U5. Grant of Lease and Underlease Flashcards
What is a lease and what is an underlease?
A lease is a grant of a lease by the freeholder (land lord) to the tenant
an underlease is a lease granted by a leaseholder to an undertenant.
Any underlease must have a term that is at least one day less than the lease, otherwise it will take effect as an assignment of the lease.
What are the landlords covners as regards to the grant of lease?
What can the do to help with this?
The landlords main concern will be that the tenant will be able to pay rent and observe and perform the tenant covenants under the lease. The ability of the tenant in this regard is known as the ‘covenant strength’
To help with this landlords may:
- Require a tenant reference
- Require a rent deposit
What are the tenants main concerns with regards to granting an underlease?
The tenant must ensure that the alienation provisions within the lease are complied with.
Typically the consent of the superior landlord will be required.
When obtaining a lease, should check be carried out?
As with the sale of a freehold property, the landlords solicitor should investigate title and deduce title to the tenants solicitor. The tenants solicitor should investigate in the usual way.
Does a landlord needs the lenders conset to grant a lease?
Yes, If the lender (bank mortgage) has a charge over the property, the terms will usually require the lenders consent to the proposed lease.
For registered land, this will usually be supported by a restriction in the proprietorship register in favour of the lender, prohibiting any disposition (transfer) or dealing without its consent.
When should the lenders consent be obtained when granting a lease?
The consent in principle should be obtained at the earliest possible opportunity, and the lender will also need to approve the final form of lease before completion.
What would happen if a landlord tried to grant a lease without the lenders consent?
The landlord of the proposed lease will be in breach of the terms of the charge
The tenant will be unable to register the lease (leases over 7 years), or make any other relevant HM Land Register applications (leases under 7 years), if there is a restriction on the title
Do landlards have to deduce title to the freehold when granting a lease for registered freehold properties?
No, although it is desirable, there is no obligation to do so.
If the landlord does not deduce the title to freehold, the tenant should obtain official copies and filed/title plan from HM Land registry.
Does a landlord need to deduce title to the freehold when granting a lease for Unregistered Freehold properties?
For leases under seven years, no.
For leases over seven years, the landlord must deduce title if the lease is to be granted for a term of more than seven years and will therefore be substantively registrable.
HM registry will be unable to register the lease with absolute leasehold title unless title has been deduced.
If the landlords title is registered, does the landlord need to deduce title to the freehold if granting a lease?
The landlord will usually deduce title, however is under no obligation to do so.
The tenant may and should inspect the title in any event to investigate title and prepare for HM Land Registry Applications.
If the landlords title is registered, do they need to deduce title to the freehold if granting a lease?
The landlord must deduce title if lease is substantivley registrable (more than 7 years)
If it is less then seven years, they do not.
However, the tenant willotherwise be unable to inspect the title, so best practice to obtain in any event to investigate title.
If the headlease is registered with absolute leasehold title, does the freehold title need to be deduced?
Freehold title does not need to be deduced, but best practice to obtain.
If the headlease is regestered with absolute leasehold title, does freehold title need to be deduced?
If the underlease is substantivley registrable (more than seven years), the landlord must deduce freehold title and the undertenant can ask to see deduction of the leasehold title going back 15 years.
If the title to the underlease is unregistered, with absolute leasehold title, does the freehold title need to be deduced?
If the headlease reigstered with good leasehold title only, landlord should deduce freehold title if underlease substantively registrable (otherwise best practice to obtain).
Upgrade of headlease title will be required for underlease to be registered with absolute leasehold title.
What are the standard conditions for the granting of a lease or underlease?
The standard conditions provide that where a new lease is substantively registrable, title should be deduced, so that the lease may be registered with absolute leasehold title.
However, these will only apply if they are incorporated into a contract for the grant of the lease of underlease.
What 4 things will the landlords solicitor send to the tenants solicitor, and what 4 things will the solicitor then do when a lease is being granted in the pre contract stages?
The landlords solicitor will send the following to the tenants solicitor:
- Evidence of title
- Draft agreement for lease
- Copies of any relevant documents held by the landlord (ie planning permissions)
- Replies to standard precontract enquires.
The formal lenders consent to the proposed lease / underlease will usually follow in due course, although an agreement in principle might be provided at this stage.
The tenants solicitor will then:
- Investigate title
- Raise detailed standard enquires if replies have not already been provided, and any appropriate specific enquires / requisitions.
- Undertake the usual pre-contract searches
- In the case of an underlease, request draft licence to underlet from the landlords Solicitor
The tenants solicitor will need to review and amend the draft lease or underlease, taking instructions and reporting to the client on all key terms of the documents.
Can tenants undertake limited due diligence in the pre contract stage of obtaining a lease?
For a short term lease or underlease and there is no lender involved, they may opt for limited due diligence.
However, the solicitor should be informed of the importance of such searches and what they could reveal so they can make an informed decision.
What is a Licence to Underlet, and what is its purpose?
When granting an underlease, a licence to underlet will usually be required by the lease.
The purpose of a licence to underlet is to provide the superior landlords approval to the proposed underlease and to provide privity of contract between the head landlord and undertenant, that would otherwise not exist.
What is an agreeent for lease and is it required?
An agreement for lease is simply a contract or agreement to enter into the lease/ underlease on completion.
Most grants of leases and underleases will proceed straight to completion and there will be no need for an agreement for lease. As with freehold transactions, the contract stage may dispensed with.
What 4 circustances may an agreement for lease be useful?
- Where there is a delay in completion, but the parties wish to be formally committed to the transaction.
- Where either parties need to carry out works on the property before the lease or underlease is formally granted. The agreement will cover in detail the obligations of the parties.
- Where a third party consent is required to the grant of the lease / underlease or the tenants proposed used.
- Where another tenant or other occupant is already in occupation and the surrender of their interest needs to coincide with the grant of a new lease / underlease.
An agreement for lease will be prepared by the sellers / landlords solicitor and then submitted to the tenants / undertenants solicitor for approval.
Are standard conditions often put into an agreement for lease?
It is usual to incorporate standard conditions into an agreement for lease and for the agreed form of lease / underlease to be annexed to the agreement. Agreements for lease should only be exchanged when the form of lease/underlease to be annexed has been agreed, otherwise the document will be void for uncertainty as an ‘agreement to agree.’
What is the landlords main concerns when granting a lease and why?
To have a lease that gives it suitable control over the property, and which is institutionally acceptable.
If the landlord exercises too much control, with unduly onerous provisions, it could have an adverse impact on the rent review.
If the lease is not institutionally acceptable, it could affect the value of the property, as well as its marketability and suitability for lending purposes.
When granting a lease, what are the tenants main concerns and why?
To have a lease that will enable it to occupy the property on reasonable terms, without unduly onerous liabilities and restrictions.
A lease that has unduly onerous or restrictive terms could be difficult to deal with in the future, lead to additional financial liability, and affect the tenants day to day use and enjoyment of the property.
Does the headlease effect the terms of the underlease?
Normally yes,
The Underleases terms will usually be governed by the terms of the headlease (as it will often state any underlease must be granted on similar terms), so there will be less room for negioation.
