Vivienne Westwood Limited has entered into a 15-year lease at a rent of £110,000 per year with only rising rent cheques every 5 years. At the same time, the tenant waived a cover letter. This reduced the actual rent to £90,000, rose to £100,000 and introduced a cap on the initial rent review. The accessory letter read: “If you breach any of the terms and conditions contained in this Agreement or any provision of the Rental Agreement and/or additional documents (for example. B, the Modification License), we may terminate this Agreement with immediate effect and rents are payable immediately in the manner set forth in the Lease as if this Agreement had never existed.” As seen in the Barbudev case, the subsidiary letter was presented as an agreement on consent. This meant that it was not legally enforceable, as many factors that contributed to the continuation of the negotiations remained. In a recent case, Vivienne Westwood Limited v. Conduit Street Development Limited, the provisions relating to the termination of a cover letter were held by the High Court to be an unenforceable sanction. Landlords and tenants need to take more care to consider the consequences of terminating the cover letter and then state it clearly. It may not be so smart to have a document that is heavily weighed against the tenant. Overall, when negotiating side letters, it is of the utmost importance that all parties are aware of the content of the texts and that they always respect the rules and regulations.
In addition, ancillary agreements relating to leases must include all the terms of a document signed by both parties in order to comply with section 2 of the 1989 Act. The agreement for the lease and the cover letter must be linked to each other. Otherwise, the secondary letter in accordance with Article 2 will become invalid. A cover letter is a short parallel contract between the landlord and tenant. If it is to be personal to that designated tenant, it must be clear that it is personal to that tenant and does not benefit their legal successors. The landlord wants it to be clearly stated that it will be omitted if the tenant assigns the lease or subleases the premises. The secondary letter is usually binding on the owner`s legal successors. If this were not the case, the owner could easily escape his conditions by transferring ownership to a group company. While there are some potential dangers with collateral deals, the benefits for landlords and tenants far outweigh it as they can greatly facilitate real estate transactions. In System Floors Ltd v.
Ruralpride Ltd (1995), the Court of Appeal considered whether the provisions of a subsidiary letter bind the successor in title to the original landlord. The letter made it clear that the concessions it contained were personal to the tenant, but it was not explicitly stated whether or not subsequent owners would be bound by the concession. The original owner sold his stake, but the buyer was not informed of the letter before finalizing the purchase. The court ruled that the buyer was bound by the cover letter. While they undoubtedly represent a practical process by which parties can try to change the terms of a lease temporarily or confidentially, they are not without its problems. If collateral agreements are to be used, landlords and tenants need to understand how they work and design them accordingly. In addition, they must be carefully retained and disclosed after signing so that any potential buyer of the landlord`s or leaseee`s interests can properly assess how they might be affected by the terms of the letter. The case depended very much on the concrete facts and in particular on the fact that the letter had been received at the same time as the lease and because the landlord was trying to win a reputable tenant. The court interpreted the tenant`s primary duty to pay the rent, as set out in the letter. The payment of the market rent specified in the lease was interpreted as a disadvantage for the tenant if he did not fulfill his main obligation in the letter of guarantee. This inconvenience was exorbitant or unscrupulous. This analysis is quite surprising for practitioners who would normally consider the principal obligation as that set out in the lease and the epistle as a temporary or personal waiver of it.
6. Is there a charge for the landlord`s property? If this is the case, the lender must accept the cover letter. Collateral agreements are extremely useful for defining the changes that need to be made to the contract instead of having to change multiple clauses. By not changing multiple clauses, the parties can quickly agree and avoid confusion. The parties must take into account the length of the concession period for the letters. The parties must also determine whether the cover letter should end if the tenant does not comply with the terms of the lease or cover letter. It is recommended that this termination be made upon notification of the owner and not automatically in case of violation by the tenant. This avoids problems where the landlord does not realize that the collateral letter is finished and continues as if it were still in place, and the risk that the landlord will be prevented from treating the concession as terminated. He also ceases to argue that the cover letter was modified by the conduct or even that the terms of the lease were varied by the conduct. Collateral agreements should be used to reassure the intentions of the parties. While the intention to create legal relationships may exist, it may not be legally enforceable. To avoid this, one must be clear about what they are trying to achieve, and if it is to be legally enforceable, it must be clearly stated in the index.
Cover letters are best suited for real estate transactions, as sellers may not want certain aspects of their contract to apply to different tenants. This gives them the freedom to tailor parts of the cover letter to the respective tenants/buyers. In addition, if a buyer is not aware of a cover letter, he is still bound by it, contrary to previous beliefs. The termination provision was considered an unenforceable penalty. The court did not appreciate the fact that the index indicated that he could be terminated for an offence and not for a non-trivial breach, and the fact that the termination had retroactive effect as if the index had never existed. They can be created to meet the specific wishes of the tenant or the owners themselves. However, problems arise if they are not legally binding or if tenants do not comply with all the obligations set out in the sub-letters. 2. Should the terms of the cover letter be legally binding on the parties? This means that buyers should be careful when buying real estate (for example.
B a careful inspection of real estate), as guarantee agreements may contain agreements that may not be known to buyers after the purchase of the property. That`s why it`s so important to treat them clearly. Since ancillary agreements are usually binding on the owner`s legal successors, it is important that they are communicated by the owner to a potential buyer. .