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FLK2 - Property Practice > Granting a Commercial Lease > Flashcards

Granting a Commercial Lease Flashcards

1
Q

explain this in comparison to a freehold conveyance

A
  • Procedure is nearly identical to freehold transaction. Below only explains areas that are different to a freehold conveyance.
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2
Q

when might some stages be skipped?

A
  • Some stages might be skipped with short leases i.e. investigating title
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3
Q

explain ‘tenant’s strength of covenant’

A

T’s ability to perform covenants

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4
Q

what might the LL require?

A
  • LL may require: a reference, guarantee or rent deposit from T
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5
Q

what is a premium? what is the VAT position?

A

any capital sum paid for the grant of the lease

VAT will be chargeable on any premium and rent reserved if the LL has opted to tax (i.e. if there is a premium of £100k, T would need to pay £120k to include standard VAT of 20% - important re: SDLT/LTT)

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6
Q

what must be checked on instruction?

A
  • If this is an underletting, must ensure there is provision in the headlease to sublet and that the sub-lease will be at least 1 day shorter
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7
Q

re: deduction & investigation

whose consent must be required?

A
  • If the property is subject to a mortgage which restricts the borrower from granting a lease, the lender’s consent must first be obtained
  • the LL (if so required by the lease)
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8
Q

re: deduction & investigation

what is the position regarding deduction of title?

A
  • Most LL’s will deduce title, but they are not required to unless the lease/sub-lease exceeds 7 years.
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9
Q

re: deduction & investigation

how can title be deduced if the headlease is registered?

A

If the headlease is registered, T will be able to search the title under the Open Register Rules (i.e. on HMLR) in any event.

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10
Q

re: deduction & investigation (lease)

what must T do if the FH is registered?

A
  • If the freehold is registered, T must review title to identify any incumbrances
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11
Q

re: deduction & investigation (lease)

what is the effect if the FH is unregistered?

A
  • If the freehold is unregistered, T may not be able to obtain absolute leasehold title when registering the lease
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12
Q

re: deduction & investigation (lease)

what do the SCP/SCPC provide if an ATL is being used at the lease is 7yr +?

A
  • If the lease is for 7 years + and an AOL is being used, SC/SCPC provide that the LL must produce sufficient title for T to register the lease with absolute title (if LL cannot comply, this would need to be excluded by special condition)
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13
Q

re: deduction & investigation (sub-lease)

what is the effect if the headlease is registered?

A

if it is registered with absolute leasehold title, T does not need to investigate freehold title. They only need to review the headlease and official copies of headlease title.

NB: a lease can be registered even if the freehold is unreg.

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14
Q

re: deduction & investigation (sub-lease)

what is the effect if the headlease is unregistered?

A

T can request the headlease and all assignments of the lease for the last 15 years (can request deduction of title but LL is not obliged to provide it unless the sub-lease exceeds 7 years)

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15
Q

re: drafting

who drafts the lease and agreement to lease (ATL)?

A
  • Lease is drafted by LL’s solicitor and negotiated between parties.
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16
Q

re: drafting

A
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17
Q

re: drafting

what is the contract called?

A

an agreement to lease

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18
Q

re: drafting

is a contract used with leases?

A
  • Common to by-pass the contract (‘agreement to lease’), but an ATL may be used if there will be a delay between agreeing the lease and completion

the same drafting principles apply as with a contract in FH conveyances

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19
Q

re: drafting

when might an agreement to lease be used? give examples.

A

if there will be a delay between agreeing the lease and completion, i.e.:
o LL is building the property and wants to bind T to take the lease;
o LL is undertaking refurbishment;
o LL requires consent of lender of superior LL to grant the lease;
o T needs to obtain planning permission for proposed use

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20
Q

re: drafting

what does the SC/SCPC state about the ATL?

A
  • SC/SCPC provide the lease must be annexed to the ATL and the LL must engross the lease and supply a copy of the engrossment 5 working days before completion
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21
Q

how is consent for an underlet usually given?

A
  • This consent is often given in a licence to underlet (LTU).
22
Q

re: licence to underlet

who is party to then LTU?

A
  • The head-LL, head-T and under-T will be party to the LTU.
23
Q

re: licence to underlet

what is a key feature of an LTU? why is this important?

A
  • A key feature of an LTU is that it requires the under-T to enter into a direct covenant with the head-LL. The head-LL can then enforce covenants in the headlease (excl. rent) and underlease against the under-T

o Without this, there is not contractual relationship between head-LL and under-T, and head-LL could not enforce covenants against them

24
Q

re: licence to underlet

what happens if the undertenant assignee/underlets?

A
  • If the under-T assigns/underlets the lease, the head-LL would need to obtain a LTU from the new T
25
Q

re: licence to underlet

when must consent be obtained?

