Conditional agreements for lease and longstop dates

Landlords and tenants will be familiar with agreements for the lease - the contract which precedes the granting of the lease itself. Here we look at conditions that may be attached to such agreements, which conditions need to be met before the lease starts, and the timescales for meeting those conditions.

What are 'suspensive' conditions?

Whilst agreements for lease generally record the process for the parties to sign the lease, for the tenant to make the initial payments under the lease and the like, they may also record conditions that have to be met before the lease can be put in place. Examples of such conditions include:-

• the tenant obtaining any building warrant for their initial fit out works;
• the tenant obtaining a premises licence (e.g. for the sale of alcohol);
• the landlord obtaining vacant possession (VP) if there is an existing lease in place; or
• the landlord completing certain works to deliver the premises in a shell condition (e.g. removing a prior tenant's fit out).

Conditions such as these are generally referred to as "suspensive conditions" because the grant of the lease is suspended until each of the conditions have been met (also referred to as satisfied or 'purified'), or waived / deemed no longer required. As well as agreeing the detail of what is required to meet the condition (e.g. what precise works the landlord has to do) there are other considerations. It is important to consider:

1. who controls each condition, so which party(s) either confirms whether or not the condition has been met and can be purified, or decides whether a condition can be waived; and
2. the date for doing so, known as the longstop date.

In considering the above, the parties also need to agree the consequences for the agreement for lease if a condition is not purified or waived by its longstop date. The standard consequence is that either party can terminate the agreement for lease and walk away from the proposed letting.

Who can purify the suspensive conditions?

Generally speaking, the party entitled to purify or waive will be the party who benefits from that condition. For example, a condition that the tenant must obtain local authority consents for their fit out works would ordinarily only be purified or waived by the tenant, as it's the tenant's application; and ensuring the consents are appropriate for the works is for the tenant's benefit.

However there may be some conditions that are mutual, so need both landlord and tenant sign off. The usual example of this is where the landlord is doing works to the premises before the tenant will take the lease. The tenant will want to be able to sign off the works and confirm the condition is met, as it will want to ensure the premises are in the state of repair it expects. The landlord will likely want to be part of that process, so that it has a degree of control over what works the tenant is asking the landlord to do and to what standard.

With mutual conditions one should consider if a dispute resolution process is appropriate e.g. reference to a third party. That would ensure that if the parties are at an impasse, the matter can be resolved by the third party process and the condition purified.

Longstop dates

To keep the parties focused on fulfilling any obligations on them to satisfy the suspensive condition, longstop dates would ordinarily be included to the agreement for lease. The longstop date may be different for different conditions as it would reflect both the time it reasonably takes to satisfy the condition, and its place in the process if there is more than one condition (e.g. a landlord can't do works to the premises before it achieves VP). If there are a number of suspensive conditions, there may be a number of consequential longstop dates.

When deciding on what those longstop dates should be the parties should consider what period of time would be reasonable to enable them to fulfil the condition. They should take account of any external factors, i.e. the relevant local authority's timescales for granting building warrants or premises licences, etc; or the dates or notice periods in the current lease for the landlord to secure VP. However the longstop date should not be so long as to tie the parties into the agreement for lease for an unreasonable period: generally parties want to tick off the conditions as soon as reasonably practicable so the lease can start and the tenant take entry.

If the longstop date is not feasible, this will mean that either the option for either party to terminate the agreement for lease occurs too soon in the process; or the agreement for lease may need to be varied to push out the longstop date. If that date is part of a chain, all of the dates need to be reconsidered.

Mechanism to extend longstop dates

Depending on the nature of the condition, agreements for lease may be drafted to include a mechanism for extending longstop dates to account for legitimate periods of delay. Common examples include the ability to push out a longstop date linked to either party appealing a planning decision, or where an external event (force majeure) causes a delay in works being completed.

Key takeaways

Suspensive conditions are important components of agreements for lease, as they enable the landlord and tenant to get into a contract for the lease whilst certain matters are resolved or put in place.

The terms of those conditions should be clear, so both parties know what requires to be done to meet the condition. The parties should also agree (i) which of them decides whether or not the condition has been satisfactorily met; and (ii) achievable longstop dates which keep the parties focused, but also provide appropriate time to complete the steps needed to satisfy the condition.