Can I be a first-time homebuyer? does it matter? Who qualifies?

With house prices rising faster than ever, first-time homebuyers are finding it increasingly difficult to buy their own homes and get on the property ladder.

The average house price is more than nine times the average annual full-time salary (£31,980). The last time the gap was this wide was more than 140 years ago. Various schemes that first-time buyers can use make buying a home a little easier.

Just because you have never bought a residential property before does not mean that you qualify as a first-time buyer.

The term “first-time buyer” is a bit of a misnomer.

A first-time homebuyer is not someone who has never bought a residential property before, but someone who has never owned their own home before.

When is a first-time homebuyer not a first-time buyer?

Various restrictions on buyers exclude them from being first-time buyers. Therefore it is important to check whether you qualify for first-time buyer benefits and reliefs before embarking on your house hunt.

Can I be a first-time homebuyer if I have only inherited a property?

No. You are not a first-time buyer if you have inherited a house or it was transferred to you as a gift.

Can I be a first-time buyer if I have only owned a house abroad?

No. You do not qualify as a first-time buyer if you own residential property in another country, even if you have never owned property in the United Kingdom.

This restriction exists because first-time homebuyers are widely seen as having difficulty with obtaining mortgages and saving for a deposit. If someone already owns property, even if they did not buy it, it is assumed that they can sell the property or borrow on it to raise money to buy another property.

Can I take advantage of first-time buyer schemes or reliefs for a buy-to-let purchase?

No. You are not considered a first-time buyer if the first residential property you are buying is for buy-to-let purposes. It must be purchased for you to live in.

Does owning a commercial property exclude me from being a first-time homebuyer?

No. It does not stop you from being a first-time buyer, buying your own home.

I own property through a limited company. Does this prevent me from being a first-time homebuyer?

No. If a limited company owns the property, it is owned by a separate legal entity, and you are therefore not the owner of that property. You only own shares in the limited company that owns the property. Consequently, you can still be classified as a first-time buyer.

Can I be a first-time buyer even if my spouse is not?

Even if you are a first-time buyer, you will not be able to use first-time buyer schemes or take advantage of first-time buyer reliefs if you are buying jointly with someone else (such as a spouse or civil partner) who is not a first-time buyer. The same applies even if you are buying in only your name but the person you are married to owns a residential property.

I am a first-time buyer. What schemes can I use to buy my first home?

Several different schemes that have been designed to help first-time buyers purchase their own homes are clearly explained on the Government’s Own Your Home website. Each scheme has its eligibility criteria. A licensed conveyancer or conveyancing solicitor can provide advice on how each can affect your position as a homeowner and the conveyancing process.

Below we offer a summary of the main first-time buyer schemes available:

These are not the only opportunities available to first-time buyers. Lenders, housebuilders and local councils may operate their own schemes and products, so it is a good idea to shop around.

The government has already recently announced other proposals for schemes that could help first-time buyers on low incomes, such as saving housing benefit payments to get a mortgage.

Final catch

Even if you can use first-time buyer schemes, you need to live in the UK for at least 183 days (roughly six months) in the 12 months before completion of your purchase to get the full benefit. If not, you will have to pay an additional 2% stamp duty across all bands:

Whether you are a first-time buyer or not, buying your own home is a stressful and expensive process. The friendly and expert team of conveyancers and solicitors at Phew Conveyancing can help you navigate around the various first-time buyer schemes and advise on how they may affect your legal rights.

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Keith Best spent 10 years renovating a semi-detached three-bedroom property in 35 Church Road, Newbury Park, Ilford. He found the house in 1997, empty and vandalised, and moved in. Best said that during all the time that he lived in the house, no one had challenged his right to ownership.

According to a law that dates back to the Roman times, Best could secure ownership of this property. Similar properties are on the market for about £390,000. A more recent law, section 144(1) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Laspoa), has made residential squatting a criminal offence. So according to the new law, Best has been committing criminal trespass offense, at least from September 1, 2012, when section 144 of Laspoa came into effect.

Best applied for title in November 2012, under the provisions of the Land Registration Act 2002. The “squatter’s title” comes into effect if the property has been occupied without any challenge to the right to ownership for at least 10 years.

The chief land registrar had attempted to block Best’s application for the title, but Best won the legal battle against the registrar over his right to apply for registration of the property in his name. Mr. Justice Ouseley, sitting at London’s High Court, said that Best had occupied the property and performed renovations with the intent to make it his permanent residence, and there has been no disputes about his possession of the property though he had occupied it without the owner’s consent at the time. The judge has given the registrar permission to appeal, highlighting the unique nature of the case and the possibility that there are more similar cases.

Best’s solicitors said that the law of adverse possession may be a quirky old law, but one that benefits the economy because it allows unclaimed and unused property to get recycled back into use. They also said that making Laspoa was not intended to impact the law of adverse possession.

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According to the 2014 Homeowner Survey by the HomeOwners Alliance and Myhomemove, 34% of UK homeowners fear an increase in interest rates, and the subsequent financial difficulties in the payment of mortgage, and other bank loans and debts. This is almost 5.8 million homeowners worried that they may be unable to afford payments on their housing loans.

This worry is precipitated by the expectation that the Bank of England may start increasing the interest rates soon to control the property bubble. Increase in interest rates could have a far-reaching impact in the lives of Britons, as the survey reveals.

These are the key findings of the 2014 homeowner survey:

• More than one out of three homeowners in the UK fear that they may be unable to afford the payments on mortgage and other home loans, if the interest rates increase.

