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FAQ’s - Leases

How long will a property transaction take?

It depends on the type, value and complexity of the transaction but most importantly how quickly the parties want to finalise the transaction.

What is the process for taking a new lease?

Each transaction is different but as a guide, the steps are:

  • Preliminary documents and heads of terms prepared (usually by a surveyor rather than a solicitor but you should ask your solicitor to look at the heads of terms and comment on them before they are finalised)
  • The draft lease and any ancillary documents are produced by the landlord’s solicitors
  • If any consents are required the landlord’s solicitor will apply for them (mortgage lender or superior landlord consent may be required)
  • The tenant’s solicitor will investigate title to the property and will carry out relevant searches and enquiries
  • The terms of the lease and any ancillary documents will be negotiated and settled
  • Final documents are circulated to the landlord and tenant for signature. If the lease is to be excluded from the security of tenure provisions of the landlord and tenant act 1954, the tenant will be required to make a simple declaration or statutory declaration
  • The tenant’s solicitor will carry out any pre-completion searches (to ensure there have been no changes to the register during the period of negotiation)
  • Completion takes place and all ancillary documents are usually completed at the same time
  • Post completion matters are dealt with. The tenant’s solicitors will attend to the submission of the stamp duty land tax return and (subject to payment of the amount of tax due from the tenant) payment of the tax due and also registration of the transaction at Land Registry.

What is a contracted out lease?

It is very common for commercial leases to be contracted out of the security of tenure provisions set out on the Landlord and Tenant Act 1954. In broad terms, this piece of legislation provides a tenant with an automatic right to renew an existing lease save where the landlord can satisfy certain grounds for refusing the renewal. By excluding a tenant’s right under this legislation it does not in any way hinder the right of the tenant to request a renewal of the lease or bar the parties from negotiating terms for a renewal at the appropriate time. The legislation sets out a strict procedure to deal with the exclusion and your solicitor will be able to guide you through this.

Is it necessary to carry out a survey of the property?

Yes, it is important to obtain a survey even when taking a lease. In most leases the tenant is responsible for repairing the property and so it is important to know the condition of the property before you commit to the lease.

Do I need to carry out any investigation or research about the property?

The onus is on the tenant to make a detailed investigation in relation to the property. A prudent tenant should carry out pre-contract searches which may include some or all of the following:

  • Local authority search
  • Drainage and water search
  • Searches with utility services providers
  • Highways authority search
  • Environmental search
  • Chancel repair liability search
  • Mining searches

A detailed investigation of the registered title to the property should also be carried out. This investigation will reveal whether any third party rights affect the property and any restrictions on the way the property can be used. Your solicitor will normally provide you with a report setting out the findings of this investigation together with a summary of the search results.

Who is responsible for obtaining planning permission and complying with planning legislation?

It is up to the tenant to be satisfied that the use or proposed use of the property falls within the use authorised for planning purposes. It is prudent to carry out a local authority search and raise enquiries with the landlord in relation to planning history of the property. Breaches of planning legislation can be costly and a lack of the required permission (or specific conditions that may be attached to it) may prevent you using the property as intended.

Who will insure the property?

It is usual for the landlord to insure the property and have the right to recover the premium from the tenant. The landlord should provide details of the insurance cover and the premium payable before a lease is entered into.

I want to make alterations to the property. Can I do so?

You will need to discuss any plans you have with the landlord who will need to grant consent to the alterations. You will also need to consider any restrictions on the use of the property in the lease and you may need to obtain planning permission and/or building regulations approval. If the landlord grants consent this is documented by a licence for works or licence for alterations which will set out any conditions attached to the consent and may refer to detailed plans and specifications of the alterations.

Do I have to pay VAT on the rent?

This will depend upon whether the landlord has elected to waive the exemption from Value Added Tax. If so, VAT will be payable at the current rate of 20% in addition to the rent although the tenant may be able to reclaim this sum if VAT registered. Some transfers may be treated as a “transfer of a going concern” which does not attract VAT.

Do I have to pay stamp duty land tax on rent?

Stamp duty land tax (SDLT) is payable within 30 days of completion of a lease and the amount due is based on the “net present value” of the lease (the average value of the rent payable over the length of the term). Stamp duty land tax is payable on the VAT inclusive rental figure.

What payments other than rent is a Tenant obliged to make?

The lease must be read carefully to check what financial commitments are involved. Usually the tenant is obliged to pay towards the insurance of the building and if the premises form part of a larger building, the tenant will most likely have to contribute towards the maintenance and running of that building by way of service charge.

