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What does ‘strength of covenant’ mean when picking a tenant?
What factors are considered here?
Tenant’s ability to pay rent + perform covenants.
References from previous LL
G’tee obtained from parent company or bank.
Rent deposit
What must the ‘head-tenant’ (i.e. person who is LL of underlease) ensure about the length of the underlease?
Ensure it is at least 1-day shorter than headlease.
Otherwise becomes assignment of lease.
May break alienation clause in headlease.
What is an ‘agreement for lease’?
What is its purpose?
Delay between agreeing lease / underlease and granting it.
But parties want to bind each other.
Occurs where:
LL constructing property. Wants tenant ready-to-go.
LL repairing property at tenant’s request.
Tenant needs planning permission before use.
How does an ‘agreement for lease’ mirror a contract for sale of a freehold property?
Seller’s solicitor drafts it and sends to Buyer’s solicitor.
Particulars of sale state its a leasehold.
Details of terms, disclose incumbrances, indemnity for breach etc.
Attach lease to agreement. State agree to it on completion.
Supply at least 5-days prior completion (Standard Condition 8.2).
Is it necessary for a prospective tenant to deduce the LL’s title to the freehold interest?
Yes.
Absence of freehold title prevents tenant from gaining ‘absolute leasehold title’ when lease later registered.
Unless freehold already registered.
If the lease is for a duration <7 years can the tenant still request the LL to deduce their title?
No.
Must be >7 years duration.
SC 8.2 - LL must deduce such title as to enable tenant obtain registration of absolute title at LR.
If registered just check Open Register.
If it is an underlease and the headlease has absolute leasehold title - is it necessary to deduce the LL’s title?
No.
Check only headlease itself and official copies of same.
If the headlease is unregistered, what can the undertenant request?
Only allowed request deduction of title if lease >7 years.
Can request headlease and subsequent assignments for last 15-years.
What documents must the LL’s solicitor provide to the tenant / undertenant?
Agreement for lease (if applicable)
Draft lease / underlease
Evidence freehold / headlease title
Copies relevant planning consent
Evidence lender’s consent
Must the tenant / undertenant perform the same pre-contract searches and enquiries as expected under freehold transactions?
Yes.
More specific to lease (e.g. details LL insurance).
What is a ‘licence to underlet’?
LL permission to headtenant to sublease to undertenant.
Given on completion of underletting. Otherwise in breach of alienation covenant.
What is the purpose of the direct covenant contained under the ‘licence to underlet’?
Creates contractual liability between LL and undertenant.
Otherwise not able to enforce terms.
Undertenant must comply headlease terms (*save for rent).
*Important to note. SBAQs like to throw you off by including obligation to pay rent.
What are the pre-completion formalities to the granting of a lease / underlease?
LL sign lease itself prior to completion.
Send ‘counter part’ to tenant at least 5 working days before completion date (SC 8.2.5, SCPC 11.2.5).
Sign these and exchange on completion date.
Adhere to deed formalities. Lease is interest in land.
On completion, what does the LL give to the tenant?
Executed lease / underlease
Properly marked or certified copies of freehold title deeds (unregistered land).
Certified copy of LL lender’s consent to transaction.
NOTE - If LL is headtenant must ensure LL grant consent via licence to underlet.
Otherwise breach alienation covenant.
On completion, what does the tenant give the LL?
Executed counterpart lease / underlease.
Premium payable for grant (less deposit paid)
Apportioned sum representing rent payable in advance.
On what parts of the lease is SDLT charged?
Premium - Calculated on same basis as freehold land (see image).
Rental element - Identify ‘net present value’. Total rent payable + VAT; discounts etc.
How is the ‘net present value’ calculation done?
Calculate total rent payable over lease term (include VAT).
Discount rental payments in future years by 3.5% p. annum.
When must SDLT payment be made to HMRC?
Within 14 days of completion of grant of lease.
How is LTT calculated?
Calculated on premium and rental element (i.e. NPV).
Uses same freehold calculation table.
BUT - 0% band for premiums up to £225K not available if relevant rent exceeds £13,500.
Rate of 1% applies instead.
Relevant rent = Highest rent payable in any year across entire lease term.
What are the NPV calculations for LTT?
See attached table.
When is LTT due and to whom is it payable?
Submit to Welsh Revenue Authority within 30-days completion date.
True or False: A lease irrespective of length is capable of being registered in its own title at the Land Registry.
False.
Lease of <7 years cannot do this (i.e. also excludes leases of exactly 7-years).
Registered land = Lease becomes ‘overriding interest’. Irrespective of actual occupation (LRA 2002).
Unregistered land = Binding on subsequent owners irrespective of notice.
Can you register a lease >7 years?
Yes.
Can do so even if freehold title is registered.
Reg’ with own separate title + title no.
When registering a leasehold where the freehold is registered or unregistered - how do the processes differ?
Registered Freehold
Application = registration for dealing with freehold title.
Application made within priority period OS1R search result.
Unregistered Freehold
Application to LR is ‘first registration’.
Make within 2-months of completion.
LR grant absolute, possessory, qualified or good leasehold title.
‘Good’ = Title to leasehold is sound. But unwilling g’tee against defects in freehold title without access superior title.
Can you register a lease of three years (or more) voluntarily?
Yes.
If over 7-years then you compulsory registration at LR.
Why do so?
More attractive to future assignees and lenders.