• Out of interest only mortgage holders, 64% fears a rise in interest rates will make it difficult to repay loans and debts, making them the most impacted group of homeowners.

• 54% of aspiring homebuyers say that an interest rate increase will make it really difficult for them to afford a new home.

• It is the younger homeowners who are more apprehensive. Only 24% of homeowners above 55 years of age fear that they may be unable to afford payment on loans and debts if the interest rates increase. Among homeowners between 25 to 34 years of age, this figure was at 49%.

Survey respondents commented that a rise in interest rates would place extra burden on an already stretched budget, and make it difficult for them to find money for even food. Since people have other debts than mortgage, many would be forced to sell their homes and rent.

Aspiring buyers hoping to step on the property ladder worry that they may not be able to afford a new home. Pensioners are not worried so much because their mortgages will be completed soon, but they too are concerned for their adult children who are new homeowners, or are yet to buy homes.

The Bank of England must consider these far-reaching consequences and a potentially devastating impact, before they increase the interest rates.

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TSB has brought back their stamp duty offer to help homebuyers who are in the 1% bracket. The bank has offered to help customers with the cost of the stamp duty.

They’re offering to cover the cost of stamp duty for homebuyers up to £2500. Buyers outside the 1% bracket will also get £1000 cash back.

This new offering will help homebuyers across the country to save up to £2500 which can go toward other home expenses. With this move, TSB hopes to contribute to the growth of local economies.

Ian Ramsden, TSB Mortgages Director, explained that their previous stamp duty offer was a big hit with the customers, and hence they’re bringing it back again.

The new offer goes with some of TSB’s competitive mortgage products whose interests rates begin at 2.64%. It is available on the two year fixed, two-year tracker, and five-year fixed mortgage options.

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The transfer deed

This is prepared by the buyer’s solicitors. The points to be included in a deed of assignment are the same as the points that are included in the transfer of freehold property.

Pre-completion searches

When buying a lease with an absolute title, the buyer makes pre-completion searches in the same manner as he would when buying a freehold property. When the title is unregistered, a Land Charges Department search against the name of the owners of the leasehold title is undertaken. When the seller is a company, a company search is made. If the freehold or reversionary title is deduced, the names that appear on investigation against the title should be included in the land charges search. If the lease is registered with a good leasehold title, a search must be made at the Land Registry with respect to the registered title and a Land Charges Department search must be made against the estate owners of the unregistered reversion.

Landlord’s consent

The landlord solicitor shall supply the top copy of licence which is made by a deed when it contains covenants. When the buyer gives direct covenants to the landlord, the licence is drawn in two parts. The landlord signs the original and gives it to the seller on completion to be given over to the buyer. He then executes his part of the licence and forwards it to the landlord on completion.

Apportionments

Unless the completion takes place on a day when the rent and other charges become due, the buyer will have to pay a sum on completion as apportionment. The seller should provide a completion statement that includes the sum that is due along with an explanation of how this sum was calculated. The demand and receipt copies on which the apportionment is based should also be included along with the completion statement. This allows the buyer to check the apportioned sums. Sometimes, it is not possible to ascertain the exact costs for some aspects such as service charges. In such cases, a provisional apportionment of sum should be made on the ‘best estimate’ basis.

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Stamp Duty Land Tax (SDLT)

Ideally, SDLT is payable on the premium and the rent. But with respect to an assignment, SDLT is payable on the purchase price charged by the seller and is due at the same rate as the sale of freehold land. The procedure for payment is also to be followed. However, it is not to be paid on rent.

Notice of assignment

When a notice is to be given to a landlord requesting consent for assignment, this has to served in duplicate along with the appropriate fees mentioned in the lease. The Lender’s Handbook says that notice of a mortgage is to be given to the landlord irrespective of the fact that it is required by the lease. The landlord should be asked to sign on a copy of the notice and return this copy to the seller as acknowledgement of having received the notice. This copy is then kept along with the title deed as compliance of covenants regarding the same.

Registered lease

If the lease is already registered, an application for the registration of the transfer to the current tenant should be made within the priority period provided by the pre-completion search. This is irrespective of the time left until the lease expires; once registered, it continues until the term ends.

Unregistered lease

An unregistered lease that has more than seven years unexpired on the date of transfer to the buyer shall have to be registered at the Land Registry within two months of the assignment or shall be considered void. An application for registration should be produced at the Registry by the buyer along with satisfactory evidence of a superior title. When the reversionary title is already registered, the lease is noted against the superior title. In other cases, the buyer should register a caution against first registration against the freehold title to protect his interest against a subsequent buyer of a reversion. When a lease has seven or less than seven years unexpired, it cannot be registered with a separate title, but will gain an overriding interest against a superior title which can be registered.

Outstanding apportioned sums

The conveyancing solicitors of both parties to the transaction should adjust the provisional apportionments that were made on completion. The payment must be made within 10 working days of notification by one party to the other.

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The lease should contain in precise words as what is transferred and what is not. This is particularly important in the case of lease of offices and flats that are a part of a larger block. It should be clearly mentioned about what is being let and what is not.

It is also necessary to define the boundaries of the place that is let; i.e. where one unit ends and the other begins. For instance, in the case of a lease of an office premise, a wall is likely to separate one office from the other. The lease should define where in that wall is the boundary between the two offices. Similarly, if the floor and ceiling are to divide a premise, then where shall be the boundary between the floor and the ceiling? Repairing obligations are co-extensive with the ownership, i.e. if the tenant owns the wall, it is his duty to repair it.

Sometimes, it is not possible or practical to claim that one particular tenant owns the entire wall; the boundary shall have to be within the wall. The exact place where this exists shall depend on the construction of the wall.

