by John Martin
The benefits of standardisation, in whole or part, of documents in common use have long been recognised. Perhaps one of the more compelling reasons today for introducing standardisation is the saving of professional time during the drafting and negotiating stages and the consequential reduction in cost.
However, equally well recognised are the difficulties of devising standard forms which are capable of wide acceptance. One of the earlier attempts at introducing partial standardisation in the case of leases, namely the Leases Act 1845, seems never to have made any impact. (The relevant footnote in Halsbury’s Statutes states “no appreciable use appears to have been made of this Act and reference is not made to it in the leading textbooks”.)
In more recent times pleas for standardisation in the case of leases have been made by the Royal Commission on Legal Services and by the Law Commission in particular. The legal and surveying professions are now well accustomed to the model forms of rent review clauses first produced in 1979 by a joint committee of the Law Society and the Royal Institution of Chartered Surveyors. Subsequently, alternative forms were promulgated by the Incorporated Society of Valuers and Auctioneers. A recent example of a comprehensive set of letting conditions for use with commercial premises is to be found in Rosscastle Letting Conditions published in 1989 by M J Ross and R W Castle.
Partly in response, no doubt, to complaints generally about the length and nature of the forms of commercial lease, which are now produced for the letting of even the most humble sets of business premises, a working party made up of members of the Law Society’s land law and conveyancing committee has produced two standard forms of business lease with the recommendation that they are most suitable for lettings of up to 10 years’ duration where the nature of the property and the amount of the rent reserved make it appropriate to use a concise standard form imposing limited repairing obligations on the tenant. The working party undoubtedly had in mind those kinds of premises for which the forms of lease now recognised as “institutionally acceptable” would amount to overkill.
The two versions are in similar form save that one is prepared for use in the case of a letting of a whole building and the other is intended for use where part only of a building is being let and a service charge is imposed.
The standardisation of a technical document does not, of course, obviate the need for professional advice on its terms. The Law Society’s business lease is endorsed with the appropriate health warning.
Format and style
When considering the Law Society’s business lease it is difficult to avoid drawing a comparison with the standard conditions of sale in this context. A marked attempt has been made to use plain modern English in short and comparatively simply constructed clauses. Punctuation is used sparsely and at first sight this appears to be as an aid to reading only. Time will tell whether ambiguity has been completely avoided by this.
Insertions are required only on the front page (where the names and addresses of the parties, the description of the premises, the length of the term and the amount of the initial rent etc are to be set out) and on the final page where there is provision for a guarantor to be joined in. Any additions or variations to the printed terms are to be made on continuation sheets.
One very novel feature is the grouping together under a single heading of all the provisions dealing with a particular topic. Under the heading of “payments”, for instance, you will find the tenant’s obligation to pay not only rent but also such diverse sums as fees on the registration of transfers and mortgages and the costs of preparing and serving schedules of dilapidations. There is clearly much to be said for not having to comb through a draft to identify all a party’s financial liabilities.
Definitions
These are set out on the first page (and obviously require to be completed by the draftsman). To the extent that any amendment (as opposed to insertion) is required this presumably has to be dealt with on a continuation sheet. The definitions themselves are actually worked into the demise and the reservation of rent and, in that respect, the wording at the foot of the first page to the effect that the lease is granted on the terms printed on the inside pages (as added to or varied) is perhaps slightly misleading.
Clearly the intention is that the property description should be brief (though it is a pity that no wording has been included to permit reference to a plan, particularly in the case of the version for use where part only of a building is being let). The term (which is described as the “lease period”) is defined so as to avoid any uncertainty as to the date on which the term begins. The permitted use is defined in such a way as to allow a change of use with the landlord’s consent. (Somewhat surprisingly there seems to be no requirement for that consent to be given in writing.) The amount of the initial rent also requires to be inserted at this point and unless some amendment is made the rent is payable by monthly, rather than quarterly, instalments in advance. Again, in the absence of any amendment, rent review dates are defined by reference to anniversaries of the date of commencement of the term (which may or may not be one of the usual quarter days).
Tenant’s covenants
At first sight it might appear that there are omissions from the normal range of obligations and restrictions customarily imposed upon a tenant of business premises. (In part this is due to the economic style of drafting and in part it flows from the somewhat unusual grouping of provisions relating to one identified topic.) In fact, omissions are few and it is questionable whether they are of any real consequence in the context of the types of letting envisaged.
