Leasehold Procedure

1
Leasehold Procedure

• PLP Lecture 9

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Aims Objectives

• To consider the advantages and disadvantages of
  leasehold
• To understand the main procedural steps on the
  grant of a lease
• To consider the form and content of a commercial
  lease
• To consider the rules relating to liability for
  covenants

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Disadvantages of Leases - Tenant

• A lease is a depreciating asset
• There is no visible return on the rent
• The tenant does not own the property so does not
  have control
• The tenant may be subject to repairing obligations

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Disadvantages of Leases - Landlord

• A tenant may be unreliable
• The investment may depreciate
• A landlord may be liable for repair, maintenance
  and insurance
• Income and capital are not guaranteed

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Advantages of Leases

• The landlord retains an interest in the property
• The landlord retains control
• A capital sum may be charged for a long lease
• Enforceability of covenants

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Who is liable for breach of covenant?

• The freehold of a factory was sold in 1988. The
  buyer in the transfer covenanted with the seller
  to keep the premises in good repair and not to
  use the premises for the manufacture of
  fireworks. The transfer was registered at HM Land
  Registry. The buyer still owns the factory and
  has breached both covenants.

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Who is liable for breach of covenant?

• The original buyer sold the factory in 2001.
• The new owner has breached the covenants?

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Who is liable for breach of covenant?

• Rather than selling the freehold in 1988, the
  seller granted a 25 year lease. The tenant
  covenanted in the lease to keep the premises in
  good repair and not to use the premises for the
  manufacture of fireworks. The lease was assigned
  in 1994 and the assignee has breached the
  covenants.

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Who is liable for breach of covenant?

• What if the lease had been granted in 2001 and
  assigned this year?

10
Landlord and Tenant (Covenants) Act 1995

• Applies to leases granted on or after 1/1/1996
• Automatic tenant release on assignment
• Exception - Authorised Guarantee Agreement
• Does not apply to leases granted before 1/1/1996

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Commonhold

• Designed to overcome some of the disadvantages of
  leases
• You will find an overview of commonhold at
  www.landregistry.gov.uk/education/commonhold

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Residential Leases

• Long leases of houses
• Short term leases of houses
• Long leases of flats
• Short term leases of flats

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Commercial Leases

• Advantages for a tenant
• Flexibility
• No capital outlay
• Building may be managed by someone else

14
Commercial Leases

• Advantages for a landlord
• Has a capital interest
• Can retain control of management
• Can recover expenditure through a service charge
• Produces income

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Basic Leasehold Terminology

• Grant
• Assignment
• Subletting

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Leasehold conveyancing procedures

• The steps which should be taken are set out on
  the handout.

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Drafting leases

• Drafted by landlords solicitor
• Use of precedents
• Code of Practice for Commercial Leases -
  www.bpf.propertymall.com/publications/comleases
• Land Registry prescribed clauses leases
• See handout for the contents of a typical lease

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Types of covenant

• Absolute
• Qualified
• Fully qualified

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Drafting the contract

• Usually used for the grant of a long term
  residential lease
• Not generally used on short term lettings or
  commercial leases

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Title

• Open contract tenant not entitled to deduction
  of the freehold title (s. 44(2)) LPA 1925)
• SC 8.2.4

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Acting for the tenant

• Contract and draft lease
• Searches
• Lenders requirements
• Advising the client

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Engrossment and execution of the lease

• Lease and counterpart
• SC 8.2.5

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Apportionment of rent

• Unless completion takes place on a day when rent
  is due, an apportionment will need to be made
  where the rent is payable in advance
• SC are silent and an express condition will be
  required

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Completion

• The landlord will receive
• The counterpart lease
• Any premium payable
• An apportionment of any rent payable in advance

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Completion

• The tenant will receive
• The lease
• A marked or certified copy of the freehold title
  deeds (unregistered land only)
• A certified copy of the lenders consent, if
  relevant

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Post completion

• Stamp duty land tax
• Registration of the lease
• Notice to the landlord

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Stamp duty land tax

• Submit a land transaction return to HM Revenue
  Customs and pay SDLT
• Within 30 days after the effective date of the
  lease usually the completion date

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SDLT

• SDLT is due on
• Any premium paid by the tenant at the current
  rates, and
• The rental element of the lease calculated
  according to the net present value

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Registration of the lease

• If landlords freehold title is unregistered, an
  application for first registration of the lease
  must be made within 2 months of completion
• If landlords title is registered, the tenants
  application is for registration of a dealing and
  it must be made within the priority period.

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Conclusion

• To consider the advantages and disadvantages of
  leasehold
• To understand the main procedural steps on the
  grant of a lease
• To consider the form and content of a commercial
  lease
• To consider the rules relating to liability for
  covenants