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Business and Company Law Property Law Start Your Own Business

Agreement for Lease Versus the Lease Itself-What’s the Difference or Purpose?

Are you considering taking a commercial lease and you are being asked to sign an “agreement for lease” first?

Wondering what’s the difference? Or what is the significance, if any? Let’s take a look.

Lease

A lease sets out the terms and conditions under which a lessee will occupy a premises on an exclusive basis. The lease will contain the term, the rent, and other terms by which the lessee will enjoy possession of the premises.

Agreement for lease

An agreement for lease on the other hand is a binding contract to grant a lease in the future.

Sometimes an agreement will only bind one of the parties-for example the lessee may have an option to renew a lease at the expiry of the existing term.

The big difference between an agreement for a lease and the lease is the tenant will have entered into possession and occupation if it is a lease he has executed.

Why enter into an agreement for a lease?

There is a number of reasons, the most common of which is the property cannot be handed over to the lessee yet. This may be where a property is being constructed or it may be where the property is currently occupied by an existing tenant.

Or it may be where significant refurbishment or remedial work, or a costly fitout needs to be carried out on the property before the lessee will enter into occupation. If you were the landlord, you would want some comfort that the money you will spend will not be wasted by your proposed tenant changing his mind.

The agreement for lease is a binding contract, so the change of mind problem should not arise.

An agreement for a lease might also arise where all the terms and conditions of the lease have not yet been agreed or where the proposed lessor has not yet acquired title to the property.

All these circumstances require an agreement for lease as it is not yet possible to grant a lease and hand over vacant possession to the lessee.

Where the reason for an agreement for a lease is where major refurbishment of an existing property is required, or where a building must be constructed, important factors to consider include:

  • Fitout works and defect rectification periods
  • When practical completion will occur
  • What are the handover provisions
  • What warranties will be given
  • Is security required-for example a bond or bank guarantee

You will note, therefore, that an agreement for a lease is similar to a new build of a residential house contract, save for the agreement for lease is between a landlord and tenant.

The terms negotiated and agreed upon in the agreement for a lease should make provision for the completion of the works in a timely and satisfactory manner. If this does not occur there should be compensation to the proposed lessee.

An architect or engineer should also be engaged to check that the proposed work is satisfactory and complies with planning permission and any applicable building or statutory regulations.

Practical completion

When practical completion is arrived at the building should be ready to occupy.

At this point the date of the lease should be agreed, the bank guarantee (if agreed) should be provided by the lessee, any period during which rectifications should be carried out should be used to ensure rectifications are carried out, even though some minor works may still be outstanding.

Categories
Property Law Property Purchases and Sales

Signing a Contract in Trust Where Principal Did Not Exist-Interesting Court of Appeal Decision

Signing contract in trust

The Court of Appeal handed down an interesting decision in this case involving the sale of land.

The facts were that Mr Gibbons was selling real property and Mr Doherty signed the contract for sale in trust and on behalf of a limited company. Mr Gibbons then nominated the beneficiary of the trust and the purchaser as ADT Investments Limited.

ADT Investments Limited was unable to complete the purchase and Mr Gibbons then sued Mr Doherty and ADT Investments Limited for specific performance of the contract. Mr Gibbons argued that as the company was not incorporated at the time of execution of the contract by Mr Doherty he was entitled to sue Mr Doherty in his personal capacity for specific performance.

The High Court refused to agree with Mr Gibbons who then appealed to the Court of Appeal.

The Court of Appeal agreed with the High Court decision and dismissed the appeal.

The Court of Appeal held General Condition 30 of the Law Society General Conditions of Sale, 2001 Edition permits a person to sign a contract in trust or as agent.

And importantly it does not expressly provide that the beneficiary or principal be in existence at the time of the contract. It also observed that that commercial reality sometimes demands that contracts be signed in trust and once the principal is in existence to complete the transaction there is no obvious problem.

You can read the full decision of the court of Appeal here (Gibbons -v- Doherty & anor [2019] IECA 275)

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Property Law Property Purchases and Sales

Problems arising with title to your property-statutory provision to the rescue?

buying irish property from abroad

The Land and Conveyancing Law Reform Act 2009 may come to your rescue if there is a problem with the title to a property.

Recitals

Section 59(1) provides

59.— (1) Recitals, statements and descriptions of facts, matters and parties contained in instruments, statutory provisions or statutory declarations 15 years old at the date of the contract are, unless and except so far as they are proved to be inaccurate, sufficient evidence of the truth of such facts, matters and parties.

Rent of leasehold

Section 59

(2) Where land sold is held under a tenancy (other than a subtenancy), the purchaser shall assume, unless the contrary appears, that the tenancy was duly granted; and, on production of the receipt for the last payment due for rent under the tenancy before the date of the actual completion of the purchase, the purchaser shall assume, unless the contrary appears, that all the covenants and provisions of the tenancy have been duly performed and observed up to the date of actual completion of the purchase.

