This Checklist is for use as part of a due diligence exercise on the acquisition of a leasehold interest in land and looks at the issues which should be considered when reviewing the rent payment and rent review provisions of the lease. As well as checking the lease, the buyer’s solicitor should also check replies to enquiries, the information provided to the buyer in connection with the property at the marketing stage and the terms of the agreement for sale. What is the amount and nature of the rent? Nature of rent Head lease rents may be: • a peppercorn—this is common in long leases with minimal tenant obligations where the leasehold interest is similar to a freehold interest in terms of the tenant’s security and ability to deal with the property • a fixed annual sum subject to review—this review could be on an open market basis or on an indexed basis (often by reference to the retail prices index (RPI) or the consumer prices index (CPI)) • a stepped rent—where there are fixed rent increases

On any due diligence exercise involving the acquisition of a lease which is itself an underlease, the buyer needs to consider: • whether the superior lease may be forfeited or terminated on the exercise of a break clause—this can have an adverse impact on the value of the leasehold property and the ability to sell or finance it • whether the obligations in the superior lease and the underlease are consistent—the buyer may inherit significantly more onerous obligations by virtue of an obligation to comply with superior lease covenants • whether the grant of the underlease has in fact taken effect as an assignment of the superior lease References in this Checklist to ‘the underlease’ are references to the lease being acquired and references to ‘the superior lease’ are to the lease out of which the underlease has been granted. Is there any obligation to comply with superior lease covenants? Check if the underlease: • contains a covenant to comply with or not to breach the covenants on the part of the tenant in the

On any due diligence exercise for the acquisition of investment property that is subject to income producing occupational leases, it is important to check the terms of any occupational lease guarantee and ascertain whether it is enforceable. Issues with the guarantee may adversely affect the overall covenant strength of the lease and therefore can impact on value. This Checklist covers the key points to check if there is a direct guarantee of the existing tenant's obligations. For guidance on guarantees by former tenants or guarantors, see: Due diligence—liability of former tenants and guarantors—checklist. Identity of guarantor Check the relevant tenancy documents to confirm that the identity of the guarantor given in any tenancy schedule relating to the transaction matches the guarantor’s details given in the relevant guarantee. Lease guarantees are generally given in: • the lease • a licence to assign, or • a separate deed of guarantee Where the guarantor is a UK company or LLP, you can use the Companies House free service to check: • details of the guarantor’s name, number and registered office, and • for

The following checklist, while not exhaustive, contains key due diligence and reporting points relating to lease variations and lease side letters when acting for a purchaser of a property that is either (or both) a leasehold property or a property subject to leases. The report on title should contain details of any deeds of variation and side letters that affect the buyer’s proposed interest in the property following completion, together with a summary of their key terms and (where appropriate) risks. If lease terms change in accordance with the provisions of the original lease (eg rent increases on review and changes from one permitted use class to another permitted use class under the terms of the lease) these changes are not variations and should not be reported as such. Variation of leases How should I approach due diligence? Check whether the lease has been varied by: • a stand-alone deed of variation • a variation incorporated into any management licences (eg the tenant entering into additional covenants), or • any other supplemental document When completing your

On any due diligence exercise for the acquisition of investment property subject to leases, the buyer should ascertain whether there are subsisting guarantees from any former tenants or guarantors. This Checklist, while not exhaustive, contains key steps to take, and issues to consider, to establish whether or not a former tenant or guarantor has subsisting liability for breaches by the current tenant. The legal position as regards former tenants and guarantors is different depending on whether the lease is a new tenancy or an old tenancy for the purposes of section 1 of the Landlord and Tenant (Covenants) Act 1995 (LT(C)A 1995. Leases granted on or after 1 January 1996 are new tenancies, except for: • leases granted under an agreement for lease or court order made before that date • leases granted pursuant to an option or a right of first refusal conferred before that date, and • overriding leases granted pursuant to section 19 of the Landlord and Tenant (Covenants) Act 1995 (LT(C)A 1995) if the relevant lease was not a new tenancy Any

On any due diligence exercise on the acquisition of a property for investment purposes, it is essential to consider the ability of the occupational tenants to assign, charge and underlet their respective premises. Any provisions that are too flexible may have an adverse impact on value as it may lead to covenant dilution. In an occupational lease with an open market rent review, any provisions that are too restrictive may have an adverse impact on value, as they may be considered onerous. Assignment Can the tenant assign? Assignment may be: • prohibited • permitted without consent—this will be the case if the lease is silent; however, note that a covenant not to part with possession prohibits assignment, or • permitted with landlord’s consent—if assignment is permitted with landlord’s consent, the covenant is always subject to a proviso that consent is not to be unreasonably withheld (regardless of whether this is specifically imposed by the lease) If assignment is prohibited and there is an open market rent review, consider whether the restrictive assignment provisions will be disregarded at review.

