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which is intended to ensure that the landlord recovers from the Occupational Tenants, overall,
substantially all of the service costs associated with the management and operation of the relevant
Secured Property to the extent that it does not itself make a contribution to those service costs and the
cost of insuring the Secured Properties, for example if any lettable part of a Secured Property was not
subject to an Occupational Lease. However, there are some items of expenditure which the landlord is not
generally entitled to recover from the Occupational Tenants, for example, the cost of repairing any defects
which were inherent in the Secured Property at the start of any Occupational Lease and the cost of any
refurbishment or rebuilding (as opposed to repair) work at the Secured Property (whether or not such
items are expressly excluded in the Occupational Leases as referred to above).
Statutory rights of Occupational Tenants
In certain circumstances, Occupational Tenants may have legal rights to require the relevant Borrower to
grant them new leases, in particular pursuant to the Landlord and Tenant Act 1954. Should such a right
arise, the Borrowers may not have their normal freedom to negotiate the terms of the new lease with the
Occupational Tenant, such terms being imposed by the court or being the same as those under the
previous lease of the relevant premises. While it is the general practice of the courts in England and Wales
in renewals under the Landlord and Tenant Act 1954 to grant a new tenancy on similar terms to the
expiring tenancy, the basic annual rent will be adjusted (upwards or downwards) in line with the then
market rent at the relevant time but there can be no guarantee as to the terms on which any such new
tenancy will be granted. Accordingly, such a lease may not be as favourable to the affected Borrower,
which may affect its ability to meet its obligations under the relevant Commercial Mortgage Loan
Agreement and therefore, ultimately, the Issuer’s ability to make payments under the Notes may be
adversely affected.
Administration risk in respect of Occupational Tenants
If an Occupational Tenant which is a company incorporated in England and Wales were to enter into
administration, the relevant Borrower would be prohibited under the Insolvency Act 1986 from taking
any action against the Occupational Tenant for recovery of sums due or re-entry to the relevant premises.
In addition, under paragraph 43 of Schedule B1 to the Insolvency Act 1986, the landlord requires the
consent of the Occupational Tenant’s administrator or leave of the court (and, where a petition has been
presented, requires leave of the court) before it is able to enforce rights against that company as tenant
to forfeit the Occupational Tenant’s lease by peaceable re-entry on the premises.
If the Occupational Tenant is still trading at the premises or has plans to recommence trading with a view
to the survival of the company as a going concern, it is possible that the court would refuse to grant such
leave to re-enter to the landlord on the grounds that to do so would frustrate the purpose of the
administration and, furthermore, that the court would do so notwithstanding the administrator was only
paying a reduced rent, or even no rent, under the terms of the relevant Occupational Lease. The
restrictions and requirements described both in this paragraph and the paragraph above could impact on
the management of the Secured Properties and could result in an increase in the number of units at the
Secured Properties which are currently providing no or a reduced income from time to time.
It is normal for a lease to contain provision for its forfeiture in the event of the tenant’s liquidation or
other insolvency events. There is no standard between the Occupational Leases as to what insolvency
events would give rise to such right to forfeit, but most contain a right to forfeit on liquidation. Three of
the Occupational Leases sampled (Fleet Road, Aldershot; Binley Industrial Estate, Coventry; and Unit
1 West Point, Maidstone) do not contain any such provision, only permitting forfeiture for breach of
tenant’s covenants or non-payment of rent.
If an Occupational Tenant were to enter into equivalent insolvency proceedings regulated by laws other
than English law, the relevant Borrower may be subject to prohibitions similar to those described above.
Privity of Contract
The Landlord and Tenant (Covenants) Act 1995 (the ‘‘1995 Act’’) provides that, in relation to leases of
property in England and Wales granted after 1 January 1996 (other than leases granted pursuant to
agreements for lease entered into before that date), if an original tenant under such a lease assigns that
lease (having obtained all necessary consents (including consent of the landlord if required by the lease)),
that original tenant’s liability to the landlord, under the terms of the lease, ceases. The 1995 Act provides
that arrangements can be entered into by which, on assignment of a lease of commercial property, the
original tenant can be required to enter into an ‘‘authorised guarantee’’ agreement of the assignee’s
obligations to the landlord. Such an authorised guarantee relates only to the obligations under the lease
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