The landlord has asked for a rent deposit, do I have to pay this?

Some landlords will ask for a rent deposit to be paid usually where a tenant does not have a sound financial history or is a new business unable to produce accounts to show it is making a profit. The rent deposit is typically the equivalent of three or six months’ rent due under the lease. Where a deposit is paid a separate rent deposit deed will be entered into between landlord and tenant. The deed will set out the circumstances in which the landlord can draw from the deposit and the terms on which it will be repaid to the tenant.

What is a FRI lease?

This is a “full repairing and insuring lease”. A full repairing and insuring lease would impose both full responsibility on the Tenant for repairing and insuring the entirety of the property. This would include repairing the structure (i.e. foundations, roof, external walls). This is not appropriate in all circumstances and your solicitor will be ale to advise you in relation to this.

FAQ's – Buying property

How long will a property transaction take?

It depends on the type, value and complexity of the transaction but most importantly how quickly the parties want to finalise the transaction.

How is property held in England and Wales?

Here are two main ways property can be held:

  • Freehold; and
  • Leasehold

Freehold means that the property is owned without any superior interest and is not limited by time. The owner of a freehold generally owns the land, buildings on it and subsoil below and airspace above. There may be third party rights affecting the property.

Leasehold means that ownership of the property is contractually limited to the length of the lease under which the property is held. The length or term of a lease can vary with many modern leases being granted for 5-10 years on average. Long leasehold interests are also very common and these are normally granted (or sold) at a premium with a low annual rent.

If you are acquiring leasehold property you may be granted a new lease of the property, either by the property owner or by an existing tenant (a sublease) or you may acquire an existing lease from the tenant (an assignment).

Do I need to carry out any investigation or research about the property?

The onus is on the buyer to make a detailed investigation in relation to the property. A prudent buyer should carry out pre-contract searches which may include some or all of the following:

  • Local authority search
  • Drainage and water search
  • Searches with utility services providers
  • Highways authority search
  • Environmental search
  • Chancel repair liability search
  • Mining searches

A detailed investigation of the registered title to the property should also be carried out and a range of industry standard enquiries raised of the seller. This investigation will reveal whether any third party rights affect the property and any restrictions on the way the property can be used. Your solicitor will normally provide you with a report setting out the findings of this investigation together with a summary of the search results.

Be aware that there is no duty on the seller to disclose physical defects or many of the other matters that may affect the property. It is essential, therefore, that proper checks are undertaken on your behalf to ensure you are satisfied that the property you propose to acquire is suitable for your purpose.

Do I need to undertake any environmental investigations?

An environmental search should be carried out when purchasing a property. Environmental laws in England and Wales can mean that a purchaser will take liability for any contamination present at the property when it is acquired. A desktop environmental search will help to assess any potential environmental risk. Depending on the outcome of initial investigations or the nature of the property, you may need to engage an environmental consultant to carry out a full environmental survey.

Is there a set contractual process to follow?

Once the terms of the sale and purchase are agreed and satisfactory survey obtained, solicitors will be instructed. The seller's solicitor will draw up a contract and the buyer's solicitors will investigate title to the property and carry out relevant searches and enquiries. It is usual to "exchange contracts" at which point the contract to buy and sell the property becomes legally binding. At the point of exchange, a completion date is set and a deposit of 5 - 10% of the purchase price is payable. On completion the balance of the purchase price is payable and ownership of the property will pass to the buyer.

How much stamp duty land tax do I have to pay?

SDLT is payable on completion of the purchase of property. The rates of stamp duty land tax range from 1% - 4% depending on the value of the property. SDLT is payable within 30 days of completion of the transaction on the VAT inclusive figure.

Does the purchase price attract VAT?

This will depend upon whether the seller has elected to waive the exemption from Value Added Tax. If so, VAT will be payable in addition to the purchase price although the buyer may be able to reclaim this sum if VAT registered.

What about financing the purchase?

If you intend to borrow money to finance the purchase of property, the funding arrangements will need to be in place before the property contracts are exchanged. Your solicitor will need to deal with the lender to deal with any requirements for drawdown, confirmation that the lender is happy with the title to the property and registration of any security they require over the property.

A lender will often appoint solicitors to act on their behalf and may ask that the loan is secured against the property and if this is the case the bank will want to check the legal title to the property

Are there any steps that need to be taken after a transaction has been completed?

Transfers of freehold and leasehold property should be registered at the Land Registry. The fees for registration range from £50 to £940 depending on the value of the property.