Top floor and ground floor units

Care should be taken when leasing top floor and ground floor or basements. Does the top floor leasing include the roof and the air space above that, thereby enabling him to extent upwards? This could also include an obligation to maintain the roof and undertake timely repairs. In the case of ground level unit, the challenge is in determining downward extension.

Garage/car parking

If car parking is allotted to a tenant, it should be clearly mentioned in the lease. This is because leasing of flats (or units such as these) includes a garage. When a specific car parking or garage is allocated, it should be included in the property that is let. But if the lease merely gives the tenant, a right to park somewhere in the car park, it is an easement. The client should be informed of the precise rights regarding this, as this is often a cause of major friction between parties.

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The lease should also discuss the ancillary rights pertinent to the property. When leasing a flat (or similar such unit where only a part of the property is let) the tenant should be allowed the necessary easements that allow him to enjoy his property. Thus easements such as right of way on foot over the entrance lobby, hallways, stairways, lifts, inside the block, and by car, and on foot from the street over the surrounding ground shall be granted.

Easements for essential services to reach the flat or office should also be discussed. Such services include electricity, water, gas, drains, telephone services etc. And when the lease is for commercial property, it should also include the right to use computer. To carry this out, the landlord may have to provide cabling through other parts of the building.

The tenant may also want to install a television. For this purpose, the landlord may have to arrange for an aerial or similar such facilities. Does the property include a community aerial and if so will he be given a right to run a cable? Can the tenant be allowed to install his own satellite dish antenna or will there be community dish antennae? Is there an easement that allows the tenant to fix his own aerial?

Access for repair

A mere easement to use the pipes and cables is not enough. The easement should also include a right to allow these cables to be inspected and undertake repairs, and even replace them whenever necessary. The buyer’s solicitor should check for these rights.

New rights

In the case of long-term leases, it is not unusual for the situation to change during the course of the lease. It is important that the lease makes provisions for incorporation of new rights. Thus, the terms should include rights to install new cables and facilities besides those that are already there on the lease.

Use of toilets

In the case of office blocks, it is not unusual for communal toilets to be installed. These could be located elsewhere in the block. When there arises such a situation, the lease should explain about easements that guarantee the use of these facilities. Of course, the cost of maintaining and cleaning the toilet would form a part of service charges.

Rubbish

The problem of disposing rubbish will also have to be discussed. The lease should mention if there shall be a communal bin, or if every individual unit shall have access to a separate bin. Either way, these rights should be clearly mentioned.

Easements to be reserved

Even when the easements are made in favour of the tenant, it is important that these are reserved in favour of the landlord and other tenants in the block. Usually, an easement of a tenant becomes a restriction to the other. Every unit that is let shall be subject to rights similar to those granted to it. When such rights are not expressly mentioned, it is likely that the right granted shall not be reserved over the rest of the block and could be ineffective.

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Documents to be handed over upon completion

The seller will have to hand over the following documents upon completion;

a)      The lease/sub lease

b)      The transfer deed or the deed of assignment as is the case

c)      The landlord’s license to assign

d)     The marked abstract or other evidence of superior titles in accordance with the contract

e)      The evidence of discharge of the seller’s mortgage

f)       Copies of notices served by the seller and his predecessors as per the covenant in the lease that requires the landlord to be notified of any disposition

g)      Insurance policy (or a copy of it if insurance is paid for by the landlord), along with the receipt for payment of premium, and details of payment of next premium.

h)      Rent receipts and receipts for other outgoings

i)        Share certificates for the management company

Items to be handed over to the buyer

The buyer should hand to the seller the following items that are considered for transaction;

a)      Money that is due as per the completion date

b)      The license to assign that is executed

c)      A release of deposit

Rent receipts

As per Section 45(2) of the LPA 1925 when receipt for the last rent due is produced, the buyer must assume that the rent has been paid and all covenants have been performed under superior leases. This is applicable unless something to the contrary appears. The buyer’s conveyancing solicitor should also examine the receipts on completion and also check if all other payments are made.

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Rents on flat leases are comparatively cheaper, when compared to other premises. This is because the tenant has already paid a huge sum as ‘premium’ in advance and cannot be realistically expected to pay a high rent, as well. Usually, the average rent for a flat comes to around £ 200/year.

The terms of the lease should clearly explain everything in detail about the rent- when shall it be payable, whether it is to be paid in advance or in arrears, is to be paid half-yearly or as a lump sum…etc.

A rent usually loses its value over time because of inflation. Therefore, it is common for leases especially the long term ones to include a clause for periodic increase in rent. A conveyancing solicitor acting for the landlord should consult his client before including this provision and then mention about the proportion of increase in the lease.

The landlord would want to increase the rent to compensate for the decrease in value, but shall do so after understanding the market conditions prevalent at the time. Tenants will obviously not agree to an unregulated increase in rent. As said earlier, the tenant has already paid a huge amount as rent and would be looking to recover this money on a further assignment, which would not be possible if the increase in rent is uncontrolled or is substantial.

To avoid tensions while negotiating, it is common for both parties to the contract to agree upon the increase and finalise the terms beforehand. For instance, if the rent for the first 20 years of the term is £200, then for the next 20 years it would increase to £300 or more. A conveyancing solicitor acting for the tenant should go through these carefully and explain the details to his client.

Commercial leases should clearly mention the due dates of rent payment and if they are payable in advance or arrears. Usually, these are paid in advance, but should be checked to ensure compliance. In a commercial lease, the rent is a major consideration for both, landlord and tenant. However, provisions related to the increase in rent due to inflation are subject to legal considerations and hence should be discussed by the solicitors of both parties.

