Lecture notes
Advanced Real Estate Workshop 7 Notes
- Module
- LPC - Legal Practice Course
- Institution
- LPC - Legal Practice Course
Drafting and negotiating commercial leases for rent reviews
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ADVANCED REAL ESTATE LAW AND PRACTICEUnit 7
Guide
Defects in Design and Construction: a Tenant’s Perspective
Context
In Unit 7, you will examine the potential liability of the design and construction team
in relation to defects in design and construction. In particular, you will be looking at
the documentation which may be put in place in order to protect a tenant who wishes
to take a lease of premises once they are completed.
Typically, a tenant’s protection package will have two components. First of all,
tenants often seek collateral warranties from the design and construction team.
Secondly, they will usually also look to procure contractual obligations from the
developer itself in the agreement for lease. Even where you are acting for a
developer or landlord, it will be in your client’s interests to ensure that this protection
is in place, in order that it is better able to attract prospective tenants to the Site.
Outcomes
By the end of this Unit you should be able to:
1. Evaluate the acceptability of a prospective tenant’s amendments to an
architect’s collateral warranty.
2. Explain the purpose and content of an agreement for lease.
3. Advise a developer as to its rights and obligations under an agreement for
lease.
Unit Workshop Tasks
In this Unit Workshop you will:
1. Comment on the acceptability of amendments made to the architect’s draft
collateral warranty by solicitors acting for the prospective tenant and negotiate
an agreed form of warranty which is acceptable to the developer, the architect
and the prospective tenant.
2. Explore a typical agreement for lease, analysing its terms in order to advise
your developer client as to its rights and obligations thereunder.
2223_are_ws07_ce01_guide 331 © The University of Law Limited
,Preparation
To prepare for this Unit Workshop you should:
1. Read and make notes on the chapter entitled “Agreements for Lease” and
review your notes from the section entitled “Protecting Third Parties” in the
“Construction Projects” chapter in the Commercial Property text book.
2. View Lecture 3.
3. Complete Test and Feedback - Unit 7 (Preparation).
4. Complete the Unit Workshop Preparatory Task.
Materials required for the Unit Workshop
1. Your notes from the Preparatory Task.
2. The Commercial Property textbook.
3. The Deed of Appointment of Architect attached to your Unit 6 Guide.
4. This Guide.
Consolidation
It is important that you consolidate your learning.
In particular you should:
1. Revise your answers to the Preparatory Task and the Unit Workshop Task in
the light of the feedback you received in the Unit.
2. Complete Test and Feedback - Unit 7 (Consolidation).
© The University of Law Limited 332 2223_are_ws07_ce01_guide
,PREPARATORY TASK
Understanding a Collateral Warranty
You are a trainee in the Construction Department of Gilbraith Saunders LLP, and
your supervisor is Fleur Richardson. You act for Phoenix Developments Limited
(“Phoenix”), which is developing the Armoury Business Park in Nottingham (“the
Site”). You have recently been working on the draft contracts whereby Phoenix
means to appoint the various members of the design and construction team. These
contracts provide for the provision of collateral warranties in favour of certain third
parties, namely any funder, purchaser or tenant of the Site.
Fleur has sent you the email overleaf in relation to one such contract with which you
are already familiar: the Deed of Appointment of Architect (attached to your Unit 6
Guide).
Read Fleur’s email and make notes as to the acceptability (or otherwise) of the
amendments to which Fleur refers.
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2223_are_ws07_ce01_guide 333 © The University of Law Limited
From: Fleur Richardson
To: Trainee Solicitor
Date: [XXXX]
Subject: Phoenix Developments Limited (“Phoenix”): Collateral Warranties for
the Armoury Business Park (“the Site”)
Dear Trainee
Things are moving on with this matter and I would like you to help me with some of
the outstanding documentation please. As you know, Phoenix intends to sell the
completed development to Reliant Mutual Pension Fund Trustees Limited (“Reliant”),
which, as an institutional investor, will find the Site more enticing if it already has the
promise of a steady rental income. Phoenix is therefore keen to ‘sign up’ as many
prospective tenants as possible for the Site, so that it can sell the Site on to Reliant
with an attractive rental stream in place. One such prospective tenant is Premier
Data Solutions Limited (“Premier”), which is looking to take a lease of the third to fifth
floors of one of the office buildings on the Site, Loxley House.
Ordinarily, a tenant would be able to assess the state of repair of a building it was
looking to occupy by commissioning a survey. Clearly, this is not possible in this
case, as Loxley House is not yet built. Premier’s concern will be that it will not want
to be liable for any defects in design and construction which manifest themselves
once it is in occupation. As you know, one way of allaying a tenant’s fears in this
regard is the procurement, on its behalf, of collateral warranties from the design and
construction team.
The building contract and the deeds of appointment of the professional team
(collectively “the Appointments”) all contain provisions obliging the team member in
question to give collateral warranties to certain third parties, namely the funder
(London & American Trust plc), the buyer (Reliant) and the tenants of the completed
development. In the interests of certainty and the avoidance of disputes, it is
important that the form of these warranties is agreed and crystallised in the
Appointments.
To that end, Premier’s legal team has been reviewing the proposed form of collateral
warranty annexed to the Deed of Appointment of Architect. I attach the draft
collateral warranty as amended by Premier’s solicitors. I would like you to review
these amendments in preparation for a meeting between us and the solicitors of CDA
and Premier respectively. Do bear in mind that we need to ensure that the final
version is fair to both CDA and Premier, but is also in a relatively standard form so
that it stands the best chance of being acceptable to all of the prospective tenants,
and not just Premier.
© The University of Law Limited 334 2223_are_ws07_ce01_guide
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