The following Property guidance note provides comprehensive and up to date legal information covering:
This Practice Note discusses a tenant’s considerations when negotiating alienation provisions in a rack rent commercial lease that is a new lease for the purposes of section 1 of the Landlord and Tenant (Covenants) Act 1995 (LT(C)A 1995). It identifies key tenant concerns, suggests possible tenant amendments and considers how the alienation clauses interact with other lease provisions.Landlord and Tenant (Covenants) Act 1995, s 1
For a landlord, controlling assignment and underletting is important to protect the value of its investment. The landlord should ensure:
at the very least, any assignee or undertenant (when judged with any available guarantor or other security on offer) is able to comply with the terms of the lease
that the landlord will be able to enforce the tenant covenants readily
if the tenant mix is important (perhaps in a shopping centre), that it is able to control this
The value of the landlord’s investment is tied to the occupational leases and the covenant strength of its tenants. At the same time, the landlord should be aware that if the alienation provisions are too restrictive, they could be regarded as onerous on rent review and depress the rent achievable.
The tenant should ensure that the lease is flexible enough so that it can:
move its business
respond to business structure changes such as a corporate acquisition
deal with the lease in a cost-effective way whether through assigning or underletting
(if needed) have the flexibility to share occupation, whether with a group company, a franchisee, a concession or other defined party
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