LPC NOTES
[LEASEHOLD]
(2019-2020)
, LEASEHOLD
Grant of land - giving possession of the land but not a grant of freehold estate.
Lease – Estate in the land for a defined period of time.
A lease is “the grant of a right to the exclusive possession of land for a
determinate (certain) term less than that which the grantor has himself in the
land” (street v Mountford 1985). Key aspects:
Exclusive possession – if not then will just be a right to occupy
which is a licence.
o A licence does not create an interest in land and may be revoked at
anytime.
o Whether a lease of a licence has been created depends on the
intentions of the parties in so far as it can be inferred from all the
circumstances.
o The court will look at the substance of the agreement, not the form
i.e. just because it is called a licence is not conclusive of it being
one.
Term of years absolute
Term must be less than that owned in the superior lease
Sublease must be of a term LESS than the head lease, not equal or greater to. If
it is equal or greater to, the transaction will be treated as being an assignment of
the tenants lease.
RESIDENTIAL leases are usually long leases. Their characteristics include:
They are granted for a term of 99, 125 or 999 years
A large amount is paid up front for the grant of the lease
The ground rent is a small sum paid each year
They are deemed to be a ‘capital asset’
They have significant statutory protection.
,COMMERCIAL leases are often much shorter (e.g. 5-15 years) and
historically favour the landlord. Their characteristics include:
A ‘Rack rent’, large amount of rent payable each year.
No capital value (because you pay a lot each year to stay in the
property)
No premium up front
Typically owned by institutional or investor landlords
The Full Repairing and Insuring lease (FRI) is unique to the UK and
provides the landlord with a clear income stream. The tenant either
will either directly pay the running or repair costs of the property or
the landlords will re-coup these costs by way of service charge. As a
result the landlord does not have to spend any of his income on
maintaining or insuring the property.
The concept of covenant strength is the ability of a commercial
tenant to pay the rent. M&S historically has good covenant strength.
The value of a landlord’s reversion is calculated from the covenant
strength of the tenant and the rental yield (as well as term left to run).
Security:
Landlord’s may ask for a “rent deposit” or
A guarantee either from a parent company or a personal
guarantee from the directors.
Advantages of commercial leases for tenants:
Flexibility – if short term tenant can move easily at end of term
More flexibility – tenants can negotiate a break clause
No capital outlay – so capita of their business is not tied up in the
premises
Management of the building may be undertaken by someone else
Advantages of commercial leases to Landlords
Retains a capital interest in the freehold
Can retain control of the management of the building to ensure the capital
value is preserved
If leases drafter properly, landlord will recover all expenditure via service
charge
Gains a steady income.
, Assigns ‘Reversion’
L L
Grants
‘Lease’
T
Grants
Sub/Under
‘Lease’
Subtenant
Legal leases
A legal lease must be created by deed (LPA 1925, s 52(1) and Law of
Property (Miscellaneous Provisions) Act 1989, s 1) unless it falls within s
54(2) of the LPA 1925.
S54(2) provides that a lease which takes effect in possession for a term of
years not exceeding three years at the best rent reasonably obtainable
without taking a fine may be made merely in writing, or even orally, and
still be legal.
A deed is always necessary to effect a legal assignment of a lease, even if
the lease itself has been created informally under s 54(2).
Legal leases are prima facie binding on all comers; however, this position is
modified by the LRA 2002 and depends on the length of the original term of
the lease as follows:
o (a) Legal leases granted for a term of more than seven years. Such
leases must be registered with their own separate title number. The
position then depends on whether or not the reversionary title is
registered. If the reversion is registered, the grant of the lease
amounts to a ‘dealing’ with the registered title and the lease must be
registered with its own title, and in addition it must be noted on the
reversionary title. If the reversionary title is unregistered, the grant
triggers first registration of title to the lease but does not affect the
title to the reversion, which will remain unregistered.
o (b)Legal leases for seven years or less. If such a lease is granted out
of a reversion with a registered title, it takes effect as an overriding
interest under Sch 3 to the LRA 2002 whether or not the tenant is in
[LEASEHOLD]
(2019-2020)
, LEASEHOLD
Grant of land - giving possession of the land but not a grant of freehold estate.
