THE DIFFERENTTYPES OF TRANSACTIONS

Question 1

LEASEHOLD TRANSACTIONS

Answer 1

the purchase of a
long leasehold interest involves the same procedures as a
freehold purchase. In fact, many people who ‘buy’ a fat are
surprised to learn that they do not actually own it. Under the
sale of a leasehold, the contract is long-term, often for a peri-od of 99 years. The annual rent will be modest (for example,
only £100 per year) because the buyer has paid a signifcant
purchase price up front. This up-front purchase price is called **a ‘premium.’ **

Question 2

Types of Leases

Answer 2

*Head leases: Leases granted by a freehold owner to a
tenant; and
*Underleases: Leases granted by the tenant to an under-tenant (or subtenant) out of the head lease. Remember that an underlease cannot be granted for a longer term than the head lease.

Question 3

Lease Provisions

Answer 3

a.Prescribed Clauses
b.Main Lease Provisions

Question 4

Prescribed Clauses

Answer 4

If a lease term is more than seven years and thus is subject to compulsory registration at HMLR, the lease must contain ‘prescribed clauses’ at the front of the lease. These clauses are a summary of the lease terms and are in a standard form so that HMLR can refer to them and complete the registration of leases more quickly.

Question 5

Main Lease Provisions
The main lease provisions below apply to the grant of a new lease or the assignment of an existing lease.

Answer 5

1. General Provisions
2. Typical Tenant Covenants
3. Typical Landlord Covenants
4. Unacceptable Covenants in Leasehold Transactions

Question 6

General Provisions

Answer 6

*Term: Given a leasehold is for a defned period of time, one provision of the lease will list the lease
term. Note that a term of less than 80 years is nor-mally unacceptable to a mortgage lender.

*Easements and exceptions: The lease should grant the buyer all the necessary rights over common parts and access ways.

*Suspension of rent: This provision suspends the pay-ment of rent in the event the premises are damaged or destroyed.

*Service charge: These provisions deal with the assessment and payment of service charges.

*Management company: This provision will address the role of the management company, and will indi-cate whether the landlord has agreed to transfer the freehold to the management company on the grant of the last long lease, and whether each tenant may take a share in the management company.

Question 7

Typical Tenant Covenants

Answer 7

*Rent: This covenant will address the tenant’s pay-
ment of rent. Rent is typically a nominal sum in a long residential lease, perhaps only £100 per year, be-cause a premium has already been paid on the grant of the lease.

*Repair: Typically, the tenant is responsible for inside repairs and the landlord or management company for outside repairs and repairs to common parts. The
landlord or management company usually recovers expenses via the service charge.

*Alterations: Alterations by the tenant to the premis-es often require the landlord’s consent, though this consent cannot be unreasonably withheld.

Use: In a residential lease, the tenant’s use of the premises is often restricted to residential use only,
and no business use is allowed in a long residential lease.

*Insurance: The landlord typically insures the entire property and often recovers a proportion of this cost from the tenant via the service charge.

Alienation: There is typically no restriction on the ability of the tenant to sell or mortgage the lease
unless there is a contrary lease provision. However, many leases require the landlord’s consent to assign the lease. Provisions regarding the landlord’s con-
sent to assignment should not be overly restrictive in a long residential lease.

Question 8

Typical Landlord Covenants

Answer 8

These include,
for example, clauses related to quiet enjoyment, the landlord’s ability to enforce other tenants’ covenants, and forfeiture.

Question 9

Unacceptable Covenants in Leasehold Transactions

Answer 9

Some lease clauses require special attention in a lease-hold conveyancing transaction. For example, a clause imposing an absolute prohibition against assignment is considered unacceptable in a long residential lease and the buyer’s solicitor should resist its inclusion in a new lease.

Question 10

Commercial Lease Provisions

Answer 10

The basic contents and structure of a commercial lease are
very similar to those contained in a long residential lease.
However, some of the key diferences are as follows:
a.Rent
In a commercial context, the landlord will require much **higher rental payments than for a long residential leasehold, where the rent payments are usually nominal due to the pay-ment of a premium. Commercial rent typically will be paid on a monthly or quarterly basis. Because the obligation to pay this signifcant rent is ongoing, it is considered reasonable for a landlord to refuse consent to an assignment of the lease if
the landlord has reason to believe the incoming tenant will not be able to pay throughout the lease term. These provi-sions will therefore be more restrictive than those in a long residential lease.

b.Rent Review
If the landlord is letting premises for a number of years, they will want the ability to review and increase the rent during
the lease term. This can be done only if there is a provision for rent review in the lease.

c.Use of the Property
A commercial lease will specify the permitted commercial use to which the property can be put by the tenant