In 15 years since I advised on my first SIPP pension scheme property dispute, our team has advised on a very wide range of landlord and tenant property issues.
This briefing focuses on some of the more frequent questions that we are asked by the “beneficiaries” and “members” of pension schemes in relation to properties the pension scheme owns already or is about to acquire. The answers are intended as general guidance, as opposed to specific advice.
Question 1: There is a break clause in my lease. What happens if this is exercised?
Careful thought and consideration must always be given. There are numerous pitfalls.
From the tenant’s point of view, the terms and any conditionality of the option to break must be adhered to strictly. As one judge, Lord Hoffmann put it, if a clause requires an option notice to be given on pink paper it is not validly exercised by giving it on blue paper no matter how clear the intention to exercise the option may be. Deadlines for giving notice are strict. The break notice must be served by the correct party, on the correct party, in the correct terms, at the correct address, before any deadline.
Once a valid break notice is served it cannot be withdrawn unilaterally. Therefore, serving a break notice in the hope that more favourable lease terms can be agreed can be a dangerous tactic.
Whenever a tenant’s option to break is exercised, the pension scheme trustees and beneficiaries should take legal advice ASAP. Is the break notice valid? Are the market conditions such that the property will easily relet to a suitable incoming tenant? If not, are there grounds to challenge the tenant’s break notice in order to preserve asset value and income? If the break notice is invalid it should be contested forthwith, and this should be made clear to the tenant.
Question 2: Our lease is due to expire next year. What should we do?
Lease expiry is an important moment for pension scheme trustees and their tenants alike.
If the lease is “contracted-out” of the Landlord & Tenant Act 1954, the lease will end on the term date. If the tenant remains in occupation of the contracted-out lease after the term date, paying rent, a new tenancy at will can arise. Pension fund trustees will be at risk if this scenario continues for more than 6 months. Occupation of the property should be properly regulated and documented at all times, and a new lease put in place.
If the lease is protected by the Landlord & Tenant Act 1954 and the tenant remains in occupation for the purpose of its business after the term date, there will be a statutory continuation of the lease on the same terms.
Pension scheme trustees, and tenants, alike should take advice on whether to trigger the lease renewal process by serving a statutory termination notice, or request for a new lease, under the 1954 Act. Whether or not the property is over, or under rented, and the prevailing property market conditions, will both be important considerations.
Question 3: How does the coronavirus act 2020 impact on our lease?
The short answer is that forfeiture, on account of rent arrears, is prohibited until 31st March 2021 except in certain circumstances. The expectation is that the Government is likely to extend this deadline.
Unless the pension scheme trustees agree to a permanent rental concession, or a temporary rental deferment, the rent (and contractual interest on the arrears) will continue to fall due under the lease and be payable as a debt. Court proceedings can be issued at any time claiming the rent, although right now on account of the pandemic it is likely to take longer to obtain and enforce the judgment.
Question 4: We want to carry out some alterations. Do these need to be agreed and documented?
The answer to this will depend on the term of the lease.
Alterations may be prohibited altogether. Sometimes they are permissible without consent in specific circumstances e.g., this can be the case with internal demountable partitioning. Frequently they are allowed with the pension scheme trustees’ “written consent not to be unreasonably withheld or delayed”.
Pension scheme trustees will be concerned to know that the alterations are suitable, properly documented with an appropriate and agreed specification, and that they will be carried out by a suitable contractor with appropriate insurance. Trustees and beneficiaries will also want it agreed that, as with the rest of the property, when completed the alterations will be maintained, repaired, decorated, and cleaned etc. The trustees may also want the option and ability to be able to require reinstatement, and the removal of the alterations, at the end of the lease.
Tenants will be concerned to ensure their landlords cannot prevent alterations unreasonably. They will also need to be careful to ensure the alterations are not “rentalised” on renewal, meaning then that the tenant would then not only have to pay for the cost of the alterations but also an increased rent in consequence.
Question 5: Does it matter if the property falls into disrepair during the lease?
Pension scheme trustees and their beneficiaries should ensure the repair of their properties during the lease term, with periodic inspections carried out.
Clearly it will be important to ensure the property remains “wind and watertight” during the lease. Otherwise the tenant may be entitled to withhold rent. If the tenant fails to repair during the term of the lease, or when the lease expires, it will be important to have a strategy in place so as to ensure that the trustees’ losses are minimised, and the property can be relet.
For more information on the article above please contact Warren Reid.