Property Practice – Course Summary

TOPIC 1: KEY ELEMENTS AND STRUCTURE OF A PROPERTY TRANSACTION

Conveyancing: process of transferring the ownership of a property. Two components:

1. Exchange of contracts: Not compulsory - the contract records the agreed terms and can be relied upon
if anything goes wrong in the period between exchange of contracts and completion.
2. Completion: the bulk of the purchase money is paid to the seller and the transfer deed is completed to
transfer the property to the buyer.
Exchange and completion can take place simultaneously.
Parties not bound to the transaction until contracts are exchanged.
‘Caveat emptor’: seller is not obliged to disclose information about the property, other than about limited
matters of title, and would not be liable for any defects in the property which later come to light.
** does not entitle the seller to give misleading answers (= misrepresentation).

Three stages in a transaction:

Pre-contract Solicitors on both sides take instructions from clients: establish consensus & identify issues/conflicts of
stage interest.
Seller’s S:
 Investigate title and produce evidence of title (ie deduce title)
 Reply to buyer’s pre-contract enquiries
 Draft and submit a pre-contract package of documents to the buyer’s S – draft contract +
evidence of title.
o Contract usually includes ‘requisitions’: provisions prohibiting buyer from raising further
queries on the title, after exchange.
Buyer’s S:
 Investigate title
 Raise pre-contract searches and enquiries
 checks the documents of title for: (i) seller entitled to sell, (ii) any encumbrances.
 Approve draft contract.
Pre-contract searches also on:
 Boundaries, access, disputes, outgoings and previous works carried out at the property.
 Searches on statutory, public and private bodies to help the buyer obtain information about the
property.

Once buyer satisfied —> exchange of Cs. On exchange: buyer pays deposit, ie 10% of price.
Pre- Contracts exchanged: parties are bound to complete. —> Transfer deed: prepared and executed.
completion Pre-completion searches: ensure info obtained during pre-contract remains valid.
stage  Buyer S:
o raise pre-completion searches & enquiries
o Support certificate of title to lender & request mortgage (if appropriate)
 Seller S: reply to buyer’s pre-completion enquiries + undertaking to discharge mortgage.
On completion: buyer pays the balance and seller hands over keys.
Post- Finalize the administrative matters:
completion  Seller S ensures mortgage paid off and removed from title (usually undertaking by S)
stage  Buyer S ensures SDLT (or LTT) is paid on transfer.
 Buyer S must register their client as the new owner + any new mortgage.

Law Society Conveyancing Protocol (the ‘Protocol’): applies to residential conveyancing only.
 set of instructions to conveyancers as to how to carry out a residential sale and purchase
 series of standard documents issued under the ‘TransAction’ brand.

—> All firms that undertake residential conveyancing and want to be members of The Law Society’s
Conveyancing Quality Scheme (‘CQS’) are required to comply with the Protocol.
—> Membership of the CQS is essential for any firm wanting to be on the panels of solicitors approved by
the residential mortgage lenders to act for lenders where the buyer is taking out a mortgage.

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 Professional conduct issues in a property transaction: Paragraph 6 SRA Code of Conduct for Solicitors

First q: ‘Can we act on behalf of this client?’ and then ‘Can we carry out the client’s instructions?’

Acting for seller Para 6.2: a solicitor cannot act for both parties if there is a conflict of interest or a significant risk of such
and buyer a conflict. – high risk: unequal bargaining power or ongoing negotiation on price.

Exceptions where there is a conflict of interests:

 Para 6.2(a): a solicitor can act if the clients have a substantially common interest in relation to
the matter – subject to conditions:
o Both pp give informed written consent + safeguards in place to protect confidential
information + S satisfied it is reasonable to act for both pp.
o Exception does not apply to a property purchase.
 Para 6.2(b): a solicitor can act if the clients are competing for the same objective (subject to
same conditions as above) - Exception will not apply in a buyer and seller situation.

