Sub-Station Leases and Telecommunications Leases – Be careful when granting these at tenanted properties

When a freeholder wishes to grant a sub-station or telecommunications lease at premises where there are already occupational tenants there are various issues to be considered. The main aim is to ensure that the lease is not granted of any area which has already been or is about to be demised to an occupational tenant.

If a freeholder is aware it intends to grant such a lease before the occupational leases are granted (for example it knows an electricity substation will be required to service the property) it should ensure that the relevant area is excluded from the premises to be demised by the occupational leases.

However, frequently the freeholder may only decide once the occupational lease is in place that it wishes to let an area to a telecommunications operator to generate extra income. Alternatively a tenant or assignee or undertenant may request an electricity substation at a later stage to service its additional requirements. What happens then?

If the proposed area is not part of the occupational lease demise you can proceed as normal.

If not, further consideration is required. If the new proposed lease term is less than the residue of the occupational lease, the lease could be granted by the tenant,. However this means that the rent would also go to the tenant unless otherwise agreed in any licence to underlet. If the lease term is longer, the most effective way forward is for the occupational tenant to surrender the part of lease which is to be let to the electricity or telecommunications company and the freeholder can then let the area direct. If this is not done various problems can arise. For example, technically the electricity company would be entitled to the rent payable by the occupational tenant for that part of the premises (unless agreed otherwise) and would also be the competent landlord for the purpose of the 1954 Act.

The above issues are not difficult to deal with but if not properly dealt with at the appropriate time will cause management problems in the future.

For further information please contact Mark Heighton at mark.heighton@cms-cmck.com or on +44 (0)20 7367 2177.