Transcript Deduction and Investigation of Title

Leasehold Procedure
PLP Lecture 9
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
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
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
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
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.
Who is liable for breach of
covenant?
• The original buyer sold the factory in
2001.
• The new owner has breached the
covenants?
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.
Who is liable for breach of
covenant?
• What if the lease had been granted in
2001 and assigned this year?
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
Commonhold
• Designed to overcome some of the
disadvantages of leases
• You will find an overview of
commonhold at
www.landregistry.gov.uk/education/com
monhold
Residential Leases
• Long leases of houses
• Short term leases of houses
• Long leases of flats
• Short term leases of flats
Commercial Leases
• Advantages for a tenant:
– Flexibility
– No capital outlay
– Building may be managed by someone
else
Commercial Leases
• Advantages for a landlord:
– Has a capital interest
– Can retain control of management
– Can recover expenditure through a service
charge
– Produces income
Basic Leasehold Terminology
• Grant
• Assignment
• Subletting
Leasehold conveyancing
procedures
• The steps which should be taken are
set out on the handout.
Drafting leases
• Drafted by landlord’s solicitor
• Use of precedents
• Code of Practice for Commercial Leases www.bpf.propertymall.com/publications/comle
ases
• Land Registry prescribed clauses leases
• See handout for the contents of a typical
lease
Types of covenant
• Absolute
• Qualified
• Fully qualified
Drafting the contract
• Usually used for the grant of a long term
residential lease
• Not generally used on short term
lettings or commercial leases
Title
• Open contract – tenant not entitled to
deduction of the freehold title (s. 44(2))
LPA 1925)
• SC 8.2.4
Acting for the tenant
•
•
•
•
Contract and draft lease
Searches
Lender’s requirements
Advising the client
Engrossment and execution of
the lease
• Lease and counterpart
• SC 8.2.5
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
Completion
• The landlord will receive:
– The counterpart lease
– Any premium payable
– An apportionment of any rent payable in
advance
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 lender’s consent, if
relevant
Post completion
• Stamp duty land tax
• Registration of the lease
• Notice to the landlord
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
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’
Registration of the lease
• If landlord’s freehold title is
unregistered, an application for first
registration of the lease must be made
within 2 months of completion
• If landlord’s title is registered, the
tenant’s application is for registration of
a dealing and it must be made within
the priority period.
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