#3241 - Leasehold - Property Law and Practice

1. The structure and content of a lease

Characteristics of a lease: [Street v Mountford]

1. Fixed / periodic term

2. Exclusive possession

Look at substance not the label

Why important = because of the NATURE of a lease. It is a interest in property combined with a contractual agreement. A license gives you no interest in the property. Important for statutory protection [LTA 1995 etc]

Formalities to create a lease

• Must be by Deed – S.52 LPA 1925 (if for less than 3 years no deed is needed – S.54(2) LPA)

S.1(2) LPMPA says what a deed is.

• S.4 LRA 2002: Registration at Land Registry if over 7 years (under 7 years it is overriding interest Sch.3 LRA 2002 – no registration is required)

• Granting a lease = the execution and dating of the lease by the parties is all that is necessary to complete the grant of a lease – and create the LL and T relationship.

Commonhold:

• Commonhold and Leasehold Reform Act 2002: gives all tenants an interest in the freehold.

• Applies to commercial and residential. The Commonhold parts vests in the Commonhold Association.

Quarterly days

Characteristics of business leases

Shorter term

Market rent [plus rent review clause is common]

NOT suitable as security for a loan – tenancy is considered to be a liability

Payment of premium [a capital sum for moving in, paid by T to LL – usually where demand is greater than supply]

Lease of part will include provision of a service charge.

Procedure for granting a lease:

Engrossment and execution of the lease

• “top copy” of the lease. It is this document that both parties sign.

• 2 identical documents – “original” [signed by LL] and “counterpart [signed by T].

• SCPC 10.2.5 / SC 8.2.5: LL prepares the engrossment.

Apportionment of rent:

• Is completion takes place on a different day to rent falling due [e.g. rent due 1^st of the month and completion takes place on 15^th - so T must pay from 15^th to the 1st]

• ONLY if rent is payable in advance [not in arrears]

• Must be a express special condition in the contract unless it is dealt with in lease itself.

Stamp Duty Land Tax:

When to pay?

• Following completion of the lease

• Pay on the premium and the rent

• Payment must be sent [with appropriate Land Transaction Return] to HMRC

• Land Transaction Return is required on grants of leases 7 years + and where there is chargeable consideration. [SDLT1 or, for a new lease, SDLT4]

• Time limit for payment = 30 days from completion.

• HMRC will issue certificate – SDLT5 on receipt of payment – this will enable registration at Land Registry to proceeed.

Contracting [“Agreement for lease”]

• NOT a requirement for the grant of a lease.

• S.2 LPMPA requirement [in writing; containing all terms; signed by both parties] – the agreed form of draft lease must therefore be attached to the contract and specifically referred to in it.

1. When is it needed?

• Long residential lease – buyer paying substantial purchase price – contract provides certainty and a time-frame – need time to gather finances (e.g. mortgage)

• Simultaneous sale / purchase transactions – for certainty. So client does not end up with 2 or no properties.

• Commercial lease: less likely to be needed! But good idea if:

waiting for formalities to be completed prior to actual grant (i.e. mortgagee’s / superior Landlord’s consent is required; planning permission needed)

2. Why is it good to have?

• Certainty – especially if having to wait

• Contractual remedies

• SCPC 10.3 – deals with delayed completion date – possibility of rescission if delay is longer than 4 months.

3. Issues relating to deducing title – contract to grant a lease

• S.44 (2) LPA – T is not allowed to call for deduction of freehold title on grant of a lease! (Applies to unregistered land).

• However – LRA 2002 Sch.11: where there is a lease for more than 7 years [registered or unregistered land] T can ask to deduce title.

• Sch.11 is enforced by SCPC 10.2.4 (SC 8.2.4) – requires LL to deduce such title for a lease over 7 years – as this would enable T to obtain registration with an absolute title at Land Registry.

• If land is registered tenant’s solicitor can always obtain official copies of relevant superior title direct from LR.

• If there is no contract good practice for T’s solicitor to require L’s solicitor to deduce freehold title and any superior leasehold title.

4. WHY is it necessary to deduce title?

• To get absolute leasehold title instead of good leasehold title (LR will generally not register absolute Leasehold title if freehold title and any relevant superior title is not produced on registration.

In residential property – “Good leasehold title” is generally not mortgage-able”.

• Having freehold title confirms:

Person granting lease has adequate title to grant the lease

See restrictive covenants on revisionary title

Whether consent of mortgagee of revisionary title is required.

Residential Leases

Conveyancing procedure is similar to that used on a freehold sale or purchase.

Differences between commercial Lease and long residential lease

DOCUMENTS from Seller’s solicitor [to provide to Buyer’s solicitor]:

• Draft contract

• Copy of lease

• Energy Performance certificate: required whenever a building is constructed, sold or rented out. EPC is valid for 10 years

Action taken by the Buyer’s solicitor:

• Searches: water, environment, local searches

• Enquiries: amount of service charge payable; copy of insurance policy; any disputes (e.g. parking problems)

• Survey – has seller got a mortgage over lease?

• Is there a Deed of Covenants?; Rules and Regulations [both referred to in the lease.

• Is buyer’s solicitor also acting for the lender? If so, should do a company search against the management company

Instructions from lender

CML Handbook

• 5.12.1: requirements for unexpired term of lease offered as security – it must be a minimum of 50 years at grant of lease.

• 5.13.2: Forfeiture – there must be no provision for forfeiture on insolvency of T.

Assignment of lease

• Alienation = assignment, subletting; under-letting; mortgaging; charging or parting with possession of leasehold property.

• Assignment = T disposes of the residue of the term of the lease and retains no interest in the property or the lease. MUST be by Deed. If the lease is registered the assignment must also be registered for the legal leasehold estate to pass.