Documenting flexible arrangements and disposing of space - NI


Kevin Murphy and Alexandra Holsgrove Jones discuss:

  • Should a shared space provider grant a lease or a licence?

  • What are the risks for the landlord? Equivalent of security of tenure?

  • What about lenders?

  • Should rent be inclusive?

  • What should the repair/decoration obligations be?

  • How will dilapidations be dealt with?

  • Should you have a lease on standard terms but with more frequent break rights?

Documenting flexible arrangements and disposing of space - NI 

Transcription

Alexandra Holsgrove Jones:

Hello, and welcome to another of our TLT taster sessions on current issues affecting the real estate sector. We've discussed in previous sessions the variations to leases that are being documented to allow flexibility in terms of both lease terms and the reconfiguration of premises. In this session, we're going to be exploring how flexible arrangement should be documented in Northern Ireland. We'll also be considering how excess space can be dealt with if a tenant finds that it no longer requires as much space as it currently has. I'm Alexandra Holsgrove Jones, senior professional support lawyer in TLT's real estate group. And I'm joined today by Kevin Murphy, a partner in the Northern Ireland real estate team. So Kevin, let's consider the scenario where you have a business, which is seeking extra space. Perhaps they'd like some staff to return to the office when they're able to do so and they need additional space to enable staff to operate in a COVID-secure way. Perhaps they're expanding but don't know if the expansion will be sustained. In both of these examples, the business may only want the additional space for a limited time period and also their requirements might change.

Alexandra Holsgrove Jones:

They might need more or less space and want to be able to take this at short notice. In these circumstances, should the party enter into a lease or a license?

Kevin Murphy:

Well, as is the case in England and Wales and Philip Collis spoke about this in the webinar on documenting flexible arrangements. The question of whether a lease or a license should be granted really comes down to whether the occupant has been given exclusive possession of the premises. Are they getting the defined area from which they can exclude others, including the landlord, by locking the door and closing that off? If so, it is irrelevant what you call it. This arrangement is likely to be a lease. If on the other hand, the tenant's occupation is perhaps more fluid, perhaps it has agreed to occupy a certain number of desks. But where there is an ability for those desks to be moved or relocated and its occupation is truly shared with others, then it is more likely to be considered to be a license to occupy.

Alexandra Holsgrove Jones:

Okay. So as in England and Wales, in Northern Ireland, whatever you call the arrangement, that's irrelevant. What are the risks to the parties in entering into what they think is a license when it is in fact a lease?

Kevin Murphy:

Well, many of the same issues and risks that Phil spoke about in the previous webinar also apply in Northern Ireland. However, there is one obvious issue that needs to be addressed from a Northern Irish perspective. And that is around security of tenure and how the Business Tenancies Northern Ireland Order 1996 affects commercial leases here. If the landlord lets a party into occupation under what it calls a license but the occupant is given exclusive occupation of defined premises, that will be a lease. And if that arrangement is for nine months or more, the occupier will obtain security of tenure, making it difficult for the landlord to reclaim the premises at the end of the term. This is one of the main differences between commercial leases in Northern Ireland and from those in England and Wales. And as any business lease granted for a nine-month term or longer, or where there has been 18 months continuous occupation, then by large that tenant will have protected rights. There are a few other specific criteria, which I won't go into now.

Kevin Murphy:

But the starting point is usually that if you are a business tenant, then you have protected rights. It is impossible to contract out of the legislation in the way that landlords and tenants are able to do so in England and Wales regarding the Landlord and Tenant 1954 Act. And is therefore worth noting for landlords in order to regain possession of the premises, the landlord does have to go through a very similar procedure to the 1954 Act under our 1996 Order to reclaim possession. And they have to shoo one of the statutory grounds for possession. Even if the landlord could do this, having to follow the procedure can be time-consuming and costly.

Alexandra Holsgrove Jones:

I see. Thanks, Kevin. Are there any other differences in the Business Tenancies Legislation in Northern Ireland?

Kevin Murphy:

Well, yes, it's also worth noting that the implication of the 1996 Order it effectively provides security of tenure for all qualifying business leases. It does mean that agreements to surrender can not be used to contract out of the 1996 Order. That's not to say that agreements to surrender are not allowed, they are permitted but they have to be approved by the land's tribunal and can only be used for genuine purposes, and the plan surrenders.

Alexandra Holsgrove Jones:

So if you're dealing with what is really a lease in Northern Ireland, the parties need to be aware of the protected rights that a tenant obtains. And that it is impossible to contract out of these. Another scenario that we're seeing is where tenants are finding that with most of the workforce having worked remotely for months now, they actually want less space. Emma Cork talks about this in our TLT taster on too much space, what alienation rights does a tenant have and it would be good to look at the alienation rights of tenants in Northern Ireland. Can you just give us a quick overview, Kevin?

Kevin Murphy:

Yeah. Again, thankfully, many of the same points that Emma spoke about are relevant to Northern Ireland. The starting point being what is set out in the lease for instance. Where things differ is in relation to the landlord's obligation to respond to request to sign or sublet. Unlike my colleagues like Emma in England and Wales, Northern Ireland has not been subjected in modern times to new and constantly changing property law and legislation that largely covers this area Northern Ireland dates back to the 19th century. The Landlord and Tenant Amendment Act 1860, which we commonly refer to it as Deasy's Act, that provides a foundation as to how assignments are dealt with. Therefore, we don't have the same statutory obligations on the landlord to respond to your request. And where consent is refused, a tenant has to apply to the court for a declaration that the withholding was unreasonable.

Alexandra Holsgrove Jones:

And are there any other differences that we should be aware of when dealing with assignments in Northern Ireland?

Kevin Murphy:

Yes. There are a few other differences to note. Section 10 of Deasy's Act that I just mentioned, it provides that where a lease contains a restriction on assigning without the consent of the landlord, that consent must be in writing. This consent has to be written by the landlord as a party to the assignment or by an endorsement to the assignment. This, therefore, means that there is no need for a separate license to assign in Northern Ireland. So they're not commonly used as there's no separate notice for the landlord with them usually being a party to the assignment.

Alexandra Holsgrove Jones:

And as you'll be aware in England and Wales, we commonly see authorised guarantee agreements or AGAs on assignments. Do you have those in Northern Ireland?

Kevin Murphy:

No. So we don't have any requirement for the AGAs, the authorised guarantee agreements. Firstly, the legislation, the Landlord and Tenant Covenants Act 1995, doesn't extend to Northern Ireland. And secondly, again, going back to the 1800s, Deasy's Act provides that a tenant can get rid of continuing liabilities once they have assigned the lease with the written consent of the landlord. Which as I have already mentioned is usually covered by the landlord being a party to the assignment. There are no restrictions say for what is in the lease on the parties to whom a tenant can sign and therefore in Northern Ireland, assignors generally get a filled release on completion of the assignment. And assignors are not liable for any future breaches.

Alexandra Holsgrove Jones:

Thanks, Kevin. That's provided a really useful overview. And thank you for joining us. If you have any questions on the issues we've been discussing today, please do get in touch and you can also sign up for future TLT taster sessions.

 

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