Contracting out leases
It is very important that landlords follow the correct procedure when contracting out a business tenancy under the Landlord and Tenant Act 1954. Fail to get this right and the tenant might acquire security of tenure. The tenant needs to be sent a “warning notice”, explaining that they are giving up their right to a new lease, and sign a simple declaration or swear a statutory declaration confirming their agreement to do so.
Unless the tenant happens to have a friend who is a lawyer, swearing a declaration in front of a lawyer is obviously difficult at the moment, as offices are closed and lawyers are working from home. Even then, social distancing would make it difficult for the lawyer to witness the tenant’s signature.
Unless timing is critical, the solution is for the tenant to sign a simple declaration rather than a statutory declaration. A simple declaration just needs to be printed by the tenant and signed. It does not need to be sworn in front of a lawyer. If, however, the lease needs to be completed less than 14 days after the tenant receives the “warning notice”, a simple declaration will not work and the tenant will need to swear a statutory declaration instead.
Unless the document is a deed, there is generally no need for a witness. Print, sign, scan and return the document to your Fladgate contact. If a printer/scanner isn’t available, the director can type their name into the signature clause and send the document back with a covering email confirming that this is their signature.
If the contract is a deed, discuss with us whether the contract can be executed as a contract “under hand” instead. If this is not possible, the deed may be executed in front of an independent person or (if not personally involved) a spouse or adult family member. If there is a company secretary, they could be the second signatory and then there will be no need for a witness. Another alternative is to use a virtual signing platform such as DocuSign but this really only works if all parties to the transaction agree to use it.
While any well drafted lease is future proofed, very few will have foreseen an event on the scale of Covid-19. For example, a break notice needs to be sent using one of the methods that the lease allows, which usually does not include email. If the recipient’s premises are closed, it would make sense to copy the notice by email, even if this is a not a permitted form of service, so the landlord is at least aware that the notice has been served.
There will be any number of different covenants in the lease that the tenant may be unable to comply with, such as: reinstating within the time frame required, keeping the premises open for business (in a retail/leisure lease) and carrying out repairs. And, of course, many tenants want their landlords to agree a rent suspension or to pay the rent monthly rather than quarterly.
We are receiving a lot of queries from clients to scrutinise their documents. A permanent variation to the lease will not usually be the best option. The better approach is often a temporary waiver that can be dealt with in a side letter.
All applications are subject to substantial delay, particularly more complex matters such as new leases that need to be registered, sales of part and properties that were not previously registered. Searches to protect priority for a buyer (on a purchase) or a tenant (on the grant of a new lease) are also being delayed where they affect part only of the registered property.
On a more positive note, the Land Registry is now (with effect from 4 May) accepting documents for registration that have been signed electronically, so long as the correct procedures have been followed. Previously, the document needed to have a “wet ink” signature. It is important that the signed signature page is attached within the same email as the rest of the document and we can talk you through how that needs to be done.
Service of notices
Many real estate contracts, particularly those where there will be a lengthy period between exchange and completion, will require one party to serve notice on the other party. For example, a sale contract where the buyer has failed to complete on time and the seller now wishes to rescind the contract. Many real estate contracts require notice to be served by recorded delivery post or by hand, or at least contain a provision that notice will be deemed served if one of these methods is used. Although relatively common in commercial contracts, it is unusual for real estate contracts to allow notice to be served by email. This is due to a (perhaps outdated) concern that the email will get lost in transit and not reach the recipient or will arrive several hours after it was sent.
Covid-19 is leading to a change in practice. Contracts being signed now, or at least those where notices will need to be served during the lockdown, should allow for service by email. Post is not arriving when it should, and most businesses are closed, so the traditional methods of serving notices are no longer suitable.
When allowing service by email, it is important that the contract states which email address can be used, and to allow for service on more than one person in case the intended recipient is ill or self-isolating.
For longer term documents, such as leases, there is less need to allow for service by email and it may not in fact be suitable to do so, as the tenant might assign the lease to someone else and then the email address would be wrong.
Energy performance certificates
If the property is vacant, an EPC can be carried out (assuming the surveyor can gain access). If the property is occupied, government guidance says that the parties should delay the transaction so that an EPC assessment can proceed when stay-at-home measures are no longer in place. No assessments should take place if a person in the property is showing symptoms or self-isolating. Most reputable employers will also not want their surveyor to enter. If the transaction is time critical, there is no easy answer other than to agree with the tenant/buyer to provide one later and hope that a fine will not be issued.
Fladgate client Hodson Developments has secured planning and funding to commence a new garden city p...Read more
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