Order Description
You are working in the lease advisory team in a real estate consultancy business. Your client completed the purchase of the property on 31st March 2017 and has asked for advice on the following issues. Your company was not involved in the acquisition. Your client understands that she will need to take detailed legal advice in due course but has asked your company to identify the key legal and practical considerations.
Prepare a briefing note for your head of department which sets out your analysis of the problems and provides advice as appropriate. You should support your reasoning with relevant case law and legislation.
The maximum word count is 3,000 words.
There is a supplementary document to this brief comprising a tenancy schedule and outline layout plan.
The Property:
The property comprises two buildings of traditional brick construction in the centre of Manchester, Buildings A and B on the attached layout plan. They form part of a terrace of eight-storey buildings (six upper floors, ground and basement) mainly used as offices, with retail units on the ground floors, fronting the highway. There is open ground to the rear, currently used for car parking/deliveries, with individual access to each property, as shown by the blue arrows. There is a two metre high brick wall enclosing the open ground behind each of the buildings.
Building A was refurbished six years ago to a very high standard and is in excellent condition. It is fully let and the current office market rental level is £250pm2 per annum. Building B is in poor condition, both externally and internally. A substantial amount of the space is vacant. The current market rental level is £120pm2 per annum.
Details of leases are shown on the attached tenancy schedule. All leases are on typical ‘institutional’ terms with upwards only rent reviews and the tenants responsible for paying insurance and service charge to cover management costs, repair and maintenance of the building and common parts. For all tenant break options, the tenant must give six months prior notice and have paid all rent due. You should assume that each of the leases incorporate the specific wording of Clause 5.18 and Schedule 8 of the course standard lease, Unit 3 University Avenue.
Client’s Intention:
Your client intends to retain Building A as an investment whilst redeveloping Building B into residential apartments, with one retail unit on the ground floor. She wishes to sell the units on completion and to start the development works as soon as possible. The proposed works involve extending the existing building to the rear, as shown on the layout plan, and adding a further level to create a penthouse apartment. The existing retail unit will be reduced in size, to approximately 200 m2, to provide an improved entrance for the apartments. Your client has already provisionally agreed terms for a new lease of the remaining ground floor space to a high quality delicatessen. Storage units will be created in the basement for use by the residents of the apartments. The building will be comprehensively upgraded, internally and externally. Detailed plans are currently being prepared and a planning application should be submitted by the end of May.
Tasks:
Obtaining Vacant Possession for Redevelopment of Building B
With reference to the attached tenancy schedule, advise your client on the procedures that should be followed in order to obtain vacant possession of Building B to enable the proposed redevelopment. Your answer should consider the specific circumstances of each lease against the process of lease renewal, including timing and cost/payment implications. For clarity, the relevant lease expiry dates are highlighted in orange on the schedule. You must comment on any areas of risk to your client, which may prevent or delay gaining vacant possession.
Active Investment Management of Building A
In Building A, your client wishes to maximise the income. Advise her on the prospects for activating the historic rent reviews, the process for dealing with these rent reviews and the outstanding lease expiry and how these can be completed without further delay. Your client also requires advice on the matters set out below. For clarity, relevant dates are highlighted in yellow on the attached tenancy schedule.
The tenant of Floor 3, Hot Advertising, had written to the previous owner stating that any change to the rent payable from the review date must be agreed by 15th April 2017; otherwise the current rent would continue to be payable. This letter was passed to your client as part of the purchase documentation. She wants to know whether it will have any effect on the rent review process.
The tenant of Floors 4 & 5 and the basement store, Successful Solicitors, has already sent your client a copy of its letter to the previous owner, dated 12th February 2017, which requested landlord’s consent to assign both leases to Troublemaker Investments. The tenant is suggesting that the landlord, now your client, is unreasonably withholding consent. Although the financial information provided suggests Troublemaker Investments is profitable, your client would prefer to retain Successful Solicitors as the direct tenant. Advise her how she should manage this situation, also considering the outstanding rent review. The original letter was also disclosed as part of the purchase documentation.
Neighbouring Building C
Building C is also in very poor condition, internally and externally, and the majority of the office space is vacant. However, for many years, two floors have been used by local bands as practice rooms and a recording studio. Your client is concerned about the noise emanating from this space, which can sometimes be heard inside Building B. She is also concerned about the extensive water damage to the top floor (Floor 6) of Building B. A structural survey commissioned before purchasing the property indicates that the damage is due to the disrepair of the roof of Building C. The third issue relates to the proposed rear extension. Your client is concerned whether the owner of Building C could successfully claim that this will infringe his right to light and, therefore, impede the development plans. Advise your client on her legal position in respect of these three aspects.
Professional Fees
Your client has received an invoice for fees in respect of ‘acquisition advice on Buildings A and B’ from a property consultant, DFG Associates. She recalls receiving an email from the company in October 2016 which gave details of Building B, described as a residential development opportunity. The email had stated that the company would charge a 1% introductory fee if she proceeded to purchase the property. There had been no further contact and, when a separate firm, MNB Real Estate, contacted her with details of Building A, she had appointed MNB to advise on the purchase of both buildings. She has paid MNB’s professional fees and wants to know whether she is also liable to pay fees to DFG.
General
Overall, I am looking for clarity and accuracy in your reasoned advice. Try to structure your answer methodically and be concise. In your analysis of the problem, it is important that you give supporting legal sources – statutes, regulations and case law – which should be referenced according to the guidelines issued in Week One. This is the same principle as supporting comments and ideas in essays with academic or other references.
Whilst it is often appropriate to state the key legal principles, do tailor your advice to the specific issues rather than giving a general overview on, for example, the lease renewal process. I want to see the depth of your knowledge and understanding and your ability to extract the key points and apply to a specific problem. You will not get extra marks for simply mentioning cases which you do not then discuss in the context of your answer. Remember that your client will value a commercial appreciation of the problems, alongside the legal position. Costs, timescales and identification of areas of risk will be important to your client.
Your analysis of the legal position should indicate the level of certainty which you consider is attached to outcomes. If you believe that you are unable to provide definitive advice on any point due to lack of information, identify what further information you consider is required, and why. Where appropriate, describe with precision what steps you recommend your client should take, and why.
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