This Checklist is for use where: • leasehold property is being acquired and the tenant (or a predecessor in title) entered into an agreement for lease prior to completing the lease, or • a reversionary interest is being acquired and the reversioner (or a predecessor in title) entered into an agreement for lease prior to completion of an existing occupational lease or an agreement for lease is in place pending completion of a lease It is necessary to check whether there are any outstanding or ongoing obligations in the agreement for lease (eg to remedy defects or carry out works) that will be binding on the buyer. Any outstanding obligations that bind successors in title may have an adverse impact on the investment value of the property. Note that this Checklist is not exhaustive and, depending on the nature of the transaction, there may be other issues which arise out of the agreement for lease and need consideration. This Checklist also does not consider limitation periods which might apply in a claim for breach of contract—see

Is there a duty to manage asbestos at the property? Products containing asbestos (which can cause fatal diseases in those who are exposed to it) were commonly used as building materials up until 1999 when their use was prohibited. There is a legal presumption that any non-domestic premises whose construction was completed before 2000 contain asbestos. Regulation 4 of the Control of Asbestos Regulations 2012 (CAR 2012), SI 2012/632 creates a duty to manage asbestos. It applies to all non-domestic properties and the common parts of some domestic premises. See Practice Note: Control of asbestos—duty to manage—What are non-domestic premises? CAR 2012, SI 2012/632, r 4 requires ‘the dutyholder’ to identify the location and condition of asbestos and manage the risk to prevent harm to anyone in occupation of or working on the property. The Approved Code of Practice and Guidance L143 (produced by the Health and Safety Executive) states that ‘everything that can reasonably be done must be done’ to establish whether asbestos is present. See Practice Note: Control of asbestos—duty to manage—What is the duty to manage? An

This Checklist looks at the steps which a buyer’s solicitor should take during the due diligence process in order to address any issues which may arise from the physical condition of the property and the surveyor’s report. Although reference is made in this Checklist to the buyer’s solicitor, the same considerations apply to a tenant’s solicitor acting on the acquisition of a new lease or a borrower’s solicitor acting on the financing or re-financing of property. A solicitor is not qualified to advise on the condition or value of a property and the report on title prepared for the buyer by the buyer’s solicitor should contain a qualification to this effect. If the survey or valuation raises any issues with the property, the buyer may wish to negotiate a reduction in the price or an obligation in the contract requiring the seller to remedy the issue before completion. Has the buyer’s solicitor advised the buyer to carry out a survey? A buyer’s solicitor should always advise the buyer to have the property professionally

The purpose of due diligence As in an acquisition, risk management will be one of the key concerns of potential joint venture (JV) parties. Each party will want to protect its investment and involvement in the JV and will want assurances that every other party will be able to fulfil its obligations under the arrangement. The outcome of the due diligence exercise will help determine whether or not the parties wish to proceed with the proposed JV. Where, for example, assets and a business are being transferred by one party (Transferor) to the joint venture company (JVC), the other party or parties (Non-Transferring Parties) will want to ensure, among other things, that: • the Transferor has a good title to the assets • the assets are in good working condition and their value is as expected, and • there is no security over the assets and no third-party consents are required The parties will want to identify any potential risk areas and deal-breakers before entering into the JV agreement (JVA). Any unresolved issues (to the extent that

A property may: • have the benefit of easements exercisable over other property, or • be subject to easements exercisable over the property for the benefit of other property The land over which an easement is exercised is called the servient land. The land with the benefit of an easement is called the dominant land. An easement may entitle the owner of dominant land to: • make use of the servient land (eg a right of way), or • receive something from the servient land without interference or obstruction (eg a right of light, air or support) An easement may require the owner of servient land to refrain from using the servient land in such a way as to interfere with the easement, for example: • by leaving a right of way over the servient land clear and unobstructed, or • by not building on the servient land in such a way as to, for example, obstruct the light received by the dominant land An easement does not entitle the owner of the dominant land to

On any due diligence exercise, a buyer must identify whether an energy performance certificate (EPC) and recommendation report must be provided and then ensure that a valid EPC has been given. In a multi-let building, it is possible that a number of EPCs need to be provided, for different parts of the building. The EPC is designed to enable the buyer to consider the energy efficiency of the building. It provides an energy efficiency rating that can be compared to the average rating of similar stock. An adverse rating may have an adverse effect on the value of the property. A recommendation report must be provided unless there is no reasonable potential for energy performance improvements compared to the energy performance requirements in force. However, property owners are not compelled by law to comply with the recommendations. See our Overviews: Energy performance certificates and minimum energy efficiency requirements (MEES)—overview and Energy and renewable apparatus in buildings—overview and Practice Notes: Energy performance certificates (EPCs)—what are they and when are they required? and Energy performance certificates (EPCs)—issues for commercial

