffee under its long grass roof and leafy ceiling.

Partner Charles Hodder has been working with Watch House Coffee over the past two years, advising them on their commercial leases; most recently on the Fetter Lane site.

The state of the art buildings needed complex legal and planning advice to make sure they were fit for purpose. The Sherrards property lawyers worked with Cambria to secure planning permission which met the strict requirements of the car manufacturers.  Unusually Cambria was able to secure restrictive covenants on the surrounding land to prevent it being used for anything which might pollute the area and be detrimental to the sale of high end cars.

With the site now open, it is a big step forward in Cambria’s expansion of their already highly successful dealership network into the strategic ownership and construction of their own showroom.

For Sherrards, it was a great opportunity to demonstrate their legal, planning and construction law skills and to cement their long-term relationship with the team at Cambria.

Charles Hodder, property partner, Giles Ferin and Graeme Roberts all worked on the deal, along with client partner Leigh Head.

The Sherrards property lawyers have a well-deserved reputation in the retail sector for cutting through the legal jargon and getting the deal done. With ambitions to open 1,000 stores by 2020, Rituals looks to Sherrards to help them secure properties in high end locations in the UK.  In addition to new stores in Bicester Village and Marylebone High Street, Sherrards has worked with the Rituals team this year on new openings at London Bridge and Kings Cross stations.

Terry Fendt, who heads up the property team at Sherrards said, “Working with clients in the retail sector is both exciting and challenging. Opening new shops on the high street is pretty rare these days and in the current economic climate, it is great to work with a company that is thriving and expanding.”

Matthew Lee, Head of Store Expansion and Real Estate at Rituals comments “There is a great deal of work behind the scenes before we open a new store.  We trust Sherrards because they have a dedicated team of specialists who understand the need for speed, flexibility and determination to navigate through negotiations and achieve the right result for us.”

The enduring reputation of the Lowe family business was recognised by Gibbs & Dandy who displayed a sign reading ‘Proud to incorporate Chas Lowe & Sons’ and has now been further acknowledged with McCarthy & Stone naming the building Lowe House.

Stephanie Kierans, partner at Sherrards comments “It was a pleasure to deal with Peter & Kevin and I am very pleased that we were able to achieve a successful outcome for them, particularly given the complex nature of the transaction which involved finding solutions to a number of legal issues”

Peter Lowe comments, “I want to thank Stephanie and the Sherrards team for the very professional and competent manner in which they have handled this transaction, and the speedy attention to detail they have given in all respects”

The award-winning fitness club brand started life with one franchise in 2003 but now has clubs all over the UK, Europe and the Middle East. This latest development, bringing the head office and training centre together with a new club in Milton Keynes will be good news for its 100,000 members.

The Sherrards legal team has a leading reputation in franchising, working with clients in the retail, automobile and leisure sectors on their commercial and property needs. Understanding the intricacies of the franchising world, means the Sherrards team are focused on making sure the deal succeeds with both parties benefitting.

Terry Fendt who led the team advising on the legal aspects of the deal commented, “We’ve worked with énergie Fitness for a number of years now assisting both franchisees and the franchisor. The franchising business model attracts dynamic and ambitious people and leads to some great work and opportunities. The team at Sherrards responds incredibly well to this and provides legal advice and client service to match.”