Granting a Lease Flashcards
Code for Leasing of Business Premises - who does it apply to?
agents who are members of the RISC and RICS regulated firms
DOES NOT apply to =
- non-regulated by RICS
- non-business tenancies
- business tenancies for 6 months or less
Code for Leasing of Business Premises - mandatory requirements
GENERAL =
- heads of terms must be WRITTEN and sent to tenants
- lease negotiations must be approached in a constructive and collaborative manner
- an unrepresented party must be advised about the existence of the code and to seek professional advice
- landlord is responsible for ensuring its heads of terms is compliant with the code and agreed before the draft lease is circulated
MANDATORY REQUIREMENTS IN THE HEADS OF TERMS =
- extent of premises
- length of term and break rights
- rent and rent review and basis for rent review
- repairing obligation
- right to assign or underlet
- permitted use and when T can change it
- rights to alter and requirement to reinstate
–> L must include these in head of terms, and can only include these later in the process if reasonable
note: does not prevent L from giving higher than market rent
Code for Leasing of Business Premises - good practice requirements
RCIS members MUST FOLLOW THEM UNLESS THERE ARE EXCEPTIONAL CIRCUMSTANCES which they may need to justify to RCIS
GOOD PRACTICE TO INCLUDE IN HEADS OF TEMRS =
- premises = clearly define demise, provide plan, refer to all T rights
- specify length of break rights and conditions
- initial rent, frequency of of payment, whether VAT is charged
- how will rent be reviewed and when
- T repair obligations must be appropriate to the length of term and condition of premises
- provide schedule of condition for qualified repair obligations
- protect tenant from inherent construction defects in newly built premises
- suspend rent if premises are damaged by uninsured risk or an insured risk not T’s fault
who prepares lease?
landlord solicitor prepares lease based on heads of terms
tenant solicitor inspects and suggests amendments
engrossment
print a copy of lease for signature
original is executed by landlord
counterpart is executed by tenant
agreement for a lease (contract) - who drafts?
landlord solicitor drafts
tenant solicitor reviews and amends
when will a contract for a lease be needed?
exchange will often not be needed
BUT
an agreement for lease is needed where the parties want to commit to completing the lease, but either are not yet ready, or there are conditions that must be met
e.g., development that needs 2 years to build, developer may want to lock interested parties in now rather than risk losing them
enquiries for leases - types (2)
T solicitor raises with L’s solicitor:
1) CPSE 1 Enquiries (like for freehold)
and
2) CPSE 3 Enquiries (specific to lease)
–> standard form enquiries
Grant of a lease overview
PRE-EXCHANGE
T =
- review draft lease/contract and amend as required
- investigate title, pre-contract searches, enquiries
- prepare report on title
L =
- prepare draft lease
- deduce title
- reply to queries on title + pre-contract enquiries
EXCHANGE (not required) = using Law Society B with copy of lease attached
PRE-COMPLETION
L =
- engross, get L signature on original lease, send counterpart to T
- prepare and send COMPLETION STATEMENT
- reply to prep-completion requisitions
T =
- arrange for T to sign counterpart lease
- obtain funds to complete as per completion statement
- Raise pre-completion searches and requisitions on title
COMPLETION =
- T send L solicitors money
- solicitors agree over telephone to complete and date the deeds they are holding
- solicitors send the completed original and counterpart to each other
POST-COMPLETION =
- L sends summary to client
- T submits SDLT/LTT return and pays tax if required
- register lease if required
pre-completion searches by tenant solicitor
OS1 = for lease of whole - confers priority of 30 working days
OS2 = for lease of part - confers priority of 30 working days
OS3 = for unregistrable leases - NO priority conferred
Completion Statement - who prepares it? what does it contain?
prepared by landlord solicitor and sent to tenant solicitor pre-completion
details money due on completion = apportions rent, insurance rent, and service change
apportionment = paying what is due for the current quarter –> done by determining daily rate and multiplying it with days left in the quarter
how to apportion rent?
L’s solicitor calculates the rent apportionment to be stated in the completion statement
it is the remaining rent left to be paid for that quarter - paid by tenant on completion
calculate by adding the rent, insurance rent, and service charge and determine the daily rent (divide by 365) and multiplying it with days left in the quarter
registration of leases procedure
if lease needs to be registered, OS1 (whole) or OS2 (part) should have been carried out pre-completion to give priority
Tenant applies to register the lease via:
- form AP1 = if L’s title is registered
- form FR1 = if L’s title is unregistered
certified copy of lease can be submitted electronically
lender letter of consent is needed if L’s freehold is charged
Land Registry will send T solicitor new leasehold title (gets its own title number) and updated landlord’s title
what leases need to be registered?
up to 3 years = no registration needed - cannot put a notice against landlord’s title
more than 3 years up to 7 years = no registration needed - can put a notice against landlord’s title
more than 7 years = must be registered - given its own title number - will be noted against landlord’s title
SDLT basis for calculation of commercial leases vs residential long leases
commercial leases with market rent payable = basis for calculation is the net present value (based on rent payable)
residential long leases = basis for calculation is the premium payable when getting the lease