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VAT is not applicable for grant of residential lease. Hence, no such express provision is discussed in the context of residential leases. However, when the tenant is made to pay for the landlord’s legal and other costs, VAT becomes applicable. This should be clearly explained in the lease along with other details.

Commercial leases

Although, commercial leases are ideally exempt from payment of VAT, it is up to the landlord to waive this exemption and charge VAT. When the landlord chooses to charge VAT, this should be added to the agreed rent. However, s89 of the VATA Act 1994 states that landlords can charge VAT only if the lease includes a provision permitting so.  Thus, it is common for all commercial leases to include this provision.

It is also usual for the lease to include a provision where the rental payments shall remain suspended during the term of period when the property is unusable. Landlords try and limit this provision by mentioning that this exemption is limited to cases where the damage, etc has been caused by an insured risk. Therefore, a tenant should carefully examine the list of risks that are insured and make sure all potential dangers are covered. If damage is caused by an uninsured risk, the tenant will have to continue paying the rent with no insurance money to repair the damage.

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Needless to say, a landlord will want to exercise control over what can be altered and what cannot be. This is because some alterations may increase the value of the property, while some may pull it down, and a landlord would not wish this. This is especially true of short-term commercial leases, where physical changes may render the property unfit to re-let. Provisions for alterations are not strict for long-term leases, but the landlord may still be wary of drastic makeovers that are likely to affect the value of the property on reversion. There is also the safety aspect to be kept in mind. Alterations should naturally not interfere with, or remove the structural walls or make such changes that may cause the entire building to collapse.

In the case of short-term lease, the landlord is more likely to impose an absolute covenant, thereby prohibiting from making any structural changes. Prospective tenants should examine these covenants carefully and make sure that the property in its current structure is adequate for their needs throughout the term of the lease. The landlord can always be approached for permission requesting to make changes to the structure of the house, but it is his prerogative to accept or refuse permission. The tenant is at the complete mercy of the landlord in this regard. Of course, reasonable adjustments so as to meet the needs of people with special needs can always be allowed. In fact, it is legally permissible under the Equality Act of 2010, where it is mentioned that implied consent for such reasonable adjustment is allowed.

With regards to other alterations, qualified covenants would have to be provided. This allows alterations without permission from the landlord. Under S 19(2), the Landlord and Tenants Act of 1927 a tenant is allowed to make those changes that a landlord cannot unreasonably withhold his consent. This provision cannot be excluded and will apply to covenants where alteration is made to the extent that the alteration becomes an improvement. The case of Lambert v FW Woolworth and Co Ltd. has made it clear that an alteration amounts to improvement or not depends on the tenant and should be seen from his point of view. If the work results in the increase in the value or the usefulness of the property to the tenant then this cannot be considered as an alteration, even though it reduces the value of the property for the landlord. Thus, he cannot withhold his consent unreasonably irrespective of the fact that the alteration amounts to improvement or not. But in connection with other alterations, he can be as unreasonable as he wants.

This decision has been of use to tenants, but they would still prefer a qualified covenant where it is made clear on the face of it that the landlord cannot withhold consents unreasonably to an alteration whether or not it amounts to an improvement. Thus, landlords must think carefully before agreeing to concede to any kind of qualified covenant.

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Usually when a landlord leases a flat, he includes a provision that prohibits the tenant from using the property for any other purpose other than residential needs. If one or more of the flats are converted for commercial purposes, it becomes difficult for the landlord to let the other flats.  The flat may lose its value on reversion.

The provision would also prevent commercial users of the flat from accepting the lease when the block is being developed. Illegal and immoral use of the property can also be avoided.

Thus, a provision preventing the use of property for non-residential uses is acceptable for both parties. But this provision is sometimes amended so as to include professionals such as doctors, lawyers or those who are unlikely to affect the value of other flats, negatively.

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Who does what?

When the property is let as a whole, the tenant is usually responsible for the repairs. But when it is let in parts, repairing obligations are usually divided between landlord and tenant. While the tenant is made responsible for the non-structural parts, the landlord is made responsible for the structural parts and the common parts.

These obligations are not implied; hence it is common for the lease to make sure that every part of the building is covered under repairing obligation, and to clearly specify the person who shall be responsible for each and every part. There should not be any grey areas where responsibility is not clearly mentioned, or no black holes where no one has a responsibility, or no overlaps where two people are made responsible. This would undoubtedly lead to squabbles about the work to be done.

Obligations by third parties

Sometimes, the obligation to repair is placed on a management company. This is common for flat management schemes, where a professionally managed company takes charge of leasing the flats. Under some circumstances, the obligation to repair lies on other tenants. If such a third party is involved, the tenant should check if there are provisions from the landlord to enforce this obligation or whether the provisions of the Contracts (Right of Third Parties) Act of 1999 are complied with.

Who pays?

The landlord would naturally want to pass on all repairing costs to the tenant. This can be problem when the property is let in part and the responsibility is split between the two. Under such circumstances, it is common for the lease to include provisions that allow the costs to be passed on to the tenant through a service charge.

The extent of the obligation

Any party can be expected to carry out their obligations only to the extent mentioned in the lease. Therefore, it is important that the lease clearly explains the terms expressly and includes all the operative words related to repair. For instance, the provisions to repair should include all activities such as repair, maintain, cleanse, decorate etc. A covenant to repair would not include a provision to decorate the house. If the landlord undertakes decoration, the tenant is not obliged to pay because the clause only specifies that the tenant has to pay only for repairs and not decoration.

