7. Procedural Steps for the Grant of a Lease or Underlease

Question 1

Who’s job is it (generally) to draft the lease?

Answer 1

The landlord’s solicitor will draft the lease and submit it to the tenant’s solicitor for approval, it will go back and forth until agreed

Question 2

When is a lease contract required when granting a lease?

Answer 2

Never required but is advantageous where there is some delay or one party needs to transaction to be binding (because, perhaps, they are using significant expenditure on refurbishing the property to the buyer’s standards)

Question 3

Standard Condition 8.2 (SCPC 11.2.3): What does it say about the lease and the contract?

Answer 3

provides for the lease/ underlease to be in the
form annexed to the draft contract, and for the landlord to engross the lease/ underlease and supply the tenant with the engrossment at least five working days before the completion date.

Question 4

When is a tenant entitled to call for a deduction of the freehold title

Answer 4

A tenant is not entitled to call for deduction of the freehold title unless the transaction is the grant of a lease for a term of more than 7 years

• If this is the case and there is to be an agreement for lease, SC 8.2.4 (SCPC 11.2.4) requires landlord to deduce such title as would enable the tenant to obtain registration with an absolute title at the LR
• If title is registered, tenant can check landlord’s title under Open register rules either way

Question 5

What documents is an undertenant allowed, by law, to call for when conducting searches

Answer 5

the general law entitles the undertenant to call for the headlease and all subsequent assignments under which the headlease has been held for the last 15 years

Question 6

Can an undertenant call for a deduction of the freehold title?

Answer 6

Yes, but only if the lease is to be granted for a term of more than 7 years

Question 7

In a lease scenario, the landlord’s solicitor with the following documents:

Answer 7

1. draft agreement for lease (if applicable);
2. draft lease/ underlease;
3. evidence of the freehold/ headlease title;
4. copies of any relevant planning consents; and
5. evidence of the lender’s consent to the grant of the lease/ underlease (where relevant).
   - Will also be additional queries relating to, ie. insurance policies

Question 8

Explanation of a license to Underlet

Answer 8

This is a tripartite document entered in to by the head- landlord, headtenant and undertenant by which the head- landlord gives consent to the headtenant to underlet the property to the undertenant. The landlord’s consent must be given by or on completion of the underletting, otherwise the headtenant is likely to be in breach of the alienation covenant in the lease.

Question 9

Explanation of the lease and the counterpart

Answer 9

The lease / underlease is normally prepared in two identical parts - the lease and counterpart

• the lease is executed by the landlord and the counterpart by the tenant
• On completion, these are exchanged so each party has a copy of the lease signed by the other in case of subsequent dispute

Question 10

When should the counterpart be sent to the tenant’s solicitor for execution?

Answer 10

At least 5 working days before completion if SC 8.2.5 and SCPC 11.2.5 applies

Question 11

What does the landlord receive on completion

Answer 11

In addition to matters relevant to freehold transactions:

1. the counterpart lease / underlease executed by the tenant / undertenant
2. any premium payable for the grant (less any deposit paid on exchange of contracts);
3. an apportioned sum representing rent payable in advance under the lease/ underlease.

Question 12

What will the landlord give to the tenant on completion

Answer 12

1. the lease/ underlease executed by the landlord;
2. if not already done, properly marked or certified copies of the freehold title deeds (unregistered land only);
3. where relevant, a certified copy of the consent of the landlord’s lender to the transaction.

Question 13

Leases: what is SDLT chargeable on

Answer 13

General Rule: A land transaction return must be submitted to HMRC on the grant of the lease. SDLT is potentially chargeable both on any capital sum being paid (premium) and on the amount of the rent

Question 14

How is SDLT calculated on the premium of a leasehold?

Answer 14

Same as freehold land

Question 15

How is SDLT calculated for the ‘rental’ element of a lease?

Answer 15

Work out how much rent is payable over the term of the lease (including VAT) and discount rental payments to be made in future years by 3.5% per annum to compensation for the fact that future rent will have a lower value

Question 16

leases: is SDLT chargeable on VAT as well (if charged)

Answer 16

YES

Question 17

Deadline for paying SDLT etc.

Answer 17

SDLT1 form and payment must be submitted to HMRC within 14 days of completion of the grant of the lease

Question 18

LTT in Wales: What is LTT charges on in leases

Answer 18

General Rule: LTT is charged on the leases of non- residential property in a similar way to SDLT, ie on the premium and on the rental element using the NPV of the rent.

Question 19

How is LTT on the premium of a leasehold estate calculated ?

Answer 19

The LTT payable on any premium is calculated on the same basis as for the consideration on the sale of freehold land, except that the 0% band for premiums extending to £225,000 is not available where the ‘relevant rent’ exceeds £13,500. The rate of 1% will apply instead. Relevant rent is usually the highest rent payable in any year across the entire term of the lease.

Question 20

Deadline for submitting the LTT (and to where?)

Answer 20

The land transaction return and payment must be submitted to the WRA within 30 days of completion of the grant of the lease

Question 21

If a lease of 7 years or less cannot be registered with its own title how is it protected in registered land? (2)

Answer 21

1. Overriding interest (will be binding)
2. can be noted against the landlord’s title voluntarily if over 3 years in duration

Question 22

Outcome of registering a lease of >7 years

Answer 22

General Rule: This lease is registrable in its own right after completion (irrespective of whether the freehold title is registered), it will have its own separate title and title number and, if the landlord’s title is registered, it will be noted against the landlord’s title

Question 23

Unregistered freehold: If a tenant wants to register their lease (triggering first registration), what is the deadline for doing so?

Answer 23

If the freehold is unregistered, the tenant’s application to the Land Registry is for first registration and the application must be made within 2 months of completion of the grant of the lease.

Question 24

Deadline for registering lease against registered freehold

Answer 24

If the freehold is registered, the tenant’s application is for registration of a dealing with the freehold title and application must be made within priority period of OSR1 search

Question 25

When is ‘title’ awarded to a lease

Answer 25

On first registration

Question 26

Possible titles for leasehold estates

Answer 26

On first registration, registered title may be awarded absolute, possessory, qualified or ‘good’ leasehold title