This Checklist is for use as part of a due diligence exercise when reviewing an option to renew a lease. It is primarily aimed at a purchaser of a reversionary interest in the lease containing the option although it highlights issues which a purchaser of leasehold property with the benefit of an option will also need to consider. Does the option create a perpetually renewable lease? Check that the option to renew clearly states that the renewal lease will not also include an option to renew. If each renewal lease will include a further option to renew, a perpetually renewable lease has been created. A perpetually renewable lease is converted into: • in the case of a head lease, the grant of a lease for 2,000 years, and • in the case of an underlease, the grant of a lease for a term of one day less than the term out of which it is derived and in both cases without a right to renew. If the lease is perpetually renewable and as a result

• Does the company have a due diligence policy which covers all parties to a business relationship, including the company's supply chain, agents, joint venture or similar relationship? • Has this policy been implemented, and is it properly enforced, in all of the markets in which the company does business? See Precedent: Anti-bribery and corruption policy • The company needs to know who it is doing business with in order to conduct an effective risk assessment. The company should use a due diligence information form which the contracting party should complete and sign so that the due diligence information provided can be assessed by the company. Through this basic information the risks associated with the contracting party can be assessed and the company can then identify the commensurate

This Checklist is for use as part of a due diligence exercise where a buyer, tenant or lender is investigating title to property which is subject to, or has the benefit of, positive covenants. It provides a summary of the issues that should be considered when reviewing and reporting on positive covenants. Are there any positive covenants affecting the property? A positive covenant is a promise to do something or to make a financial contribution to something. Common examples in property transactions include covenants to build and maintain a fence or contribute to the maintenance of a shared driveway or other shared facilities. HM Land Registry has no obligation or power to enter the benefit of a positive covenant on a registered title. In order to establish the existence of any positive covenants, check: • the registered title and any accompanying documents which may reveal that the seller, or a predecessor in title, has entered into a positive covenant in respect of the property or has received the benefit of a positive covenant in respect of the property

This Checklist is for use as part of a due diligence exercise on the acquisition of commercial property for investment purposes. On any due diligence exercise for the acquisition of investment property, it is important to advise on the terms of any rent deposits held by the landlord in respect of occupational tenancies. A rent deposit is security for an occupational tenant's obligations and therefore any issues with the landlord's ability to withdraw from the deposit if the tenant is in default should be carefully considered and reported to the buyer. See also Practice Note: Rent Deposit Deeds—Commercial Leases. What are the key points to check in due diligence? Check: • the amount currently held — raise enquiries of the seller if the amount held is less than the original deposit, or if the deposit does not appear to have been topped up following a rent review (where the deposit deed provides for a top-up payment to be made) • that the amount held includes accrued interest — interest on the account forms part of the deposit and must usually

This Checklist sets out practical due diligence steps for appointing and managing agents or representatives, including verifying ownership and control, assessing country and payment risk, defining scope and remuneration (including success fee risk), confirming capability and qualifications, and ensuring fees, licences and facilitation payment controls align with the company’s anti-bribery standards. Practitioners advising clients on the appointment and management of agents or representatives should consider the following: • any agent or representative of a business should be subject to due diligence • the company will have to make its own inquiries and supplement any information with newspaper or web-based research to satisfy itself as to each agent • has the company examined and recorded the reasons for and process by which an agent has been appointed? • the following details should be recorded: ◦ name and principal business address ◦ identities

Title to land (both registered and unregistered) may show that the owner of the land, or a predecessor in title, has entered into covenants concerning all or part of the land. These covenants may be positive in nature (such as a covenant to maintain a fence) or restrictive (such as a covenant not to build next to a boundary). Covenants will always be enforceable between the original covenanting parties but a distinction is made between positive and restrictive covenants for the purposes of establishing their effect on successors in title to the original covenanting parties. This Checklist is for use as part of a due diligence exercise where a property is subject to and/or has the benefit of one or more restrictive covenants. These covenants may be: • imposed for the landowner’s own benefit; these are personal and are only enforceable by the original parties to the covenant unless expressly assigned to a third party • part of a scheme, such as a building scheme, where covenants are intended to be mutually enforceable—see Practice Note: Restrictive covenants—nature and characteristics—Building