Does repairing include replacement and/or improvement? There have been different opinions regarding this. For instance, replacement of defective window frames can be considered repair, but what if the replaced window is an improved one? Although this is a repair it is also an improvement, hence the tenant is not obliged to pay for these costs.

And if the covenant includes improvement, would the tenant agree to this and to what extent would they agree? Can the landlord/management company make extensive changes and expect the tenant to pay, just because he has agreed to pay service charges? And that too for a service that he does not need!

In such instances, it is common to include the clause ‘to improve and renew to the extent such renewals or improvements are necessary or desirable to keep the Building in good and substantial repair…”

And if the repair is regarding an inherent defect in the design or construction of the building, this shall be included in the repairing covenant. When the building is being insured, the tenant should make sure that he is not responsible for repairs covered in the list of insured risks.

Breaches of repairing obligations

When the landlord has entered into a repairing covenant, he is not said to be in breach of it unless he has information about the lack of repair (irrespective of the source of the information). Even though, he may enter the premises to determine the state of repair, he is not obliged to do so. Thus, it makes sense for the tenant to inform the landlord as soon as the property is in need of repair.

A conveyancing solicitor acting for the tenant should educate his client about this duties. Failing to inform the landlord would be considered breach of covenant and even make him liable for compensation to be paid to the landlord. But if the part of the property that is under the control of the landlord needs repair, it is not up to the tenant to inform him.

Usually, the landlord reserves the right to enter the premises and inspect it for repairs that have not been done by the tenant, and then charge the client for costs incurred on the same. Such a right is called self-help.

Occupier’s liability

The Occupier’s Liability Act of 1957 states that if the landlord is in charge of the common parts, he is obliged to take care of visitors to the premises. The tenant should carefully check if there exists such provision that may indemnify the landlord against claims made by the tenant’s visitors.

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Conventionally, a tenant is allowed to dispose his lease, either by sub-letting or through an outright assignment. But the landlord still has the right to exercise control over who shall be allowed to occupy the property.

Flat leases

In the case of long-term leases, the tenant has paid a huge amount of money as premium; therefore he would not want the landlord to impose too many restrictions on his freedom to dispose the lease. It is also the duty of the landlord to understand that a lease with too many restrictions would make the property unacceptable to a prospective mortgagee.

The mortgagee would naturally want to exercise substantial control when exercising its power to sell without imposing limitations. Thus, restrictions during long term leases are usually unheard of. However, there would be limitations on the assignment or sub-letting of part. Also, sometimes restrictions are imposed in the case of assignments in the final few years of the term of lease.

Even if there are no restrictions, the landlord may want to know and identify the new tenants. Thus, it is common for the landlord to place a covenant to register any dealing with the landlord and pay a small fee.

Commercial leases

It is normal for commercial leases to incorporate stricter lease terms. These are usually for a short-term and higher rent. In the case of a commercial lease, the threat of a tenant damaging the reversion of property (either by not paying the rent promptly or damaging the property) is real and hence it is very important that the identity and status of the tenant is satisfactory.

Absolute prohibition

Except in the case of short-term leases, tenants would not accept an absolute prohibition on leases. Although the landlord can be requested to waive off this covenant, he would have to still remain at the mercy of the landlord to seek consent.

Qualified prohibition

The landlord can however provide a qualified covenant wherein the tenant shall not be allowed to assign the property without the express permission of the landlord. But it also provides that the landlord shall not withhold his consent without proper reason. Such a covenant is useful to a tenant as it gives him sufficient leeway for an assignment.

As per Section 19(1) (a) of the Landlord and Tenant Act 1927, a covenant that does not allow the tenant to assign, underlet, charge or part with the property is subject to the condition that the landlord shall not withhold his consent in providing the licence to assign unreasonably. Thus, a qualified covenant can be made to operate as a fully qualified covenant by applying S19 (1) (a). Usually landlords do not act unreasonably unless they are in doubt about the prospective tenant’s status or the purpose for which the prospective tenant wishes to occupy the property.

The Landlord and Tenant Act of 1988 also aim to help a tenant seeking consent to assign, sub-let, charge, or part with the property. Accordingly, when the lease contains a qualified covenant for alienation, the landlord is expected to reply within reasonable time, unless he thinks it is reasonable to do so. Such a response should be in writing explaining if he would or would not concede to the tenant’s request for allowing alienation. He should also clearly explain the reason why he is withholding consent. The burden of proving unreasonableness lies on the landlord.

Special rules for covenants against assigning commercial leases

Section 19(1) (1A) of the Landlord and Tenant Act of 1927 provides for special regulation regarding covenants that restrict assignment of commercial leases granted on or after 1^st January 1996. These provisions allow the landlord and tenant to agree in advance specifying the circumstances when the landlord may withhold his consent to an assignment and also specify the circumstances where the landlord may provide his consent.

If the landlord withholds his permission because of the existence of circumstances already provided, he is not said to be acting unreasonably. By using S 19(1) (1A), the landlord can ensure that he provides strong grounds to disallow assignment.

The provisions provided can be factual (ex. whether the assignee is a company quoted on the London Stock Exchange) or discretionary (i.e. whether the assignee is capable of carrying out the covenants in the opinion of the landlord). When the provisions involve the use of discretion, S 19(1) (1A) provides that;

a)      Discretion should be used reasonably, or

b)      The tenant is given the right to review the landlord’s right to exercise discretion by an independent third party whose identity can be ascertained by the provision. For instance, if the landlord thinks that the assignee is capable of performing the covenants, but the tenant disagrees, he can apply to an expert appointed under the terms of the lease for a second opinion.

