Structure and Content of a Lease

Introduction

In this chapter we focus on the **structure and content of a lease**. It is often thought that owning a **freehold** is better than owning a **leasehold**, because freehold occupants can never be evicted by a landlord and a freehold may last forever, whereas a lease is a **depreciating asset** from the date it is granted. Yet leasehold property is popular and desirable, particularly in the **commercial** context, and leasehold work forms a large part of the average commercial property lawyer's caseload. This chapter examines the **typical structure of a commercial lease**, the key tenant and landlord covenants (**repair, insurance, alterations, user and planning**), **rent and rent review**, **alienation**, the **options for the term of a lease**, and the **RICS Code for Leasing Business Premises**.

Assessment focus

For the SQE1 FLK2 assessment in **Property Law and Practice**, you must understand the structure and content of a typical commercial lease and be able to **apply** the principal covenants to a client scenario. Examiners commonly test: the allocation of **repair** and **insurance** obligations under a **Full Repairing and Insuring (FRI)** lease (including rent suspension and the tenant's right to terminate); the statutory regime governing **alterations** and **improvements** under the **Landlord and Tenant Act 1927** (s. 1, s. 3 and s. 19(2)); **user and planning** restrictions and the **Use Classes Order 1987**; **rent review** mechanisms; and **alienation** (assignment, underletting, charging, sharing occupation and parting with possession), including the statutory conversion of a qualified covenant into a **fully qualified** covenant. Questions are **single best answer questions (SBAQs)** set in **realistic client-based scenarios**; you must apply the law, watching carefully for qualifying words such as 'might' and 'was'. This is a closed-book assessment.

Study tips

1) Memorise the **list of elements** in a typical commercial lease (prescribed clauses → re-entry and forfeiture). 2) For an **FRI lease**, remember that in a letting of part responsibility is **divided**: tenant takes the non-structural parts; landlord takes the structure and common parts and recovers cost via a **service charge**. 3) On **insurance**, learn the six elements (insure / insurance rent / reinstate / rent suspension / termination / interplay with repair) and the **vitiation** proviso. 4) Distinguish **absolute, qualified and fully qualified** covenants — s. 19(2) LTA 1927 implies a **reasonableness** proviso into a qualified covenant against improvements; s. 3 lets a tenant carry out improvements even where there is an absolute prohibition. 5) Learn the four **rent review** types and the five forms of **alienation**. 6) Distinguish **fixed term**, **periodic tenancy** and **tenancy at will**.