Grant of a lease procedure

Question 1

What is meant by engross?

Answer 1

To prepare a final copy for signature (eg on good quality paper & bound). This copy is referred to as an engrossment.

Question 2

What is meant by original?

Answer 2

This is the engrossment of a lease that is executed by the landlord.

Question 3

What is meant by counterpart?

Answer 3

This is the engrossment of a lease that’s executed by the tenant.

Question 4

What does the landlord’s solicitor do pre exchange?

Answer 4

1) Take instructions

2) Prepare draft lease and, if relevant, agreement for lease (ie if there’s to be an exchange)

3) Deduce title (and check that lender will consent to letting) and respond to any queries on title

4) Answer pre-contract enquiries

5) Once agreed, engross the agreement for lease, obtain landlord’s signature, and send counterpart to tenant’s solicitor

Question 5

What does the tenant’s solicitor do pre exchange?

Answer 5

1) Take instructions

2) Review draft lease and agreement for lease and amend as required

3) Investigate title and raise any queries on title

4) Raise pre-contract enquiries and searches

5) Arrange for tenant to sign counterpart lease

Question 6

What will the landlord’s solicitor draft the lease based on?

Answer 6

Based on the heads of terms
(may use a generic precedent lease - eg Practical Law or Encyclopaedia of Forms & Precedents)

Question 7

What will the landlord’s solicitor draft the lease based on, if there have been past lettings on the landlord’s estate?

Answer 7

The solicitor may have a part-completed lease which just needs to be tailored to the individual letting.

Question 8

Example…

Answer 8

An institutional landlord has an industrial estate with ten warehouses on it. Eight of the warehouses have been let already, and heads of terms have been agreed for the ninth. The landlord’s solicitor uses a precedent specific to the estate. It will already be part-completed with the details that don’t change from unit to unit, such as landlord’s freehold title, description of estate & rights that are granted to all tenants.

Question 9

What will the tenant’s solicitor do if they see stuff in the lease that is onerous or unfair to the tenant?

Answer 9

They will go through the lease and amend anything that’s unfair or try to balance it more in favour of the tenant.

Question 10

When is an agreement for lease needed?

Answer 10

Where the parties want to commit to completing the lease, but either are not yet ready, or there are conditions that need to be satisfied.

Question 11

If an agreement for lease isn’t needed, when will the parties’ solicitors complete?

Answer 11

Once the tenant’s solicitor is happy with their title investigations & the form of the lease is agreed.

Question 12

Example…

Answer 12

A developer builds a shopping centre which is due to be completes in two years’ time. The developer has found various retailers who are interested in taking units. Rather than wait for completion of the centre, and risk losing interested parties, the developer will sign each retailer up to an agreement for lease providing for completion following practical completion of the shopping centre.

Question 13

Does the tenant’s solicitor review the agreement for lease?

Answer 13

Yes, they review the agreement for lease & amend any provision they feel appropriate in favour of the tenant.

Question 14

Should the tenant’s solicitor investigate the freehold title?

Answer 14

Yes - the landlord’s solicitor will deduce their freehold title, and the tenant’s solicitor should investigate it.
- the tenant’s solicitor should ensure that the landlord has the title to grant the lease, and will also need, for example, to consider any freehold covenants as they will also bind the tenant (even if the lease states something different).

Question 15

What enquiries will the tenant’s solicitor raise?

Answer 15

The tenant’s solicitor will raise CPSE1 enquiries (as does a buyer’s solicitor in a commercial freehold transaction) but will also raise CPSE3 enquiries which are specific to the grant of a lease.
- the tenant’s solicitor should raise the same searches as they would if they were buying the freehold.

Question 16

On exchange, do the landlord’s & tenant’s solicitors exchange in similar manners as for a freehold contract?

Answer 16

Yes - usually adopting Law Society B

Question 17

On exchange, is deposit usually payable?

Answer 17

No

Question 18

On exchange, will the agreement for lease set a fixed completion date?

Answer 18

Maybe, but more likely will set out what conditions need to be satisfied and by when for completion to take place.

Question 19

Will the agreement for lease have a draft of the agreed form of lease annexed to it?

Answer 19

Usually yes - so it can only be exchanged once the terms of the lease have been agreed.

Question 20

Landlord’s solicitor pre-completion checklist…

Answer 20

• prepare original & counterpart lease, obtain landlord’s signature to original & send counterpart to tenant’s signature
• prepare & send completion statement, detailing the money due on completion (Eg any apportioned annual rent, service charge & insurance rent).

Question 21

Tenant’s solicitor pre-completion checklist…

Answer 21

• arrange for tenant to sign counterpart lease
• obtain funds from client needed to complete as per completion statement
• raise pre completion searches

Question 22

Whose solicitor prepares a completion statement?

Answer 22

The landlord’s solicitor.

Question 23

Why is the completion statement a tricky calculation?

Answer 23

Because the solicitor must apportion the yearly rent, insurance rent (ie contribution to the insurance premium) and service charge (for a lease of part) on a daily basis.

Question 24

What does apportionment invovle?

Answer 24

Counting the number of days for which the tenant is going to occupy in the current quarter, and calculating an appropriate proportion of the yearly rent (and other sums treated as rent).

Question 25

What’s one method of apportionment?

Answer 25

Multiply the number of days by the daily rate, which is found by dividing the yearly rent by 365.

Question 26

What are the most appropriate pre-completion searches to be carried out?

Answer 26

• An OS1 search with a lease of whole
• An OS2 search with a lease of part

Question 27

What are the most appropriate pre-completion searches to be carried out, if the lease isn’t registrable?

Answer 27

An OS3 search could be used - this doesn’t confer priority, but will check that the landlord is free (or not) to grant the lease.

Question 28

On completion of the lease, who sends who the completion monies?

Answer 28

The tenant’s solicitor sends the landlord’s solicitor the completion monies.

Question 29

What happens on completion of the lease?

Answer 29

• The landlord’s solicitor & tenant’s solicitor agree over the phone to complete & date the executed leases they’re holding
• The landlord’s solicitor & tenant’s solicitor send the completed original and counterpart to each other

Question 30

Landlord’s solicitor post-completion checklist…

Answer 30

• send summary of main provisions of lease to client.

Question 31

Tenant’s solicitor post-completion checklist…

Answer 31

• arrange to submit SDLT or LTT return & pay appropriate SDLT or LTT if necessary
• register lease if necessary

Question 32

Is exchange necessary?

Answer 32

No, exchange isn’t always necessary
- may be necessary if the parties have conditions to satisfy before completing the lease.

Question 33

What is the contract referred to if exchange takes place?

Answer 33

If exchange takes place, the contract is referred to as an agreement for lease.