Acting for joint Usually acceptable to act for joint buyers, provided that the solicitor can comply with paragraph 6.2.
buyers It may be necessary to advise residential buyers separately about how they want to hold the equitable
interest in the property, particularly if they are not married or in a civil partnership.

Acting for Possible unless, under para 6.2, there is a conflict of interest or a significant risk of such a conflict.
borrower and
lender Risk is high if:
 Mortgage not a standard mortgage (ie on lender’s standard terms) but subject to negotiation
 There is a standard mortgage but you do not use the approved certificate of title.

Possible to act where exception in Para 6.2(a) applies.

Duty of confidentiality (para 6.3) to one client may be in conflict with duty of disclosure to other client.

Acting for joint Usually acceptable, provided no conflict of interests exists or is likely to arise.
borrowers Case of matrimonial home - HL: ‘the Etridge guidelines’:
 Lender should provide S with following info:
o (i) purpose of loan; (ii) amount of spouse indebtedness; (iii) amount of current overdraft
facility; (iv) amount & terms of new loan; (v) copy of any written app for the loan.
 Solicitor should (face-to-face meeting in absence of other spouse):
o (i) explain to other spouse purpose for which S is involved; (ii) explain lender relies on S
to counter any suggestion of undue influence; (iii) obtain confirmation from spouse that
they wish S to act for them in the transaction + advise on legal and practical conseq of it.
o S should not confirm to lender matters have been explained unless expressly instructed.
Regard to client interests: “If it is ‘glaringly obvious’ that the wife is being ‘grievously wronged’, the
solicitor should decline to act.”
One solicitor can advise both borrowers, provided that the Etridge guidelines are followed and the
solicitor is satisfied that they can comply with paragraph 6.2.
** Same principles will apply to civil partners, cohabitees, parent and child and any other situation
where property is being charged in return for a loan that is not being made to all of the property owners.
Contract races Contract race = pre-contract package is sent to multiple buyers who then compete to be ready to
exchange contracts first.
—> Legitimate so long as all the prospective buyers know that they are engaged in a race.

Para 1.4: must not mislead or attempt to mislead the buyers, by acts or omissions, or by being complicit
in the acts or omissions of others.
= S should inform all buyers immediately of the seller’s intention to deal with more than one buyer.

If seller refuses to agree to such disclosure: S cannot disclose the contract race to the prospective buyers
(duty of confidentiality) —> solicitor should immediately stop acting in the matter.

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 Sources of finance for a property transaction:

S’s obligation: provide the client with the best possible information about the likely overall cost of their
matter, at the beginning and at appropriate points throughout the transaction.

S sends a letter of engagement to their client setting out the costs at the beginning of the transaction.
 Costs include ie SDLT/LTT, Land Registry fees and search fees.

Most clients choose to finance the transaction by borrowing the majority of the purchase price.
 Usual source of finance: bank or building society.
 Other sources: relatives, private trust funds —> pp must be separately advised.

Common feature: lender’s concern to secure the loan against a valuable asset, principally the property itself.
 Creation of a mortgage is dealt with by S (either acting only for lender or for both)

Restrictions on solicitors for the provision of financial advice:

 S carrying out regulated activity in relation to a regulated mortgage contract must be authorised
under FSMA 2000. If not authorised —> s 327 exemption for professional firms:
o S can carry out regulated activities if they are incidental to the provision by the firm of
professional services, ie services regulated by the SRA.
 ‘Regulated mortgage contract’ includes: borrower is an individual, lender takes a legal charge over
property and at least 40% of property is intended for occupation by borrower/family member.
 Regulated activities include arranging or advising on a regulated mortgage contract (ie a specific
mortgage product), but not giving generic advice.
 S benefitting from s 327 exemption still subject to SRA Financial Services (Scope) Rules and SRA
Financial Services (Conduct of Business) Rules.
o NB. Rules do not allow S to recommend that client enters into a regulated mortgage contract.

