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Don’t leave lease this way

Apr 3, 2018

Don’t leave lease this way

A property lease which has not been professionally prepared by a solicitor does nothing to protect a commercial landlord’s best asset so it’s wise not to cut corners when it comes to the paperwork.

If landlords are looking to save costs on such a vital document as lease agreements, they may find out later rather than sooner that it was a false economy as it is likely to have costly consequences down the line.

In advising clients through valuations, rent reviews and lease renewals of investment properties, it is vital we receive copies of leases but it never ceases to amaze us how many times we encounter a badly drafted lease – typically those which haven’t been prepared by a solicitor for the specific transaction.

It is common to come across a ‘master’ lease that a landlord has paid a solicitor to draft just the once and then the original has been used with a ‘cut and paste’ approach for every following lease transaction or for lettings of other properties within the landlord’s estate.

Landlords in such a position may believe they are saving costs by adopting this approach but this can often result in unintended errors in the document which can prove more costly down the line.

A little less common, thankfully - but not unknown, worryingly - is to discover that a landlord has in-situ and years down the line, a tenant whose occupation was granted by an informal letter written ahead of a full lease document being completed but the actual lease documentation was never pursued.  This situation creates uncertainty as to the basis under which the tenant occupies the property.

Any situation which creates uncertainty as to rights and liabilities when it comes to property is never a good thing as it leaves all interested parties’ positions uncertain and exposed to, more often than not, costly challenge.

Common issues with the ‘one size fits all’ approach to re-purposing a master lease for all following transactions can include: reference to a rent review but the actual date not defined; tenants, inadvertently, being granted security of tenure because the necessary statutory declarations have not been signed in relation to the lease being outside the relevant legislative act (Security of Tenure Provisions of the Landlord and Tenant Act 1954); granting uses for buildings that do not have planning permission for the latest occupier’s use of them - this is a fundamental error and not just down to poor drafting of a lease; granting rights to a greater number of parking spaces than exist on the site.

An incorrectly drafted rent review clause - or one where no review date is defined - could result in the landlord not being able to exercise the review during the term of the lease.  This could mean it will not be possible to increase the rent in line with the market level, which will have a direct impact on the market value of the property.

To inadvertently grant tenants security of tenure can make it difficult for landlords to get possession to redevelop or occupy the property themselves without resorting to law and providing compensation.

Litigation to remove a tenant occupying under a protected lease is time consuming and expensive.  It also strengthens a tenant’s negotiating position at the time of the lease’s expiry as a proper notice period has to be served at the end of the lease because they cannot simply be asked to leave on the date of expiry.

This is by no means an exhaustive list of lease faux pas and consequences when it comes to landlords relying on poorly drafted leases. 

Setting aside the time and money to remedy the landlord’s exposed position in such instances, to allow sub-standard leases in operation sees landlords damaging the value and marketability of their property asset.

It can often be more cost effective to consult a qualified surveyor or registered valuer ahead of instructing a solicitor to draft a lease. 

Not only can property surveyors work up a detailed set of Head of Terms in advance but they can bring added value in the form of up to date and local market knowledge which will feed in to the final lease.  Advice on the implications of agreeing certain lease terms in considering lease length, rent, rent review provisions, break options etc are material considerations in protecting property assets.

A properly considered and drafted lease will protect a landlord’s position and ensure the property’s marketability - and value - is in the best place should disposal be required.

For more information about valuation services and lease negotiations, see bsm.uk.com/valuations/ or contact Mark Critchley, 01223 467155, mc@bsm.uk.com

 

 

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