Procedural Steps for the Grant of a Lease or Underlease

Procedures for drafting, investigating, and completing commercial leases and underleases, including tax and registration requirements.

Strength of covenant

The tenant’s ability to pay the rent and perform the covenants, which is a major consideration for the landlord when accepting a potential tenant.

Rent deposit

A sum of money deposited with the landlord on terms which enable the landlord to withdraw sums if rent due under the lease is unpaid.

Agreement for lease

A contract used where there is a delay between agreeing the lease/underlease and actually granting it, binding one or both parties into the transaction.

Engrossment

A top copy of the lease/underlease or counterpart that is prepared for the parties to sign.

Deduction of title (General Law)

Under the general law, a tenant is only entitled to call for deduction of the freehold title if the transaction is the grant of a lease for a term of more than seven years.

Licence to underlet

A tripartite document entered into by the head-landlord, headtenant, and undertenant by which the head-landlord gives consent to the headtenant to underlet the property.

Direct covenant

A condition of granting consent to underlet where the undertenant enters into a contractual relationship with the head-landlord to perform covenants in the underlease and headlease (usually excluding the payment of rent in the headlease).

Lease and Counterpart

Two identical parts of the document where the lease is executed by the landlord and the counterpart is executed by the tenant, exchanged on completion.

Premium

The capital sum paid for the grant of a lease, distinct from the rent.

Net Present Value (NPV)

A complex formula used to identify the value of rent for taxable purposes, calculated by totaling rent over the term (including VAT) and discounting future payments by $3.5\%$ per annum.

SDLT (Stamp Duty Land Tax)

The tax potentially chargeable on both the premium and the rent when a lease is granted for property in England.

LTT (Land Transaction Tax)

The tax charged on non-residential property leases in Wales, calculated using the premium and the NPV of the rent.

Relevant rent

Usually the highest rent payable in any year across the entire term of the lease, used in Wales to determine if the $0\%$ LTT band for premiums is available.

Overriding interest

A legal lease for seven years or less in registered land which is not capable of being registered with its own title but binds the land.

Good leasehold title

A class of title awarded by the Land Registry when they are satisfied with the leasehold interest but have no access to the superior title to guarantee against its defects.

First registration deadline

The timeframe for applying to the Land Registry for a lease of over seven years where the freehold is unregistered, which is within two months of completion.