Types of mortgages:

Repayment Borrower makes monthly payments to lender made up partly of instalments of the original amount
mortgages borrowed and partly of interest chargeable on the loan.
Borrower can choose:
 lender’s standard variable rate (‘SVR’),
 fix the interest rate for a set period or
 agree a ‘tracker’ rate of a certain % above the UK base rate set by the Bank of England.
Interest-only Borrower makes monthly payments to the lender, but those payments will only comprise interest
mortgages chargeable on the loan.
Disadvantage: at the end of the mortgage term the borrower will still owe the lender the whole of the
original amount borrowed.
Possible to obtain a combined mortgage where part of the loan is interest only and part is repayment.
Other types of For clients who are unable to enter into mortgages which charge interest, there are finance schemes that
mortgage are Sharia compliant and avoid the payment of interest.

Property taxation:

Residential property:
 Buyer: either Stamp Duty Land Tax (‘SDLT’) in England, or Land Transaction Tax (‘LTT’) in Wales,
when they purchased the property.
 Seller: not have to pay Capital Gains Tax (‘CGT’) on capital gain from the sale if they have used the
property as their only or main residence.

Commercial property:
 Buyer: SDLT or LTT on the purchase just like a residential buyer.
o No special concession for first-time buyers and different rates
o Main difference: buyer of a commercial property may have to pay VAT on the purchase.

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  Seller:
o If seller is a company - companies pay Corporation Tax on their income and capital profits
(rather than income tax and CGT).
o Corporation tax payable on the rent if the property is rented out and on any gain if the
property is sold for more than its purchase price.

Stamp Duty Land Tax (‘SDLT’) in England and Land Transaction Tax (‘LTT’) in Wales:

The basis of charge First-time buyers of residential property can claim relief from SDLT if
for residential  they intend to occupy the property as their main residence and
freehold property  the purchase price is no more than £625,000.
(SDLT): o Pay nothing on purchases up to £425,000
o Pay 5% on portion from £425,001 to £625,000.
Time limit for
payment is 14 days. SDLT rates for not first-time buyers:
Penalties apply for Does not exceed £250,000 0%
late payment.
Exceeds £250,000 but does not exceed £925,000 5%
Exceeds £925,000 but does not exceed £1,500,000 10%
The remainder 12%

Ie. SDLT payable on the purchase of a £275,000 home by a second-time buyer is £1,250 (0% on
£250,000 and 5% on £25,000).
NB. SDLT is payable on ‘land’ —> if the sale involves valuable chattels it may be possible to save
SDLT by apportioning part of the purchase price to the chattels.

Higher rates of SDLT if the buyer is buying an additional property or if the buyer is not a UK resident.
The basis of charge SDLT rates:
for non-residential Does not exceed £150,000 0%
or mixed use
freehold property Exceeds £150,000 but does not exceed £250,000 2%
(SDLT): Exceeds £250,000 5%
14 days time limit. If VAT is charged, SDLT is payable on the VAT-inclusive sum.
How SDLT is paid: SDLT is paid to HMRC, usually online by bank transfer, accompanied by a form called an SDLT1 which
provides the necessary details of the transaction.
If not paid: transfer of property not registered at Land Registry.
Failure to file and pay on time: penalties and interest.
LTT: Key differences: (i) no relief for first-time residential buyers from LTT; (ii) Rates & time limit different.

Must be submitted Rates for residential freehold property are as follows:

to the Welsh Does not exceed £225,000 0%
Revenue Authority
within 30 days of Exceeds £225,000 but does not exceed £400,000 6%
completion. Exceeds £400,000 but does not exceed £750,000 7.5%
Exceeds £750,000 but does not exceed £1,500,000 10%
The remainder 12%
Higher rates if the buyer is buying an additional property or if the buyer is not a UK resident.