Lease – Estate in the land for a defined period of time.
A lease is “the grant of a right to the exclusive possession of land for a
determinate (certain) term less than that which the grantor has himself in the
land” (street v Mountford 1985). Key aspects:
Exclusive possession – if not then will just be a right to occupy
which is a licence.
o A licence does not create an interest in land and may be revoked at
anytime.
o Whether a lease of a licence has been created depends on the
intentions of the parties in so far as it can be inferred from all the
circumstances.
o The court will look at the substance of the agreement, not the form
i.e. just because it is called a licence is not conclusive of it being
one.
Term of years absolute
Term must be less than that owned in the superior lease
Sublease must be of a term LESS than the head lease, not equal or greater to. If
it is equal or greater to, the transaction will be treated as being an assignment of
the tenants lease.
RESIDENTIAL leases are usually long leases. Their characteristics include:
They are granted for a term of 99, 125 or 999 years
A large amount is paid up front for the grant of the lease
The ground rent is a small sum paid each year
They are deemed to be a ‘capital asset’
They have significant statutory protection.
,COMMERCIAL leases are often much shorter (e.g. 5-15 years) and
historically favour the landlord. Their characteristics include:
A ‘Rack rent’, large amount of rent payable each year.
No capital value (because you pay a lot each year to stay in the
property)
No premium up front
Typically owned by institutional or investor landlords
The Full Repairing and Insuring lease (FRI) is unique to the UK and
provides the landlord with a clear income stream. The tenant either
will either directly pay the running or repair costs of the property or
the landlords will re-coup these costs by way of service charge. As a
result the landlord does not have to spend any of his income on
maintaining or insuring the property.
The concept of covenant strength is the ability of a commercial
tenant to pay the rent. M&S historically has good covenant strength.
The value of a landlord’s reversion is calculated from the covenant
strength of the tenant and the rental yield (as well as term left to run).
Security:
Landlord’s may ask for a “rent deposit” or
A guarantee either from a parent company or a personal
guarantee from the directors.
Advantages of commercial leases for tenants:
Flexibility – if short term tenant can move easily at end of term
More flexibility – tenants can negotiate a break clause
No capital outlay – so capita of their business is not tied up in the
premises
Management of the building may be undertaken by someone else
Advantages of commercial leases to Landlords
Retains a capital interest in the freehold
Can retain control of the management of the building to ensure the capital
value is preserved
If leases drafter properly, landlord will recover all expenditure via service
charge
Gains a steady income.
, Assigns ‘Reversion’
L L
Grants
‘Lease’
T
Grants
Sub/Under
‘Lease’
Subtenant
Legal leases
A legal lease must be created by deed (LPA 1925, s 52(1) and Law of
Property (Miscellaneous Provisions) Act 1989, s 1) unless it falls within s
54(2) of the LPA 1925.
S54(2) provides that a lease which takes effect in possession for a term of
years not exceeding three years at the best rent reasonably obtainable
without taking a fine may be made merely in writing, or even orally, and
still be legal.
A deed is always necessary to effect a legal assignment of a lease, even if
the lease itself has been created informally under s 54(2).
Legal leases are prima facie binding on all comers; however, this position is
modified by the LRA 2002 and depends on the length of the original term of
the lease as follows:
o (a) Legal leases granted for a term of more than seven years. Such
leases must be registered with their own separate title number. The
position then depends on whether or not the reversionary title is
registered. If the reversion is registered, the grant of the lease
amounts to a ‘dealing’ with the registered title and the lease must be
registered with its own title, and in addition it must be noted on the
reversionary title. If the reversionary title is unregistered, the grant
triggers first registration of title to the lease but does not affect the
title to the reversion, which will remain unregistered.
o (b)Legal leases for seven years or less. If such a lease is granted out
of a reversion with a registered title, it takes effect as an overriding
interest under Sch 3 to the LRA 2002 whether or not the tenant is in
