Checklist for tenants to help avoid common mistakes when taking a lease
Some tenants enter into leases without taking legal advice. Maybe they will save money and time, especially in the context of low value transactions. So what could possibly go wrong?
Ed Barnes, commercial property solicitor in Sevenoaks takes a look at some common mistakes.
1. Overlooking the need to pay Stamp Duty Land Tax where required
A tenant is liable to calculate and pay any SDLT and deliver a land transaction return in the case of a notifiable transaction when it takes a lease. If the tenant fails to pay SDLT, the tenant will be hit with escalating penalties and interest. There is also potential criminal liability.
2. Forgetting about restrictions on the landlord’s title
There may be a restriction preventing the registration of the lease at the Land Registry unless the consent of a superior landlord or the bank that has a charge over the landlord’s property is obtained. No consent, no registration. That would mean assigning or underletting could be problematic as well.
3. Not checking the landlord’s title to see who owns the property out of which the lease is to be granted
A really simple one this but the property could be owned by a different landlord from the one you are dealing with. A person cannot validly grant a lease if it does not own the property.
4. Failing to register the lease at the Land Registry
If the lease is for more than seven years, the lease must be registered at the Land Registry. As above, failure to register the lease could cause problems if the tenant subsequently wishes to assign the lease or if the shares in a company tenant are being sold. For example, the buyer might conclude the tenant does not have sufficient title to the property.
5. Omitting the mandatory prescribed clauses in a registrable lease
A registrable lease must include a standard set of clauses at the beginning of the lease. Without them, the application to register the lease is at risk of being rejected.
6. Failing to observe legal formalities
If the tenant is taking a lease of over three years, the lease must be a deed. In that case, if the tenant/landlord is an individual, his or her signature for the lease must be witnessed. If the tenant/landlord is a company, two directors or a director and the company secretary or a director and a witness must sign the lease. If the legal formalities have not been observed for the lease, this can undermine the basis of the tenant’s occupation.
7. Failing to keep the original lease
The tenant should hold onto the lease executed by the landlord so it can prove the basis of its occupation.
8. Taking a lease in the name of a tenant that does not exist
For example, if the tenant is a sole trader who trades under a business name, the name of the tenant in the lease should be the individual’s name trading as (t/a) the business name because the business is not a separate legal entity. If the tenant is a general partnership, the name of the tenant in the lease should be the individual partners t/a the partnership name for the same reason. If the tenant is a limited company, the name of the tenant in the lease should be exactly as the name appears at Companies House.
In practice, it is not always possible for a tenant to obtain legal advice before taking a lease. If such a situation arises, it is important that the tenant appreciates the risks. This checklist might help an unrepresented tenant avoid at least some of the common mistakes.
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