A
  • Head-T must obtain head-LL’s consent or before completion otherwise they are likely to be in breach of alienation covenant of their lease
26
Q

what additional information would be required as part of the pre-contract searches and enquiries?

A
  • Same as FH property and any additional queries i.e. LL’s insurance policy
  • LL should also provide copies of any planning consents
27
Q

what must the solicitor explain when preparing the pre-contract searches report for the client?

A
  • When preparing the report, T’s solicitor will need to explain T’s obligations under the lease and risk of forfeiture for breach of covenant
28
Q

what happens at pre-completion?

A
  • Completion statement supplied as with FH property
  • The LL signs the lease before completion and the counter-part is sent to T for execution (if SC/SCPS has been used this must be sent 5 working days before completion)
  • In most leases rent is payable in advance, unless completion take place on the day the rent is due, an apportionment of rent must be agreed in advance
29
Q

what form does the lease usually take?

A
  • The lease/sub-lease is in 2 parts: ‘lease’ and ‘counterpart’. Both parts are identical. The final clean copy to be signed is called a top copy/engrossment
30
Q

when will the lease be legal?

A
  • Execution formalities must be complied with for the lease to be legal i.e.: the lease is executed as a deed, which is in writing, clear it is a deed, signed in the presence of 2 witnesses and delivered as a deed
31
Q

what will T receive on completion?

A

T will receive:
- lease executed by LL;
- certified copied of FH title deeds (unreg. land only);
- certified copy of any lender’s consent

32
Q

what will LL receive on completion?

A

-counterpart executed by T;
-any premium payable for the lease (minus any deposit paid);
-any apportioned sum of rent

33
Q

re: post-completion

what is SDLT payable on?

A
  • SDLT is payable on the total of the premium/NPV + VAT
34
Q

re: post-completion

what is LLT payable on?

A
  • LLT is payable on NPV (inc. VAT) and premium (not inc. VAT)
35
Q

re: post-completion

how is tax payable on the rent calculated?

what is the calculation?

A
  • Tax payable on the rent is calculated based on the Net Present Value (NPV)
    o NPV = total rent payable over the lease – 3.5% discount per annum
36
Q

re: post-completion

when must SDLT & LLT be paid?

A

same time and method as FH

37
Q

re: post-completion

what are the SDLT rates payable on the premium?

A

£0 - £150k  0%
£150k - £250k  2%
£250k +  5%

38
Q

re: post-completion

what are the SDLT rates payable on the NPV?

A

o £0 - £150k  0%
o £150k - £5m  1%
o £5m +  2%

39
Q

re: post-completion

what are the LLT rates payable on the premium?

A

o £0 - £225k  0% (if relevant rent is £13.5k + then this will be 1% instead)
o £225k - £250k  1%
o £250k - £1m  5%
o £1m +  6%

40
Q

re: post-completion

what are the LLT rates payable on the NPV?

A

o £0 - £225k  0%
o £225k - £2m  1%
o £2m +  2%

41
Q

re: post-completion

what is important to remember about registration of the lease?

A
  • NB: reg. of a legal lease does not prompt reg. of the FH. Therefore, there can be a reg. lease against unreg. land.
42
Q

re: post-completion

what leases cannot be registered?

A
  • Legal lease of 7 years or less cannot be registered
43
Q

re: post-completion

how are leases which cannot be registered protected?

A

o FH is reg.  lease is protected as an overriding interest
 Leases longer than 3 years can be voluntarily noted against the FH title.

o FH is unreg.  lease is binding on all new owners, irrespective of notice

44
Q

re: post-completion

what is the position when the lease is longer than 7 years?

A

if it is a legal lease more than 7 years  registerable in its own right (irrespective of whether FH is registered). Lease will have its own title and number.

45
Q

re: post-completion

when the lease is being registered, what application is being made if the FH is registered?

A

o T’s application is for registration of a dealing with FH title and this must be made within the priority period conferred by OSR1 search.

 The lease will also be marked on LL’s FH title.

46
Q

re: post-completion

when the lease is being registered, what application is being made if the FH is unregistered?

A

T’s app. is for 1st reg. Must be done within 2m of completion.

47
Q

re: post-completion

what happens on registration?

A

the registered leasehold title will be classed

48
Q

re: post-completion

what are the possible classes?

A

o Absolute
o Good
o Possessory / qualified

49
Q

re: post-completion

explain absolute title

A

o Absolute  leasehold title is sound and free from defects

50
Q

re: post-completion

explain good title

A

Registrar is satisfied the leasehold title is sound, but either:
 The FH is registered with less than absolute title; or
 The FH is unregistered and there is no/insufficient evidence of the superior LL’s title with the application for first registration

51
Q

re: post-completion

explain possessor / qualified title

A

there are defects in leasehold title

FLK2 - Property Practice (16 decks)

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