March 20 2008
At first glance, Guernsey leases appear to be virtually identical to UK leases. The style, content and format are strikingly similar and it is obvious that the form of lease used in Guernsey draws heavily on that used in the United Kingdom. However, there are several important distinctions between the two that could easily catch one out.
The first is that unlike in the United Kingdom, where a lease is realty, a lease in Guernsey is personalty. This distinction has several consequences. For example, the rules of inheritance are different depending on whether the deceased's asset is realty or personalty. Another consequence is that a lease is not considered to be good security for a lender, whereas in the United Kingdom it is acceptable and common to have a mortgage on a (longer) lease. Finally, as a UK lease is an estate in land, all leases over seven years must be registered at Her Majesty's Land Registry to be binding on any successor in title to the freehold to which the lease relates. Although in Guernsey parties may choose to register a lease at the Greffe, this is not compulsory and is probably not needed to bind any purchaser of the freehold.
The second distinction is that there is no equivalent to the Landlord and Tenant Act 1954 in Guernsey. While in the United Kingdom the act provides security of tenure for commercial tenants on expiry of the lease, Guernsey has no such provision. Although this does mean that a tenant will have to leave the premises on the expiry of the term of lease should the landlord wish, in reality a landlord is often happy to keep a good tenant. It would not make commercial sense for a landlord to cease relations with a tenant unless, for example, the tenant was consistently late paying rent or the landlord needed possession to complete works. These scenarios are exceptions under the act where a landlord may terminate the tenant's occupation of business premises. Also, an option to renew may be negotiated at the time the lease is granted, giving the tenant security that it will be entitled to a new lease on the same terms (except rent) on expiry of the current lease. There is thus a legal difference, but in reality the difference is perhaps slighter than it first appears.
Another difference between UK and Guernsey leases relate to forfeiture of the lease. Both allow the landlord to forfeit for non-payment of rent or breach of other covenant, but in the United Kingdom a tenant may apply to the court for relief against forfeiture for non-payment of rent. There is no equivalent in Guernsey; however, it is common to see extra wording inserted in the forfeiture provisions of Guernsey leases to provide the tenant with more protection. These will usually provide that the lease may be forfeited for breach of covenant if not rectified within a certain timeframe. A Guernsey tenant can also seek a stay of eviction from the Guernsey courts, although in commercial cases such a stay is unlikely to be of a lengthy duration.
Another difference relates to rent review provisions. In the United Kingdom, rent reviews are most commonly linked to market rent. In Guernsey, rent reviews are often linked to the Retail Price Index (RPI), which can negate the need for negotiation as to what the rent should be on review. It is also increasingly common to see both provisions in a commercial lease allowing the landlord to review to the higher of market rent or any RPI increase.
As can be seen, there are a few subtle yet important distinctions between a Guernsey and a UK lease which make it prudent to seek locally qualified advice when you are contemplating entering into any Guernsey lease.
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