On any due diligence exercise on the acquisition of a leasehold interest in land, it is essential to consider the ability of the tenant to assign, underlet or charge the property. Any provisions that are unduly restrictive may: • have an adverse impact on the ability of the buyer to dispose of their interest in the property in the future • be a property management burden • impact on the overall value of the property to the buyer This Checklist is aimed primarily at leases granted for a reasonably long term at an annual market rent. For further guidance on: • building leases, see Practice Note: Building leases—alienation • side-by-side or geared rent leases, see Practice Note: Headlease rent linked to underlease rents • long leases granted for a premium at a peppercorn rent where the leasehold interest is virtually equivalent to a freehold interest, see Precedent: Long lease of whole of commercial premises at a premium Assignment Can the tenant assign the lease and is landlord's consent required? Assignment may be: • prohibited—in which case the

On any due diligence exercise on the acquisition of a head lease it is essential to consider the ability of the tenant to make alterations. Any provisions that are unduly restrictive may have an adverse impact on value or the ability of the buyer to secure finance or let or dispose of its interest, or be a property management burden. What are the restrictions on alterations and when is landlord's consent required? Alterations may be: • prohibited—if non-structural alterations are prohibited the property is not suitable as an investment purchase • permitted with landlord’s consent, not to be unreasonably withheld • permitted with landlord’s consent—such a covenant is always subject to a proviso that consent is not to be unreasonably withheld if the alteration is an improvement (regardless of whether this is specifically imposed by the lease) • permitted without consent—this will

This Checklist is for use in connection with the acquisition of a long leasehold interest which has a capital value (as opposed to a shorter lease at an open market rent which is unlikely to have any capital value). A buyer's solicitor must consider the ability of the landlord to forfeit the lease as there are circumstances where certain forfeiture provisions may mean a lease is unacceptable security for a lender and therefore not suitable for purchase. Can the landlord forfeit in the event of insolvency? If the landlord is entitled to forfeit in the event of the insolvency of the tenant, the property is not acceptable security for a lender and is therefore not suitable as an investment purchase. Note that even if: • the buyer is not mortgaging the property, or • the buyer’s lender is willing to accept the lease as security the buyer may find it difficult or impossible to sell,

On any due diligence exercise on the acquisition of a head lease it is essential to consider who must insure, on what terms and whether these provisions are consistent with the insurance provisions in any occupational leases. It is also important that the tenant of the head lease, as owner of a valuable interest, has recourse to the insurance proceeds in the event of damage to the property. If they do not, this may have an adverse impact on value and the ability to sell or finance the property. What are the key issues to consider in due diligence if the tenant insures? If the tenant is obliged to keep the property in repair, the head lease may oblige the tenant to insure the property either in their own name or in the joint names of the landlord and tenant. Without adequate insurance the tenant may not have the finance to reinstate in the event of damage or destruction by an insured risk. If the lease requires the tenant to insure, the buyer must ensure that the policy

This Checklist is for use on the acquisition of leasehold property where there are, or may be, rent arrears under the lease. It is essential to check the replies to pre-contract enquiries and ensure the seller has confirmed that there are no arrears. This should be reconfirmed as part of the pre-completion requisitions on title. There are significant consequences for the buyer if it acquires a property with rent arrears. See Practice Notes: Commercial Property Standard Enquiries—CPSE and Residential property—standard forms of enquiries for use in residential conveyancing transactions. What are the consequences for the buyer if there are arrears? Non-payment of rent before the date of assignment

On any due diligence exercise on the acquisition of a leasehold property it is essential to consider the permitted use, any breaches of the permitted use and the ability of the tenant to change use. Any provisions that are unduly restrictive may have an adverse impact on value or the ability of the buyer to secure finance or dispose of their interest. What is the permitted use? If there is no specific restriction in the lease, the buyer will be free to use the property as they please. However, most leases provide that the tenant may only use the property for a specific purpose or purposes. The relevant clause of the lease should be checked and reported on to the buyer. If the use permitted by the lease does not cover the buyer’s proposed use of the property, advise the buyer at the earliest opportunity. Consider making the purchase of the property conditional on the appropriate consent to the buyer’s use being obtained. The consequences for the buyer of using the property in breach of the permitted