Chapter 1: The Different Types of Transaction Flashcards
What kinds of leases are most likely to arise in a residential context?
- Head leases
- Underleases
What are head leases?
Leases granted by a freehold owner to a tenant
What are underleases?
Leases granted by the tenant to an undertenant (or subtenant) out of the head lease.
Remember that an underlease cannot be granted for a longer term than the head lease
How is a leasehold estate created?
By the granting of a new lease from the freehold owner to the first tenant.
What happens if a lease is granted for more than 7 years?
It is registrable at HMLR and a leasehold title is created
What is an assignment of a lease?
The transfer of the remaining term of an existing leasehold estate
In conveyancing, what two meanings does ‘assignment’ have?
- The transfer of a leasehold estate from 1 party to another, and
- The name of the document that transfers the leasehold estate itself
What happens when an existing leasehold interest is sold?
The existing tenant is the seller, and
The new, incoming tenant is the buyer.
If the incoming tenant finds any of the terms of the existing lease unacceptable, they will need to ask the outgoing seller/existing tenant to negotiate directly with the landlord to alter the terms of the lease with a deed of variation.
Under the terms of the lease, the landlord (freehold owner), may also have to give their consent to the sale
What is it necessary to indicate in a residential or commercial lease?
Which party will take responsibility for the maintenance of the common areas that are shared between all leaseholders, such as shared gardens in a residential context, or the external parts of the building (e.g., the roof or the foundations).
What is common re responsibility for maintenance?
Common in both residential and commercial contexts for a management company to be set up.
This is a legal entity which will be a party to the lease + will take on the responsibilities specified in the lease
What is common re management companies?
Often the buyer will take a share in the management company when their purchase completes.
The landlord may covenant in the lease to transfer the freehold of the property to the management company when the last leasehold sale in the building or development completes.
What will a management typically prepare?
A yearly budget that accounts for anticipated maintenance costs.
How do service charges typically work?
Service charge amounts should be reasonable + as comprehensive as possible.
This sum is then divided up amongst the tenants, who are responsible under the terms of their leases for paying a defined share of the service charge in addition to their rent.
What is the effect of service charges on a management company?
Whilst the management company is responsible for carrying out repairs and maintenance to the building and its common areas, the costs of this are passed on to the tenants + shared between them.
What are ‘prescribed clauses’? When are they needed?
If a lease term is more than 7 years + subject to compulsory registration at HMLR, the lease must contain ‘prescribed clauses’ at the front of the lease.
These clauses are a summary of the lease terms + are in a standard form so that HMLR can refer to them + complete the registration of leases more quickly.
What are the main provisions that would be expected in a well-drafted, long-term residential lease?
- Term
- Easements and exceptions
- Suspension of rent
- Service charge
- Management company
What lease term is normally unacceptable to a mortgage lender?
A term of less than 80 years
What does a suspension of rent provision in a lease do?
Suspends the payment of rent in the event the premises are damaged or destroyed
What will a management company provision in a lease do?
This provision will address the role of the management company, and will indicate whether the landlord has agreed to transfer the freehold to the management company on the grant of the last long lease, and whether each tenant may take a share in the management company
What do typical tenant covenants relate to?
- Rent
- Repair
- Alterations
- Use
- Insurance
- Alienation
What will a tenant’s rent covenant in a lease address?
The tenant’s payment of rent.
Rent is typically a nominal sum in a long residential lease, perhaps only £100 per year, because a premium has already been paid on the grant of the lease
What will a tenant’s repair covenant in a lease typically do?
Typically, the tenant is responsible for inside repairs an the landlord/management company for outside repairs and repairs to common parts.
The landlord or management company usually recovers expenses via the service charge
What does a tenant’s alteration covenant do in a lease?
Alterations by the tenant to the premises often require the landlord’s consent, though this consent cannot be unreasonably withheld
What does a tenant’s covenant on use do?
In a residential lease, the tenant’s use of the premises is often restricted to residential use only + no business use is allowed in a long residential lease.