Rates for non-residential or mixed use freehold properties:

Does not exceed £225,000 0%
Exceeds £225,000 but does not exceed £250,000 1%
Exceeds £250,000 but does not exceed £1m 5%
Exceeds £1 m 6%

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 If VAT is charged, LTT is payable on the VAT-inclusive sum.

Capital Gains Tax and private residence relief:

CGT: charged on gains made on ‘chargeable assets’ (definition in Taxation of Chargeable Gains Act 1992).
 Also charged on: (i) transactions incidental to sale (ie release of covenant) and to gifts.

Gain on a sale: deduct purchase price (or its base value in 1982 if purchased earlier than this) from its current
sale price. - Certain expenditures (ie in improving the property) can be deducted.

Private residence relief:

• PRR applies if it is the sale of an individual’s dwelling house used as their only or main residence.
• PRR also available to trustees if the property is occupied by a beneficiary as their principal residence.
• Certain periods of absence are allowed - ie. owner has to live abroad temporarily for their job.
• If seller has a garden of more than 0.5 hectares = gain on the excess is chargeable to CGT unless the
seller can demonstrate to HMRC the extra garden was necessary for the reasonable enjoyment of the house.
• Relief may be lost on parts of house used exclusively for business use.

VAT:

Basis of VAT: tax on ‘taxable supplies’, ie some goods and services provided by a taxable person in the course or
charge: furtherance of a business.
‘Taxable person’: whose turnover over the past 12 months has exceeded the registration limit, ie £85,000.

Collected by HMRC from each supplier at the end of each VAT period (usually every 3 months) by the
supplier completing a VAT return to HMRC online.

Output tax is the VAT charged by the supplier on its goods or services (ie its output).
Input tax: the customer, the recipient of the goods or services, pays the VAT.
= supplier deducts input tax it has paid against the output tax it has charged = net amount is sent to HMRC.
 Input tax only recoverable if directly attributable to a taxable supply.

Standard, Standard rate: currently 20%.

exempt and  Reduced rate of 5% for items such as domestic fuel supplies and certain construction, conversion and
zero-rated renovation services.
supplies: Zero-rated supplies are still taxable supplies, but are charged at a 0% rate.
Exempt supplies are non-VATable. NB. supplier of land may have the option to charge VAT.

Taxable Vast majority of residential transactions: no payment of VAT.

supply in  Sale of a new build house by a developer - zero rated
property  Subsequent sale of a residential property by a private individual: not in course of business - no VAT
transactions:
Commercial properties:‘old’ ≠ ‘new’ (= new: within 3 years from completion of the building)
Taxable supplies - or where ‘option to tax’ (ie to charge VAT):
 The sale of a greenfield site is exempt, subject to the option to tax.
 The supply of construction services is standard rated.
 Professional services, provided by an architect or surveyor for example, are standard rated.
 The sale of a new freehold building is standard rated.
 The sale of an old freehold building is exempt, subject to the option to tax.
 The grant of a lease is exempt, subject to the option to tax.

Reasons for Seller of new commercial building: no choice, must charge VAT.
making an Seller of old commercial building: choice
option to  Effect: turn what would have been an exempt supply into a taxable supply.
tax:  May want to do this to enable recovery of the input tax incurred in relation to the building - ie building

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 work costs + professional fees.
NB. If the buyer cannot recover its input tax VAT, or can only make a partial recovery, then the purchase price
is, in effect, increased.
Tax charged before date of transaction (or included in price): chargeable for SDLT/LTT purposes = tax on tax.

Core principles of planning law:

Planning law affects whether a building can be built, altered or extended and also specifies the particular use
to which property can be put.
 Planning permission – normally subject to conditions.
 Breach of planning: responsibility of the owner of the property and any enforcement action could be
against the buyer of that property.
 Buyer may require planning permission for any works/use intended for the property after purchase.

S 57(1) TCPA 1990: planning permission is required for carrying out any development of land.
S 55 – ‘Development’: two strands
 Operational development (‘BEMO’) - building, engineering, mining or other operations;
 Material change in the use of any buildings or other land.