Sub lettings

Section 19(1) (a) of the Landlord and Tenant Act of 1927 not only applies to assignments and alienation, but also to sub-letting. Sub-letting of the entire premises is allowed with the same restrictions that are applicable for assignments. But in the case of sub-lettings, the terms of the lease are stricter and often subject to absolute prohibition. A landlord who sub-lets his property to another person would not like that his property is converted into a multi-tenanted block.

Although Section 19 (1) (1A) of the above mentioned act is applicable to assignments, an effect similar to that crated by this section can be achieved by carefully drafting the alienation covenants. For instance, the tenant can be required to first offer to surrender the lease without any consideration before the assignment. This was held to be possible under S 19(1)(a) and held as a judgment in the case of Bocardo SA v S&M Hotels [1980]1 WLR 17. Sometimes, the lease may include a provision where the right of the court to decide if the landlord has acted reasonably is excluded. This is actually a matter of the court to decide and hence the position with regards to applicability of S 19(1) (a) is less certain.

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But there are some issues where both parties would agree upon. For instance, both parties would agree that the property shall be let only for office purposes. They shall not be allowed to use the property for any purpose that would adversely affect other tenants.  For instance, if a manufacturing unit is set up on the premises, there would be noise and pollution nuisance to other tenants. The landlord would suffer financially as other tenants may move out and vacant offices would be difficult to re-let.

Both parties also need to agree upon the manner in which the property shall be allowed to be used.  Care should be taken in interpreting the user clause as it is likely to effect the rent- a very restrictive user clause is likely to reduce the rent, and a liberal user clause will tend to increase  the rent,

A user clause can be defined by using the categories mentioned in the Use Clause Order of 1987. In the case of public houses or wine bars, the user could be limited to use the property within Class A4. The landlord can also choose to not use the Use Clause Order and set out his own restrictions with regards to use of property. For instance, if the property is let out to a marketing company, the landlord can set a restriction that the property shall be used only for marketing purposes only.

While this may be convenient for the tenant in his present business, it may restrict his scope of expanding it or may limit the type of people who would be interested in an assignment. In such circumstances, the rent would be low than those used in the wider Use Clause order. To overcome this problem the landlord can set up the property to have a specific use, but allow change to other users in the same use class with the landlord’s consent. Thus, a lease might allow the property to be used as a ware house or such other use as mentioned with Clause B of the Use Clause Order as the landlord shall permit.

Thus, the user covenant can either be absolute or qualified. In the latter it is not possible that the landlord can withheld his consent without proper explanation. But s 19(3) of the Landlord and Tenant Act 1927 also provides that the landlord cannot charge a fine or increase the rent as a condition to give consent when there are no structural changes to be made.

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When the whole property is let, insurance costs are covered by the tenant. And in some instances, the landlord may take out the insurance and charge the tenant by way of a service charge.  This arrangement is comfortable for the landlord who need not pay for the premium, but can be assured that his property is protected against possible damages.

But when the property is let in parts, there are two options before the seller and the buyer;

a)      The tenant should insure the area that is leased to him, while the landlord is responsible for insuring the common parts. While this seems a convenient proposal, carrying it out would lead to several practical problems. For one, the landlord would have to keep a tab on every tenant to check if he has complied with the covenant. Secondly each tenant would have to rely on the other tenant complying with the covenant. If a tenant has not insured his property, it would be difficult to rebuild (in the event of damage) as the proceeds would not be sufficient. It is also possible that the proceeds of the insurance claim may be used for self-use rather than using it for making good any damage caused. Although, the lease may require tenants to insure from a single company, there could be multiplicity of claims, should one need to be made.

b)      To avoid the above mentioned complications, the landlord insures the entire block and passes on the costs to the tenants through a service charge. Usually, it is the decision of the landlord to choose the insurance company, but a conveyancing solicitor acting for the landlord should make sure that the premium can be recovered by inserting the specified provisions for payment of a separate insurance rent when drafting the lease.

Irrespective of the fact that the lease is of the whole or in part, the following issues should be kept in mind;

a)      Risks insured against

b)      Amount of cover

c)      Application of policy monies

Risks covered

Needless to say, a property is to be insured against risks. But what are these risks? The conveyancing solicitor should mention these expressly. Some common risk factors include fire, storm, flood, etc.  But what if the landlord takes insurance to the extreme and insures the property against unlikely and expensive risks like terrorist attacks? A conveyancing solicitor acting for the tenant should check for these.

He should also read the policy and not just rely on the covenant to ascertain the risks that are covered. If an important risk is not covered, the tenant can arrange for this to be done or renegotiate the terms of the clause. But truth be told, this does not happen in practice.

Some suggested clauses to cover most foreseeable risks include;

subject to the reasonable availability of cover, fire, explosion, lightning, tempest, storm, flood, burst pipes, landslip, subsidence, riot, civil commotion, industrial unrest, impact by vehicles, aircraft and other aerial devices and articles dropped there from, acts of malicious persons and vandals and such other risks as the landlord may reasonably require or the tenant may reasonably request.

Amount of cover

The property should be insured to its full value or else, it would be impossible for the landlord to make good any damage. Full reinstatement value would include;

a)      Costs of demolition and site clearance;

b)      Professional fees (for ex. architects, surveyors, etc.)

c)      An allowance for inflation

It is also advisable to opt for a professional valuation or index linking.

Application of policy monies

There should be a covenant to allow the landlord use the proceeds of the sale towards reinstating the premises. But a tenant would want this provision to be extended so as to make the landlord make good any shortfall in the proceeds out of his own pocket.

