Titan Europe 2007-1 (NHP) Limited - Irish Stock Exchange

Leases
Duration. Commercial leases of property in the United Kingdom are typically entered into for a fixed term,
which is usually 10 to 15 years. Leases for residential tenancies tend to be of shorter duration, which is usually
one or two years in length.
Renewal Rights. In certain limited circumstances, in particular relating to the renewals of tenancies, a
tenant of a property may have legal rights to require the relevant property owner to grant it a lease, for example
pursuant to the Landlord and Tenant Act 1954 or the Landlord and Tenant (Covenants) Act 1995. Should such
a right arise, the relevant property owner may not have its normal freedom to negotiate the terms of the new
lease with the tenant, such terms being imposed by the court or being the same as those under the previous
tenancy of the relevant premises. Accordingly, whilst it is the general practice of the courts in renewals under
the Landlord and Tenant Act 1954 to grant a new lease on similar terms to the expiring lease, the basic annual
rent will be adjusted in line with market rents at the relevant time and there can be no guarantee as to the terms
on which any such new lease will be granted. A landlord may object to the grant of a new lease on a number of
grounds including (a) if the property is required for redevelopment or for the landlord’s own use or (b) if the
tenant is in breach of covenant, but in such circumstances the court will allow a tenant time to correct the
default.
Rent Adjustments during the Term of the Lease. Typically, the terms of most commercial leases in the
United Kingdom provide for upwards-only rent reviews every 5 years, based on the open market value of the
property as at the review date on the basis that the property is let on certain hypothetical terms (usually referred
to as “assumptions” and “disregards”). Rents on residential tenancies are typically tied to the retail price index,
and it is not uncommon to have a maximum increase for any period.
Allocation of Charges; Liability for Repairs. Commercial space in the United Kingdom is typically let on
full repairing and insuring (“FRI”) leases (see “Risk Factors—Loan Related Risks—Risks Relating to Tenants
and Leases”). Such leases have the effect of transferring certain of the risks and expenses of property ownership
(fluctuating repair bills, insurance premia, obsolescence etc.) to the tenant for the duration of the lease term. It
is typical that tenants under residential leases are not responsible for such charges on the related property;
however, depending upon the lease, the tenant may assume a level of responsibility with respect to the general
upkeep of the property.
Sub-Letting and Assignment. For leases granted after 1996, assignments of tenants’ leasehold interests
release the outgoing tenant from continuing liability for the remainder of the contractual term. To protect
against the risk that succeeding tenants would not be of equal standing to the original tenant, the provisions of a
commercial lease relating to assignment of the lease by the tenant can be drafted so that assignment can be made
only with the landlord’s consent. In addition, lease conditions can include provisions ensuring that any new
tenant is of an appropriate financial strength, or is appropriately guaranteed, and that there is an “automatic”
guarantee by the outgoing tenant of the obligations of the new tenant.
The Landlord and Tenant (Covenants) Act 1995 (the “Covenants Act”) provides that, in relation to leases
of property in England and Wales granted after 1 January 1996 (other than leases granted after that date
pursuant to agreements for lease entered into before that date) (“New Tenancies”), 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
Covenants Act provides, however, that arrangements can be entered into whereby on assignment of a lease of
residential or commercial property, the original tenant can be required under the terms of its lease to enter into
an “authorised guarantee agreement” in respect of the assignee’s obligations to the landlord. Such an authorised
guarantee agreement relates only to the obligations under the lease of the assignee of the previous tenant and not
any subsequent assignees of the assignee. The same principles apply to the assignee if it assigns the lease.
However, because the Covenants Act has no retrospective effect, the original tenant under a lease entered
into before 1 January, 1996 will remain liable under that lease notwithstanding any subsequent assignments,
subject to any express releases of the tenant’s covenant on assignment. In such circumstances the first and every
subsequent assignee would normally covenant with his predecessor to pay the rent and observe the covenants in
the tenancy and would give an appropriate indemnity in respect of those liabilities to his predecessor in title,
thus creating a “chain of indemnity”. If the chain of indemnity breaks down, however, the landlord remains able
to seek payment from the original tenant.
190