The Lawyer's Role Once your surveyor has agreed the terms upon which you will occupy your new offices, the lawyer's role is to ensure that these terms are reflected accurately in the legal documents that will give you the right to occupy the offices. The lawyer will also ensure that there are no legal or practical impediments to your using the offices. Understanding the Language Like most professionals, lawyers are prone to using technical terms. The following terms are those most commonly used:- 1. Landlord and Tenant. The landlord is the person who owns the offices. He grants the right to occupy the office to the tenant. The formal document that grants this right is called the Lease. Where the landlord grants you a new lease, your lawyer will negotiate the terms of the lease with the landlord's solicitors to ensure that it fairly represents your interests in the property. 2. Assignment. Where you are purchasing an existing lease, the lease is assigned to you by the old tenant. You then become responsible to the landlord for paying the rent and complying with the provisions in the lease. Your lawyer will report to you on these provisions. The consent of the landlord will usually be required before you become the new tenant. This is given in a formal document called a licence to assign. 3. Underleases. Rather than assigning its lease, the tenant may grant you an underlease. The tenant remains responsible to the landlord and you become responsible to the tenant. Your lawyer will negotiate the provisions in the underlease with the tenant's solicitors. The consent of the landlord will usually be required before an underletting takes place. This is given in a formal document called a licence to underlet. 4. The rights to assign a lease or to grant an underlease are referred to as the rights of alienation. The basic terms can be illustrated by the following diagram:- 5. The term of the lease. Leases are granted for a fixed period of time, anything from 6 months to 25 years or more. This is the time during which you can occupy and use the property. The period specified in the lease is referred to as the term of the lease. The Basic Provisions in the Lease Whether you are being granted a new lease, taking an assignment of an existing lease or being granted an underlease, there are a number of basic provisions in the lease that you will need to discuss with your lawyer. These are as follows:- 1. Rent and Rent Reviews The rent that you will pay will have already been agreed. Rent is usually paid four times a year in advance on "the usual quarter days", namely 25th March, 24th June, 29th September and 25th December each year. You should discuss with your lawyer whether VAT is payable in addition to the basic rent. If you are unable fully to recover the VAT you pay, your lawyer may want to negotiate a removal of the landlord's right to charge VAT on the rent. If the lease is for a term of more than five years, the landlord will have the right periodically to increase the rent. You should discuss the mechanism for reviewing the rent with your lawyer to ensure that it is fair and gives you full opportunity to negotiate the new rent with the landlord. 2. Use A lease will contain restrictions on types of business that the property can be used for. You should discuss these with your lawyer to ensure that the restrictions do not conflict with your intended use of the property. For instance, a right to use the property as offices may not include a right to use the property for the provision of financial services. Your lawyer will also ensure that there is planning permission for the intended use. 3. Repairs Your obligation to keep the property repaired will vary depending on the type of lease being granted. The following are the principal types of repairing obligations that appear in leases:- 3.1 Full repairing obligations Full repairing obligations are usual where you are being granted a lease of a whole building. They impose an obligation on you to keep the whole of the property, including the structure, in good repair and condition and to redecorate the property internally and externally at regular intervals. Where the lease is of a newly constructed property, you should discuss with your lawyer whether you will have the right to recover damages from the developer, the builders and the other professionals involved in the construction of the property in the event that there is a major fault its construction. 3.2 Internal Repairing Obligations Internal repairing obligations are usual where you are being granted a lease of part of a property. You will be responsible for keeping the interior of the property in good repair and condition and to redecorate the interior of the property at regular intervals. The landlord will retain responsibility for keeping the exterior of the property and its structure in good repair. The landlord's costs are recovered through a service charge which you will have to pay, usually at the same time as the rent is paid. You should discuss the service charge provisions with your lawyer to establish what services are provided, how your proportion of the cost payable is calculated and whether there is a sinking fund, (monies collected by the landlord in anticipation of future expenditure). You should ask to see details of the previous three years' service charges so that you know the likely level of service charge payments you will have to make. Your lawyer will ask the landlord's solicitors whether there are any major items of expenditure anticipated which would increase the level of the service charge. 4. Insurance The insurance of the property is usually carried out by the landlord. You will refund the insurance premium, usually by one annual payment to the landlord. You should discuss the insurance provisions with your lawyer to ensure that they are adequate and that the insurance monies will be used to make good any damage arising from any of the insured risks. 5. Assignment and Underletting The right to assign the lease to a new tenant or to create an underletting is an important right for you. You will need to discuss the following points with your lawyer. 5.1 Does the lease give you the right to assign the lease to a new tenant? Most leases, except those granted for a very short term, will allow you to assign the lease, provided that the whoe of the property is sold. The consent of the landlord will usually be required. Whilst consent cannot be withheld unreasonably, there will be restrictions on assigning the lease which you should discuss with your lawyer. 5.2 Does the lease give you the right to underlet the whole of the property? The right to underlet the whole can be important for two reasons. First,whilst the landlord may not be willing to permit you to assign the lease to a new tenant, it may be willing to permit you to create an underlease. This is because you will remain directly liable to the landlord, whilst you are responsible for the undertenant. Secondly, the person who wants to occupy the offices may not want to take on full responsibility for your lease. An underlease allows the undertenant to occupy for a shorter period of time. 5.3 Does the lease allow you to underlet part of the property? This right is important when larger offices are being let. You may not need all the office space immediately. A right to underlet part allows the space that is not required to be let to another tenant for a short period. 5.4 Does the lease allow you to share the occupation of the property with your group companies. This right will be important where larger companies want to allow two or more of their companies to occupy and use the property. 6. Security of Tenure Leases are granted for a fixed term. When the term expires, if you want to continue to use the property, you have the right to remain and to be granted a new lease. If the landlord can satisfy an number of limited grounds, principally if it wants to use the property itself or redevelop the property, it can object to the new lease being granted. The court will determine if the landlord can refuse the grant of a new lease to you. If the landlord can refuse the grant of a new lease, it generally has to pay compensation to you. Some leases are granted on a "contracted out" basis. This means that before the lease is granted, you and the landlord apply to the court for permission to grant the lease on the basis that your right to use the property once the lease comes to an end is removed. This means that the landlord has the absolute right to remove you from the property once the lease comes to an end. 7. Break Clauses Some leases include the right to bring the lease to an end before the term granted by the lease expires. You should check with your lawyer to establish whether the landlord has this right. The right for you to bring the lease to an end can be useful if you are not certain of your long term needs for the property. Legal Costs Your lawyer's costs for acting for you will usually be charged on the basis of the time involved. You should ask your lawyer for an estimate of the costs that will be charged at the outset of the transaction. You should also check with your lawyer to see whether you are responsible for paying the landlord's legal costs as well. In addition to legal fees, stamp duty may be payable. Where a new lease is being granted stamp duty is calculated as a percentage of the rent payable. You should ask your lawyer how much this will be. Where the lease is granted for a term of 21 years or more, the lease has to be registered at the land registry. Land registry fees are payable depending on the level of rent payable. Prepared by Rowe & Maw