19.2.1 As part of the Authority's feasibility study for a proposed Project, and prior to preparation of the Authority's Outline Business Case, the Authority should consider:
• the extent to which it will be required to transfer assets, or grant a licence or lease, to the Contractor (so as to allow the Contractor to carry out and perform the Service);
• its ability to transfer such assets261 or grant such a licence or lease to the Contractor; and
• the extent to which the Authority requires control over, and/or access to the assets during the life of the Project.
19.2.2 If the Project will involve both the Authority and the Contractor accessing and using the asset (for example, school teachers or hospital clinicians accessing a building managed and maintained by the Contractor), then the Authority should seek advice from its legal advisers as to the best way of ensuring that the Authority's rights of use are maintained following transfer of the asset, or grant of licence.
19.2.3 The Authority may already own the freehold to the land and property. In this case, it can transfer an interest in the land and property (freehold or long leasehold/headlease) to the Contractor, whilst at the same time securing for itself a sub-lease or licence, which allows it to access and use the land and property for the term of the Contract. More commonly, however, Authorities now merely grant a licence in respect of such property (see Section 19.3 below).
19.2.4 If the Authority only has a leasehold interest in the land and property, and a lease structure is used, it is likely that the consent of the freeholder will be required before the Authority can grant any interest in the land and property to the Contractor.
19.2.5 When considering the interest to be granted or transferred to the Contractor, the Authority needs to have regard to Northern Ireland property law, and in particular the provisions of the Business Tenancies (Northern Ireland) Order 1996 ("the 1996 Order").
19.2.6 Due to the 1996 Order, it has been common to grant a licence in NI PFI deals. As section 19.2.3 above points out, that position is now converging with what happens in in Great Britain. The termination of any leases however in Northern Ireland (either head-leases or subleases) will be governed by the provisions of the 1996 Order. This legislation provides that leases may only be terminated in accordance with the provisions of the legislation, either by a landlord's notice to terminate or by a tenant's request for a new tenancy. As a general rule, therefore, it is advisable, in Northern Ireland PFI projects to grant a licence rather than a lease.
A landlord's notice to terminate the tenancy needs to specify whether or not the landlord is prepared to offer the tenant a new tenancy. If the landlord is content to offer a new tenancy, then this notice needs to set out the proposed terms of that tenancy. If on the other hand the landlord is not willing to offer the tenant a new tenancy, then the notice must state whether the landlord would oppose a tenancy application by the tenant, and if so, on the basis of which of the grounds mentioned in Article 12 of the 1996 Order he would do so. Briefly, the grounds set out in Article 12 are as follows:-
(i) Where the tenant has obligations in the tenancy as respects the repair and maintenance of the property, the tenant has failed to comply with those obligations.
(ii) That the tenant has constantly delayed in paying rent which has become due.
(iii) That the tenant ought not to be granted a new tenancy in view of other substantial breaches by him of his obligations under the tenancy or for any other reason connected with the tenant's use or management of the property.
(iv) That the landlord has offered and is willing to provide alternative accommodation for the tenant and that the terms on which the alternative accommodation is available are reasonable having regard to the terms of the current tenancy and to all other relevant circumstances and that the accommodation and the time at which it will be available are suitable for the tenant's requirement having regard to the nature and class of its business and to the situation and extent of and facilities afforded by the property.
(v) Where the current tenancy was created by a sublease of part only of the property and the landlord is the owner of an estate in reversion, that the aggregate of the rents reasonably obtainable on separate lettings of the holding and the remainder of that property would be substantially less than the rent reasonably obtainable on a letting of the property as a whole and that on termination of the current tenancy the landlord requires possession of the holding for the purpose of letting or otherwise disposing of the property as a whole.
(vi) That on termination of the current tenancy the landlord intends either to demolish the building which comprises or forms a substantial part of the property and to undertake a substantial development, or to carry out substantial works of construction and that the landlord could not reasonably do so without obtaining possession.
(vii) On termination of the current tenancy the landlord intends to occupy the property for a reasonable period for the purposes or partly for the purposes of the business to be carried on in it by him or by a company in which he has a controlling interest, or as his residence.
(viii) That the landlord is a company and that on termination of the current tenancy a person with a controlling interest in the company intends to occupy the property for a reasonable period for the purposes or partly for the purposes of the business to be carried on in it by him or by the company, or at his residence.
(ix) Where there subsists in the premises comprised in the tenancy an estate acquired by an Authority, possession of the premises is reasonably required for the Authority to carry out its functions under any statutory provision or rule of law.
At the time of serving a landlord's notice to terminate, the Authority is therefore going to have to decide at that stage which ground is to be relied on. Whether or not a Lands Tribunal hearing will actually be required in any such case, will depend on whether the Contractor applies to the Lands Tribunal for the grant of a new tenancy. The Contractor would have the right to do this at any time prior to the termination date specified in the Landlord's notice to terminate. If the Contractor were not to do this, then the tenancy would expire on the termination date specified in the landlord's notice with the Authority being entitled to possession of the property as at that date.
19.2.7 Therefore there will be no automatic right on the part of the Authority to terminate any lease granted to the Contractor on the basis simply that the provisions of the Project Agreement have been terminated. In order to bring a statutory tenancy to an end, the Authority would have to give not less than six but not more than twelve months notice to the Contractor terminating the tenancy and unless the Authority were able to satisfy one of the statutory grounds set out in the 1996 Order, the Contractor would be entitled to apply to the Lands Tribunal for a new tenancy. The most commonly used of the statutory grounds referred to are that the property is required for the purposes of the landlord, that it intends to redevelop or that there has been a substantial breach of covenant on the part of the tenant.
19.2.8 Although some of these grounds may be relevant in the particular circumstances, it would obviously necessitate a hearing before the Lands Tribunal in order to defeat the tenant's request for a new tenancy.
19.2.9 The Authority should seek advice from its legal advisers, as the rights granted to the Contractor pursuant to any licence could be construed as a tenancy, regardless of the terminology, and thereby afford the Contractor security of tenure pursuant to the 1996 Order. In this regard there are certain clauses which the Authority should consider excluding from any such licence as their presence in the document would tend to indicate a lease rather than a licence.
19.2.10 There is one specific exception to the position set out above in relation to roads. The Roads (Northern Ireland) Order 1993 (Section 26) provides that no statutory provision or rule of law which regulates the rights and obligations of landlords and tenants is to prejudice the operation of any agreement between the Department of Regional Development and the Concessionaire as to the terms on which land is provided for the Concessionaire's use. In effect therefore any tenancy document can provide for the termination of the tenancy as per the terms of that lease and this will not be affected by any statutory provision or rule of law, and in particular by the provisions of the 1996 Order which relates to termination of leases.
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261 The nature of the Authority's interest in the relevant asset will dictate the extent to which, and manner in which, the Authority can transfer the benefit of the relevant asset to the Contractor. Legal due diligence over the Authority's interest in the asset will highlight any restrictive covenants, conditions of transfer and /or claims over the relevant asset. See also footnote 257 above.