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Post-completion steps in leasehold conveyancing

Post-completion steps in leasehold conveyancingThis article discusses the process to be followed in different circumstances after completion of a leasehold transaction.

Registration

Short leases

A legal lease for seven years or less cannot be registered with its own title, but it can take effect as an overriding interest irrespective of the fact that the tenant is in actual occupation. Leases of more than three years cannot also be noted voluntarily.

Registrable leases

Leases that extend more than seven years can be registered with their own title after completion. This is irrespective of the fact that the freehold title is itself registered or not. This lease can be registered with its own separate title and title number and can be noted against the landlord’s title.

The tenant

Stamp duty and tax

Land transactions must be submitted to the HMRC just as any other grant is given. However, in the case of a lease, SDLT can be charged on a capital sum paid and on the amount of rent. To determine this SDLT, a complex formula is used to identify the Net Present Value of the rent which is then used

to finally calculate the SDLT. The NPV is calculated by working out the rent in total over the terms of the lease and then discounting the rental payments that are to be made in the future years by 3.5% per annum.

As said earlier, calculating the SDLT is a complex procedure; hence to solve this problem, an online calculator is provided in the HMRC’s website. To those who would like to know how this is calculated, here’s a summary;

a)      An SDLT is payable for any premium that is calculated on the same basis as for the consideration on the sale of freehold residential property. As for the rent, SDLT is charged at 1% on any aspect of the NPV that exceed £ 125,000 irrespective of the fact that the tenant is a first time buyer or not. It is unusual for the SDLT to be due on the rent in respect of a residential lease.

b)      In the case of non-residential property, SDLT paid on premium is calculated as follows:

1)      When the annual rent is less than £1000, the SDLT is calculated as the sale of a freehold

2)      When the annual rent is more than £1000 the SDLT is calculated in the same manner as for a freehold property. However, the concept of zero rate does not apply

As for the rent, when the NPV is more than £150,000, the SDLT is charged on the excess amount at the rate of 1%. In the case of residential properties, the NPV is added to the SDLT that is payable on the premium.

Registration of the lease

The lease should be registered at the Land Registry either within the priority period, on first registration, or within two months of completion of the grant of lease. When the land in question is an unregistered freehold property, the tenant should apply for first registration. And when the freehold property is registered, only the deal is required to be registered. When the title is registered, the lease shall be noted against the reversionary title.

Notice to landlord

It is common knowledge that tenants are required to give proper notice to the landlord regarding any dealings undertaken in the property including, mortgage created by the tenant. Under para 5.10.11 of the Lender’s Handbook, the tenant is required to send a notice of mortgage to the landlord and the management company. Two copies of the notice along with a cheque of appropriate fees should be sent to the landlord’s conveyancing solicitor and/or any other person so named in the covenant. The tenant should ask his landlord to sign one copy and send it back to him. This signed deed should be kept as a record of compliance of the covenant.

The landlord

The landlord receives the duplicate notice from the tenant, as per the covenants specified for the tenant in the lease. One copy of the notice should be kept with the landlord’s title deeds and the other should be signed and sent back to the tenant’s solicitor.

Photo courtesy: Steve Cadman

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