The solicitor should check if there is a provision to deal with the possibility of reinstatement being impossible. Should the money be retained by the landlord, or passed over to the tenants who have paid premium for the property? It is best advised that the proceeds are shared between both parties to the values of their respective interests.

Rent suspension

Even in the event of any incident where the property is rendered unusable, the tenant is required to pay his rent. Thus, he should make sure to include provisions that allow the suspension of rent during the period when such mishap happens and the property cannot be occupied. The landlord would be more than happy to include such provision because he can insure the property against loss of rent during such time. But this insurance is usually valid only until three years, thus landlord too would limit such a suspension accordingly.

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David Cameron, UK Prime Minister, has brought forward the launch of the new government backed mortgage scheme by three months, to October 2013. The £ 12 billion scheme will underwrite thousands of mortgages over the next three years, allowing borrowers with just 5% deposit to get on the property ladder. The first part of the scheme was launched in April 2013, and offers loans of up to 20% for home buyers purchasing new build property up to £ 600,000 in value. The loan from the government would be interest-free for the first five years, and from the sixth year on, the buyer must pay an annual fee of 1.75%. The fee will increase annually to reflect the retail price inflation plus another 1%.

The mortgage guarantee launched in October is the second part of the scheme. The scheme will also allow buyers to get a home of up to £ 600,000 in value, with a down payment of only 5% of the price of the property. The mortgage guarantee applies to all property purchases, not just newbuild properties. The government will underwrite 15% of the value of the mortgage, thus encouraging lenders to provide loans to buyers with just a 5% deposit. Beginning 7 October, buyers can apply for loans under the scheme, but they will not be paid out until 1 January 2014.

The Help to Buy scheme has its fair share of supporters and detractors. But for a young person considering buying a new home to start a family, Help to Buy comes as a boon. Many people are unable to buy a home of their own primarily because of the huge deposit amounts that they have to save up in order for the mortgage provider to offer them a loan. In spite of paying high rentals every month, especially in areas like London, many young professionals are unable to buy a home precisely because of this obstacle. Help to Buy removes this impediment.

If you’re serious about buying your own home, but have been putting your plans on hold because of the high deposit requirement, Help to Buy is a great opportunity to make your dream come true.

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Payment of premium and receipt

A capital sum or premium is payable for the grant of long term residential lease. This premium is around the same value as one would pay for the purchase of a freehold property. A receipt clause is usually attached to lease; it has the same effect as a receipt clause would in a freehold transfer. Besides paying premium, the lease would also include consideration for the grant that includes payment of rent and the promise that various obligations placed under the lease shall be carried out. These are usually mentioned as a part of the consideration. It is worded as such … “In consideration of the sum of XXX, Mr. XX (Name of the Landlord) and of the rent reserved and of the covenants by the Tenant contained in the lease….”

Operative words

The operative words in a lease are usually, “hereby demises”. Sometimes as a modern approach, solicitors add ‘grants’ or ‘leases’.

Title guarantee

The benefit of a full or limited covenant guarantee is given in the same manner as it is given in the transfer of a freehold property. The words, ‘with full title guarantee’ or ‘with limited title guarantee’ are used (as the case may be) along with the express modifications made in the covenants. These are included in the document after the operative words.

Term

It is very important that the length of the term (of the lease) is clearly and properly mentioned. This is because a lot of issues are connected with it. For instance, in the case of commercial leases, rent is reviewed annually. This is done on the commencement date every year. More often than not, the date specified as the start date is before the actual signature of the lease. This is especially common in leases of flats and offices where the landlord may want all the leases in the block to commence and end from/on a stipulated date. It should also be clearly mentioned if the commencement date is to be included in the term. Thus, if the lease is to commence from the 1^st of November onwards, it probably commences from the next day, i.e. 2^nd November and hence expires midnight of 1^st November. The use of words should be carefully examined. For instance, if the lease mentions the word ‘from’, the lease begins on the next day. And if it mentions, ‘from and including’, it begins on the same day as mentioned.

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He should take particular interest in ascertaining that the documents contain all the necessary details, such as description of document, easements, covenants, renovations, licence, etc. For instance, a landlord may seek to impose greater restriction on tenant’s freedom to dispose of the property, but a tenant may seek greater independence in this issue. A balance between the rights of both parties must be struck. This is especially true in the case of commercial leases, where much will depend on the bargaining power of the parties.

The Code for Leasing Business Premises in England and Wales 2007 discusses the issues in this regard.

When approving the draft lease, the solicitor should also keep in mind that the tenant may want to assign the lease in future, thus clauses that may seem unattractive to future assignees should be considered (although they may not pose a problem to the current tenant).

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These prescribed clauses have to be compulsorily used for leases made after 19^th June 2006. They are granted out of registered land and are compulsorily registrable.

A lease cannot be a prescribed clause if it arises out of a variation of lease that is deemed surrender and re-grant, or if it is expressly required by any of the following;

a)      An agreement entered before 19^th June 2006

b)      A court order

c)      An enactment, and

d)     A necessary consent or licence for the grant of lease made before 19^th June 2006.

When the applicant claims that the lease is not a prescribed clause lease because of the existence of the above exception, he is required to provide a conveyancer’s certificate or any other suitable evidence along with his application.

The wordings required in the prescribed clauses lease should appear in the beginning of the lease or immediately after the front cover sheet of the content page.

