SQE1 Property Practice: Procedural Steps for the Grant of a Lease or Underlease

This set of vocabulary flashcards covers the procedural steps for granting commercial leases and underleases, including drafting, agreement purposes, title deduction, licensing, pre-completion formalities, tax calculations (SDLT/LTT), and registration requirements according to the SQE1 syllabus.

Strength of covenant

The landlord’s assessment of a potential tenant’s ability to pay the rent and perform the covenants, determined through references, parent company/bank guarantees, or a rent deposit.

Rent deposit

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

Underlease duration rule

The term of an underlease must be at least one day shorter than the unexpired residue of the headlease; otherwise, it takes effect as an assignment of the headlease.

Agreement for lease

A contract used when there is a delay between agreeing the terms and granting the lease, binding the parties to the transaction while tasks like construction, repairs, or obtaining planning permission are completed.

Standard Condition 8.2 (SCPC 11.2.3)

Provides that the lease/underlease shall be in the form annexed to the draft contract and that the landlord must supply the tenant with the engrossment at least five working days before completion.

Deduction of title for leases over seven years

Under general law, a tenant is only entitled to call for the deduction of the freehold title where 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, head-tenant, and undertenant where the head-landlord provides formal consent to the underletting.

Direct covenant

A contractual relationship created in a licence to underlet where the undertenant performs covenants in the underlease and headlease (excluding headlease rent) for the benefit of the head-landlord.

Lease and Counterpart

Two identical parts of the lease document; the landlord executes the lease and the tenant executes the counterpart, which are then exchanged on completion.

Engrossment

The final top copy of the lease or counterpart prepared for the parties to sign.

Net Present Value (NPV)

A figure used to calculate tax on the rental element by totaling rent over the lease term (including VAT) and discounting future payments by $3.5\%$ per annum.

SDLT Submission Deadline

The SDLT1 return and payment must be submitted to HMRC within $14$ days of completion of the grant of the lease.

LTT Submission Deadline

The land transaction return and payment must be submitted to the Welsh Revenue Authority within $30$ days of completion of the grant of the lease.

Relevant rent

In the context of LTT, usually the highest rent payable in any year across the entire term of the lease, which can affect the $0\%$ tax band for premiums.

Overriding interest

Under the Land Registration Act 2002, a legal lease for seven years or less in registered land that is binding without being registered with its own title.

Registrable leasehold term

A lease for a term that exceeds seven years must be registered with its own separate title and title number at the Land Registry.

Good leasehold title

A class of title awarded when the Registrar is satisfied with the leasehold interest but cannot guarantee the lease against defects in the superior title because it was not submitted or is unregistered.

First registration deadline

The period within which a tenant must apply for registration if the freehold is unregistered, which is within two months of completion.