12th Sep 2016

The Dangers of DIY Leases

It may be tempting for both landlords and tenants of commercial properties to try and save money on legal and surveyor’s costs by dealing with the matter between themselves, but there are a number of pitfalls that an unwary party may fall foul of.

Senior Commercial Property lawyer, Sophie Barton looks at the potential dangers.   

The Risk to Landlords from Undocumented Tenancies 

Unwritten tenancies are dangerous for both parties to a commercial tenancy because there is no clear record of the terms that have been agreed - for a landlord in particular, they will have no right to forfeit the tenancy in the event of a breach of the terms of the agreement because an express forfeiture clause is required for this.  

Unwritten tenancies are dangerous for both parties to a commercial tenancy 

With a business tenancy it is important to ascertain whether the agreement is within the security of tenure provisions contained in the Landlord and Tenant Act 1954.  If there is no express clause excluding these provisions in the agreement and the statutory contracting out procedure has not been followed the tenancy will be deemed to be within the Act.

This means that the tenant will generally be entitled to request a new lease from the landlord at the end of the contractual term of the existing lease and the landlord would only be able to bring the tenancy to an end by serving notice in the prescribed form, which requires the landlord to give the tenant not less than 6 months’ notice.  

a landlord and tenant may have a verbal agreement, but in reality legally this cannot be relied upon

Permission can only be obtained on a limited number of grounds. This would affect any early termination provisions in the landlord’s favour that had been agreed.  For example, a landlord and tenant may have verbally agreed that either party can bring a lease to an end on a month’s notice, but in reality the landlord would not be able to rely on this provision and would need to follow the above reference statutory procedure.   

Tenant’s Stamp Duty Land Tax and HM Land Registry Considerations

Without delving into too much detail and baffling you with the mathematical formula that is used by HM Revenue and Customs for ascertaining the net present value of a lease for stamp duty land tax purposes, whether SDLT will be payable will generally by determined by whether a premium is being paid for the grant or assignment of the lease, the value of the annual rent per annum and the length of the lease.  

Even where no SDLT is payable, it may still be a notifiable transaction that requires a return to be submitted to HMRC.  Failure to submit a return and pay the duty (if any) within 30 days of the effective date of the transaction will lead to a fixed penalty of £100 and interest being charged on any SDLT and if the date of submission is more than 3 months after the filing date, the fixed penalty will increase to £200. 

Failure to submit a return to HMRC and pay the duty (if any) within 30 days will lead to a fixed penalty 

Leases granted for a period of more than seven years and certain other types of leases need to be registered at HM Land Registry for them to take effect at law.  It is also worth pointing out that any easements contained in a lease, such as rights to access the demised premises through common areas or the use shared facilities like car parks, will not take effect at law unless they are registered, even where the lease itself does not require registration.  For a tenant in particular it is therefore of importance to ensure that any registration requirements are properly completed.  

any easements contained in a lease will not take effect at law unless they are registered              

The full extent of this topic could more aptly be covered in something far longer than a blog, but these are some key areas that both landlords and tenants should consider before proceeding and obtaining the appropriate professional advice is always recommended.    

Sophie Barton is a Senior Associate in Berwins' Commercial Property Law team

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