Grant of a Lease Procedure

Grant of lease procedure

process of granting a lease divided into stages (pre-exchange, pre-completion, post-completion)

Two-stage lease transaction

pre-completion and post-completion (where no exchange)

Three-stage lease transaction

pre-exchange, pre-completion, post-completion

Pre-exchange (landlord tasks)

take instructions, draft lease/agreement for lease, deduce title, answer enquiries, engross and send for signature

Pre-exchange (tenant tasks)

take instructions, review/amend lease, investigate title, raise enquiries/searches, sign counterpart

Engrossment

preparation of final document for signature

Original lease

executed by landlord

Counterpart lease

executed by tenant

Drafting lease

landlord drafts based on heads of terms using precedents

Tenant’s amendments

remove onerous terms and rebalance in tenant’s favour

Agreement for lease

contract to grant lease in future when conditions satisfied

When agreement for lease used

when parties not ready to complete or conditions outstanding

Agreement for lease contents

includes agreed form of lease annexed

Title investigation (tenant)

ensure landlord has title and consider binding covenants

CPSE1 enquiries

general commercial property enquiries

CPSE3 enquiries

lease-specific enquiries

Searches (tenant)

same as freehold purchase

Reduced investigations

possible for short leases but risks must be explained

Exchange of agreement for lease

similar to freehold exchange (Formula B)

Deposit on exchange

usually not payable

Completion timing

fixed date or conditional upon events

Pre-completion (landlord tasks)

prepare lease, answer requisitions, prepare completion statement

Pre-completion (tenant tasks)

sign lease, raise requisitions, obtain funds, carry out searches

Completion statement

sets out money due on completion (rent, service charge, insurance)

Apportionment

division of rent and other payments on daily basis

Quarterly rent

typically divided into 4 equal payments

Daily rate calculation

annual rent ÷ 365 (or 366 leap year)

Pre-completion search (lease of whole)

OS1 search

Pre-completion search (lease of part)

OS2 search

OS3 search

used for unregistrable lease (no priority protection)

Company search

check landlord’s solvency/status

Completion

tenant pays monies, solicitors date leases, documents exchanged

Effect of completion

lease becomes legally effective

Post-completion (landlord)

report lease terms to client

Post-completion (tenant)

submit SDLT/LTT return and pay tax

Registration

tenant registers lease if registrable

Key principle

exchange not always required in lease transactions

Key difference from freehold

focus on drafting lease terms and apportionments