The draft contract and draft Lease
When a contract for a lease is entered into by the parties concerned, before the grant of lease, it is important that the terms of the contract are agreed upon before exchange. The contract generally requires both parties to agree to the draft lease that is annexed to the contract. The terms of the lease should also be agreed upon so that the agreed version can be attached to the contract ready for exchange. When parties agree to go straight to the grant of lease, the terms of the lease should be agreed upon before the grant. This is common for lease of commercial property.
Even when it appears that the normal and usual clauses are included in the lease, it is important that the clauses are carefully read and examined by the tenant’s conveyancing solicitor to make sure that there are adequate provisions to protect the interest of the client and that there are no onerous responsibilities.
The tenant’s conveyancing solicitor shall want to undertake some searches and enquiries before and after the exchange of contract. The process would be the same as the one conducted when enquiring for the purchase of freehold property. As with freehold transactions, some of the searches shall have to be made by the landlord’s conveyancing solicitor. The result is then to be provided to the tenant’s conveyancing solicitor as a part of the pre-contract package.
When the lease is for a short-term, it is unusual for searches and enquiries to be made since the risk attached to the lease is low and does not justify the expenses of making the searches.
When the lease is acquired through a mortgage, the tenant’s lender also may have some requirements that are to be complied with. These requirements that are included in the instructions provided to the conveyancing solicitor acting for the lender should also be followed. As per the Lender’s Handbook, the following requirements should be complied with;
a) The permission from the landlord’s lender that he agrees for the property to be let.
b) The length of the term for which the lease is granted. This provides adequate security for the loan. Terms for less than 60 years are often considered unacceptable for mortgage in the case of residential property.
c) Adequate insurance provisions related to the unit (that is let) along with the common parts of the building should be attached. These insurance provisions usually coincide with the lender’s own requirement for insurance.
d) The title to the freehold reversion should be deduced. This allows the lease to be registered as an absolute title.
e) It should contain proper covenants that explain about the repair jobs to be undertaken with respect to the property and the common parts of the building.
f) It should also include a provision for forfeiture in the case of insolvency of the tenant. This is applicable only in the case of residential leases.
Advising the client
The tenant’s obligations under the terms of the lease are often complex and extensive. Thus, his conveyancing solicitor should take the effort to explain these in detail. The tenant should particularly be warned of losing the lease through forfeiture for breach of covenant.
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