All estates

Section 76 states

76.— (1) Subject to subsection (2), a conveyance of land passes all the claim, demand, estate, interest, right and title which the grantor has or has power to convey in, to or on the land conveyed or expressed or intended to be conveyed.

(2) This section takes effect subject to the terms of the conveyance.

Receipt clause

Section 77 (1) states

77.— (1) A receipt for consideration in the body of a deed is sufficient discharge for the consideration to the person giving it, without any further receipt being endorsed on the deed.

Implied covenants

Section 80 Land and Conveyancing Law Reform Act 2009 sets out the implied covenants in a conveyance for value. These implied covenants would include

  • The vendor has full right to convey the property
  • The vendor warrants a covenant for quiet enjoyment
  • The vendor warrants the property is free from encumbrances
  • The vendor will execute further assurances to vest the interest contracted, if necessary.

Statutory acknowledgment and undertaking

Section 84 binds the person in possession of documents to produce them for inspection or in court to establish title and to furnish copies on request.

Categories
Business and Company Law Property Law

Landlords to Be Held Liable for Rates of Tenants?

Landlords and lenders were at risk of being held liable for outstanding rates of tenants pursuant to the Local Government Rates and Other Matters Act 2019.

Section 13 of the act provides:

Payment of rates on sale of relevant property

13. (1) The owner of a relevant property who proposes to sell the property shall, before the completion of the sale, pay to the local authority concerned any rates imposed under this Act and accrued interest which is due and payable in respect of that property.

(2) The local authority concerned shall provide a person referred to in subsection (1) or a person acting on behalf of the person in connection with a sale of a relevant property with—

(a) confirmation of any unpaid rates imposed under this Act and accrued interest at the date of the sale of a relevant property, or

(b) confirmation that there are no outstanding amounts payable,

as the case may be, in such form and manner as may be prescribed.

(3) In this section—

“sale” includes, in relation to a relevant property, the transfer of the property by its owner or any trustee or personal representative of the owner to another person—

(a) in consequence of—

(i) the exercise of a power under any enactment to compulsorily acquire land, or

(ii) the giving of notice of intention to exercise such power,

or

(b) for no consideration or consideration which is significantly less than the market value of the property at the time of its transfer.

It is likely that this provision also obliges a receiver or mortgagee in possession to pay the outstanding rates on or before a sale.

Section 14 of the act provides that interest can be charged on unpaid rates:

Unpaid rates to be a charge on relevant property

14. (1) Any rates levied by a rating authority in respect of a relevant property payable under this Act and any interest referred to in section 12 which is due and unpaid by the owner of the relevant property shall be and remain a charge on the relevant property to which it relates.

(2) Notwithstanding section 36 of the Statute of Limitations 1957, the charge referred to in subsection (1) shall continue to apply without a time limit until such time as it is paid in full.

(3) This section does not affect—

(a) the liability of any previous occupier for outstanding rates in respect of which he or she is primarily liable, or

(b) the functions of the rating authority concerned under any other enactment to collect any outstanding rates from the occupier or occupiers primarily liable.

Section 7 of the Local Government Rates and other Matters Act 2019 provides for set off of rates against any money owing by the local authority against any money due to the local authority.

Discharge of rates by set-off

7. Where a sum is due to any person by a local authority and, at the same time, a sum is due to such local authority by such person in respect of rates the former sum may be set off against the latter either, as may be appropriate, in whole or in part.

Section 12 provides for interest to be charged on overdue rates.

Conclusion

Landlords and lenders would be held liable for rates of tenants if all of this act commenced without amendment. There was significant lobbying, however, with the result the the act will be amended before coming into effect. The Minister for Housing, Planning and Local Government has recognised that if it came into law without amendment there may well be significant unforeseen and unintended consequences.

The most likely change is to ensure that landlords and banks are not liable for outstanding rates of tenants, but this remains to be seen. Watch this space.

Categories
Property Law

Email Signature Sufficient for Binding Property Contract

A contract for the sale of land in Ireland must be evidenced in writing. The situation is similar in the UK where a contract for the sale of land must be signed by, or on behalf of both parties.

An interesting decision has been handed down by the County Court in Manchester where a dispute arose concerning the sale of a piece of land near Lake Windermere.

The proposed purchase of the land saw email correspondence being exchanged between the solicitors for buyer and seller. 

The price of £175,000 was proposed by email by the solicitor for the vendor and this was accepted by the purchaser’s solicitor, by email. Subsequently the vendors decided they wanted £200,000 for the property and their solicitor stated there was no enforceable contract to sell for £175,000 as the terms were not signed by, or on behalf of, both parties.

Manchester Crown Court had to decide whether the email signature block was sufficient to be accepted as a signature by the solicitor for the buyers and decided that the intention with the signature block in the email was to connect the name to the email and bind the contract between the parties.

Accordingly the Court found there was an enforceable contract and the email signature was sufficient to form a contract.