A new amendment introduced in 2003 provides that the required wordings should also give instructions as how the prescribed clauses are to be completed. These clauses can sought in detail from www.landreg.gov.uk

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Although the precedent is a useful starting point, necessary modifications should be added so as to meet the circumstances pertinent to the case at hand. The contents of the precedent should be read carefully. Just because the precedent is available in a well know publication series does not mean that it shall be free from errors and inconsistencies. Sometimes, it may not be updated to include recent legislations or case law developments. Sometimes, one precedent can be combined with another.

The landlord’s solicitor should be protected, but not to an extent that it is too restrictive for the tenant. Harsh terms can have a negative effect on rent review.

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Issues such as repairs, renovations, also should be addressed. In the case of commercial leases, there will be complex provisions where the rent shall be revised regularly. If the lease is for a property that forms a part of a larger place, the lease should deal with things such as right to access and precisely what is and what is not being let to the tenant.

The following are the matters to which particular attention should be paid;

a)      Description of the premises that is let

b)      The easement that is granted and reserved

c)      Arrangements for repair, maintenance, etc.

d)     Provisions for payment of service charges

e)      Insurance

f)       Restrictions on the use of the premises

g)      Restrictions on sub-letting and assignments

h)      Restrictions on renovations and alterations

i)        Enforcement of covenants, and

j)        Provisions for rent and rent review

Some of these will be important in the case of commercial leases and others may be of more important for management scheme leases of flat. But all of these should be considered.

Of particular importance, is the impact of the CRC scheme. Landlords would naturally try and pass on the expenses incurred in acquiring allowances to the tenants, which the later will obviously resist. They may also try and improve energy efficiency by replacing old and inefficient plant and machinery and pass on the costs for the same by way of service charges. Tenants would obviously resist these costs. But considering the financial imperative to cut electrical consumption several green initiatives are supported by landlords and tenants. Thus, ‘green leases’ that impose obligations on the parties have become common. These are aimed at reducing energy consumption.

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When the transfer relates to an assignment, it is called deed of assignment. It has the same effect and function as that of a transfer deed.

When an existing lease is assigned, irrespective of the years left for the lease to complete its term, the prescribed form under the Land Registration Rules 2003, viz. form TR1 is used. This form is also used for the transfer of a freehold title.

When the transfer is for an unregistered property, assignments of more than seven years have to endure a compulsory first registration. Form TR1 is used for this purpose. An alternative to this is using the deed of assignment. It is used in the case of assignments that are for seven years or less. The assignment of such leases however does not lead to first registration. However, in most cases Form TR1 is used.

Following are the points to be considered when drafting a deed for assignment. These points are in addition to the ones that apply in a transfer deed (the same points apply for both).

Covenants for title

When a seller sells his property with full or limited title guarantee, he has to ensure that all repair works related to the property are undertaken. He is in breach of this covenant when he has not carried out repair works and could also be liable to the buyer after completion. However, there also exists the principle of Caveat Emptor, thereby maintaining that the buyer should examine the physical state of the property. The seller need not make any promises in this regard.

As can be seen here, there is a conflict of interest in this regard. This can be modified by excluding references to the repair. A contractual condition of this type should be shown by an express modification of the covenants in the transfer deed. A suggested form of wording is as follows;

The covenants for title implied by s4 of the Law of Property (Miscellaneous Provisions) Act 1994 shall not be deemed to imply that any of the covenants contained in the lease on the part of the tenant for repair or decoration have been performed.

These wordings can be inserted in the space provided in Box no. 9 or in Box no.11

Indemnity

With respect to leases that were made before 1^st of January 1996, an indemnity covenant should be made. This is however not applicable in the case of an unregistered land where value is not provided by the buyer for the transaction. When the value is provided, the indemnity covenant can be inserted as a separate clause.

As for leases made after 1^st January 1996 the seller is usually released from future liability on assignment and hence need not sign an indemnity. He however, remains liable if an AGA has been signed, thereby causing an express indemnity covenant to be added in the deed. This is however not implied.

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Lease registered with absolute title

Both SC and SCPC stipulate that the seller should provide official copies of the register along with the plan and a copy of the lease to the buyer. Once this is done, the buyer shall be treated as if he is fully aware and accepting the terms of the lease. The Open Registry concept always helps the buyer to inspect the seller’s title.  Since the title is guaranteed by the Land Registry, the buyer need not investigate the title to the freehold or superior leases.

Lease registered with good leasehold title

According to both SC and the SCPC, the seller should provide the buyer with the official copies of the register and the title plan along with a copy of the lease. Once this is done, the buyer is then said to have entered into the contract knowing and fully accepting terms of the lease. Just because the property is registered with a good leasehold title, it does not guarantee that the freehold reversion title is good as well. Thus, the buyer should insist that the superior title is also deduced, although he is not entitled to do so under the general law.  This should be dealt with through separate provisions in the contract because neither set of standard conditions deal with this.

The Lender’s Handbook also provides that unless the title to the freehold reversion is deduced, the lease shall not be acceptable. This is deduced by the methods that are applicable to unregistered land. The registers are open to the public thus making it easy for the buyer to make a search on the reversionary title, even when the seller is unable or unwilling to deduce it.

Unregistered lease

S44 of the LPA 1925 states that a buyer is within his rights to inspect titles related to all leases, sub-leases and assignments for the past 15 years. However, he is not entitled to examining a superior title. This may enable him from deducing only a good leasehold title (unless the reversionary is already registered with an absolute title) and may not be acceptable to the buyer’s lender. In such cases, it is common to include a clause in the contract that the seller should deduce the reversionary title, as well. Where title is deduced, the buyer will also want to ascertain if the property has a good freehold title by examining the title at least 15 years from the date of grant of lease.

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