Do-It-Yourself Leases – what’s the harm?
So, you have agreed to grant or take a new lease and to save on legal fees, you arrange with the other party to draft this amongst yourselves. You recently had a lease prepared for another property – surely you can use this for your new lease by just changing the name and address, right?
Whilst a template lease is a good starting point, a lease is a technical document creating a legal estate in land which must be tailored to the parties’ needs. To the inexperienced eye, a lease is a minefield of complex legal expressions (we would say that!) and often causes non-property lawyers to furrow a brow or two. Many points that can easily be overlooked include:
- Defining the parties – we commonly see mistaken references to a trading name, subsidiary or parent company that is not the landlord or tenant. The correct legal name listed on the property title register and verified at Companies House must be the party defined in the lease.
- Execution – where a lease is over 3 years it must be executed by deed as opposed to a simple contract. A deed requires execution formalities including signatures by individual landlords or tenants to be witnessed.
Although these may seem trivial and even go unnoticed for some time, they could end up rendering your lease unenforceable. This creates uncertainty over the status of any tenant or whether an implied periodic tenancy may exist instead of your intended lease.
For that reason, and as highlighted below, there could be significant harm in attempting to prepare your own lease.
Landlord’s perspective: what is the risk?
For the landlord, some crucial clauses requiring careful drafting include:
- Contracting out of security of tenure under the Landlord and Tenant Act 1954 – this requires service of notice by the landlord and for the tenant to make a declaration in response. Mistakes can be made by either party, risking the tenant acquiring full statutory rights – a lengthy and expensive complication and a nightmare for any sale based on vacant possession!
- Rent review – drafted correctly, this allows landlords to amend the rent at specified intervals during the lease. Omit this provision and rent will remain fixed throughout the term. If average rents significantly increase, a landlord is left out of pocket and unable to recoup any losses.
Tenant’s perspective: what about me?
The risk is all too prevalent for the tenant too:
- Assignment – if selling your leasehold interest, any issues with the lease will be identified by the buyer’s investigations causing delay and additional expense. This may deter buyers where a defective lease is unacceptable to the buyer or its lender.
- Post-completion – even if the lease is up to scratch, registration at the Land Registry and payment of Stamp Duty Land Tax to HMRC are often overlooked by the tenant leaving your lease vulnerable, causing costly delays on any assignment, and risking exposure to tax penalties or even criminal liability.
The legal process of a tenant acquiring a lease is very similar to a freehold purchase. Investigation of the landlord’s title, analysing searches and replies to enquiries are vital elements ensuring any leasehold property does not come with unexpected liabilities. Ultimately, the drafting and negotiation of a lease is only one part of a wider process.
How do I avoid the risks?
Whether you are a landlord or tenant, by instructing a property lawyer to negotiate the lease in your favour and deal with pre- and post-completion matters, you could avoid any stress and additional expense rectifying future problems with your lease.Back to Our Thinking →