Acting on the Grant of a New Lease – Purchase Conveyancing

What should the new lease contain?

When acting on the grant of a new lease during a conveyancing transaction special care must be taken to ensure the wording of the various clauses is clear and acceptable and that all the correct clauses are included. It is important to instruct a conveyancer or solicitor who has sufficient experience in this area and who has dealt with new leases before.

When acting for a landlord or a tenant, the conveyancer must draw their client’s attention to lease provisions that are of most importance to their client and to advise them clearly on whether or not they should accept the proposed terms. It is therefore very important that detailed instructions are taken from the outset.

New leases should contain the following standard clauses:

Demised Premises

The lease must clearly identify the extent of the property. As far as possible express provisions should be included relating to ownership of walls, floors and ceilings.

Grant of Easements

Consideration must be given as to whether the tenants will need to be granted easements over the landlord’s property in order to use the demised premises. E.g., the tenant may need to access a private road or for the provision of service from the mains supply.

Reservation of Easements

The landlord would need to consider whether they will need to exercise rights over the demised premises, eg, use of a private driveway which is needs to be used by the landlord and other tenants but which is included in the demised premises.

Length of the term of the Lease

Generally speaking, residential leases are granted from about 80 years upwards. A lease can be extended after it expires provided strict procedures are followed.

Commercial leases will be granted for a much smaller term.

Amount of rent payable

In long residential leases, rent is usually specified in the lease and will remain at the same rate for around 20 to 30 years at which time it will increase. It will increase in the same increments thereafter.

Plans

A clear plan of the property properly drawn up by a surveyor needs to be included in the lease. The extent of the premises must be clearly defined and drawn to scale. The application to register the new lease will be rejected by Land Registry unless a proper plan is submitted with the application, usually the plan contained in the lease is the one that is used.

Service Charge

The clause relating to service charge should specify exactly what is included in the service charge payment that is being made by the tenant under the lease. The clause may provide that the tenant is to pay a yearly estimated service charge pending receipt of the final audited service charge accounts. Landlords often request payments to be made quarterly or twice a year.

Is there to be Sinking or Reserve Fund

Provisions for the tenant to pay into a sinking fund or a reserve fund may also be included in the lease. These funds will cover the costs of major works that are not included in the normal service charge.

Becoming a Member of the Management Company or Resident’s Association

The tenant of a flat may also be required to become a member of a Management Company or Residents’ Association which is responsible for providing services and making sure the landlord carries out their repair duties. By becoming a member, the tenant would have greater control over expenses incurred. If the lease were to be ‘assigned’ or transferred then the share in the company would also have to be transferred to the new owner.

Right of forfeiture or re-entry by the Landlord

This is a very important clause from the landlord’s point of view. It is a standard clause and gives the landlord the right to forfeit the lease if there has been a breach of covenant or non payment of rent after a specific period.

Note that a clause allowing for forfeiture if the tenant were to become bankrupt/insolvent is not accepted by mortgage lenders and should not be included in a residential lease. (It is common in commercial leases).

Buildings Insurance

The landlord is generally responsible for buildings insurance on the property and the tenant will make contributions towards the policy payments in their service charge payments. This is a standard clause that should always be included.

Prescribed Clauses

Note that due to changes imposed by Land Registry certain prescribed clauses must be included in the lease in order for it to be registered. Your conveyancer should be aware of this and draft the lease accordingly.

Common Express Covenants

• To pay ground rent
• To repair and maintain
• Not to make improvements or alterations unless with the written consent of the landlord
• Restricting use of the property to residential use only
• To pay service charge
• Not to assign or sub let unless with the written consent of the landlord
• Covenant to give notice of all dealings by the tenant (eg if they remortgage or transfer)
• Covenant against alienation (which restrict the tenants’ right to dispose of the property)

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