In relation to the covenant to make payments it is likely that a landlord would wish to add in the obligation to pay rent by banker’s order and an indemnity against the loss of rating relief where it has been allowed to the tenant during the term. A tenant would probably wish to see excluded any obligation to pay VAT on any payment made by the landlord (and intended to be reimbursed by the tenant) where the landlord himself can actually recover the VAT.
Interest on money overdue is payable at the Law Society’s interest rate, which is intended to be 4% above base rate.
The service charge provisions (contained in the version for use in the case of lettings of part only) are admirably concise and relate directly to the separate set of provisions obliging the landlord to provide certain described services. The wording envisages the proportion due from the tenant of the total expenditure neither being stated as a set percentage nor being calculated in accordance with a specified formula. The obligation of the tenant is simply to pay a “fair proportion” of each item of expenditure and this clearly allows the flexibility of charging the various items of expenditure in differing proportions where necessary. There is no provision for anything akin to a sinking fund, but then it is questionable whether such a provision would be necessary in most of the cases when this form would be used.
Perhaps the most unusual aspect of the tenant’s repairing liability is the absence of any initial obligation to put the property into any specified state of repair at the commencement of the term. The tenant is simply bound “to maintain the state and condition” of the property. While the tenant will, on the basis of this wording, be liable to effect the replacement or renewal of subsidiary parts this departure from the concept of a “full repairing” liability will not always be appropriate. Where it is, then the parties should in the usual way be advised to record in the most appropriate manner the state and condition of the property at the date of the letting, but no wording is included in the text allowing reference to such record.
Following the grouping principle referred to above, the clause which deals with repair also deals with other obligations relating to the condition of the property, including restrictions upon alterations and the insurance of any plate glass. Restrictions on alienation are also dealt with extremely concisely.
The wording is silent, however, on the entitlement of the landlord to require a direct covenant from an assignee and a guarantee in support. (That entitlement therefore depends upon the general law.)
Furthermore, there is no express restriction on the taking of a premium on the grant of an underlease. The remaining tenant’s covenants deal with the topics of use and access and finally with a number of general matters.
Landlord’s covenants
These are restricted to quiet enjoyment and insurance and (in the case of the version for use with part of a building) the provision of services. The insurance provisions have to be read together with a separate clause dealing specifically with the topic of damage (and incorporating the rent suspension provisions).
It is expressly provided that the tenant is not responsible for any damage for which the landlord is compensated under the building’s insurance policy. This presumably avoids the need for the tenant to obtain a waiver of the insurer’s rights of subrogation either expressly or by means of being made a party to or having his interest noted on the insurance policy.
Provision is made for either party to determine the lease by notice in the event of it becoming unlikely that restoration following damage by an insured risk will be completed during the rent suspension period.
Rent reviews
These are to be upwards only and “market rent” is to be arrived at by reference to a simple but effective set of assumptions. It is, in fact, quite difficult to criticise these (save that a landlord would undoubtedly prefer to see the duration of the hypothetical lease stated as being equal to the length of the original term of the actual letting) and in many ways the drafting is a condemnation of the over-sophisticated forms of rent review clauses now commonly seen. Failure to agree entitles either party to refer the matter to arbitration and the dispute is then decided in the same way as any other disputed matter arising under the lease by a single arbitrator under the Arbitration Acts. Interest on the unpaid amount of any uplift runs at a rate equivalent to 2% above base rate.
Guarantor
A very short and simple guarantee provision appears in a box on the final page of each version. The provision has effect only if the box is completed and the lease is executed by the guarantor. The main point to note is that the liability of the guarantor automatically ceases on a permitted assignment of the lease.
Conclusion
It would be a simple matter, even on an initial reading of these forms, to list further provisions which might be added in an attempt to “improve” the forms generally.
Furthermore, every draftsman has his own favourite terms. To give in to that temptation would be to threaten the validity of the whole exercise carried out by the working party and to fall victim to the particular drafting practices which have produced the lengthy forms of commercial lease which we have all become used to seeing.
It would also be possible to challenge the balance generally struck between the interests of the landlord and the tenant, but the impression to be gleaned from the forms is that the working party has struck a fair balance and one which reflects the general law.
All in all, there is a place for the Law Society’s business lease and there are undoubtedly sets of business premises all over England and Wales for which it is ideally suited. The question is whether solicitors (and in some cases their property clients) will be prepared to depart initially from forms and terminology with which they themselves are well acquainted.