NOT ‘development’: maintenance, improvement or other alteration of any building or works which affect
only the interior of a building, or do not materially affect the external appearance of a building.

S 55(2): excludes a change of use within the same class of use as specified in the Town and Country Planning
(Use Classes) Order 1987 (the ‘Use Classes Order’):

In England: New class (Sept 2020) – England: Class E In Wales:

B2 – general industrial E(a) – retail sale of goods, other than hot food A1 – shops
B3 – storage and distribution E(b) – sale of food and drink for consumption A2 – financial and professional services
C – residential uses: hotels (C1), on the premises A3 – food and drink
dwelling houses (C3), houses in E(c) – financial and professional services B1 – business
multiple occupation (C4) E – E(g) – uses which can be carried out in a B2 – general industrial
commercial, business and service residential area without detriment to its B8 – storage and distribution
amenity, including offices to carry out any C – residential uses: hotels (C1),
F – local community and operational or administrative functions and residential institutions (C2), dwelling
learning: learning and non- research and development. houses sole or main residence (C3),
residential institutions (F1) and homes in multiple occupation (C4),
local community (including shops dwelling houses not sole or main
selling essential goods in residence (C5), short term lets (C6)
premises not exceeding 280m2 D – non-residential institutions (D1),
with no other such facility within assembly and leisure (D2).
1,000m) (F2).

Additionally: ‘sui generis’ uses = uses which could potentially have adverse effects on their locality:
 entertainment establishments (such as cinemas and bingo halls),
 drinking establishments (such as pubs and wine bars) and
 hot food takeaways (for the sale of hot food for consumption off the premises).

Change of use/mix of uses within same class —> no need for planning permission = not ‘development’
Change of use from one class to another —> will require planning permission - material change: ‘dev’
 Could be granted automatically without planning permission.
Changes to and from sui generis class —> will require planning permission - material change: ‘dev’
 Could be granted automatically as above.

—> Effect of a planning permission:

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 Once obtained, it continues to exist for the benefit of the land and of all persons for the time being interested
in it (unless otherwise specified).

Usually states it has to be implemented within a certain time and will lapse if not implemented in that time.
 England: usually within 3 years of date of permission; Wales: usually 5 years.

Usually no time limit for completion: but if Local Planning Authority (LPA) considers completion will not
take place in a reasonable time:
 LPA can serve a completion notice: permission will cease to have effect if completion has not taken
place by the expiration period stated in the notice.

—> Matters that do not require express planning permission: automatically granted

Developments commonly automatically granted under GPDO (General Permitted Development Order):
 developments within the curtilage of a dwelling house (ie extensions below a certain size)
 minor operations (such as painting the exterior of a building or installing a CCTV camera)
 automatic planning permission for specified changes between use classes

Effect of GDPO excluded by an Article 4 Direction issued by Secretary of State in charge of planning or LPA.

If in doubt: apply for a Certificate of Lawfulness of Proposed Use or Development under s 192 of the TCPO:
 made to LPA before works commence (+ description of works): LPA issues certificate if (i) works do
not constitute development, or (ii) permitted under GPDO. Otherwise: LPA refuses application.

No GDPO nor certificate of lawfulness: planning permission needed.

—> Enforcement: time limits and the range of the LPA’s enforcement powers:

To investigate a breach, LPA can: (i) exercise right of entry to the property or (ii) serve a planning
contravention notice, which requires the recipient to provide information about operations, use, or activities.

Enforcement action must be taken within four years if it relates to building works or a change of use to a
single dwelling, and within ten years for other types of development.

If the LPA fails to take enforcement action within the relevant time period, then no further action can be taken
in respect of the breach.

Enforcement Issued where there is a breach of any type of planning control. Served on the owner, occupier and any other
notice person having an interest in the land – effective 28 days after service.
 must specify the alleged breach and the steps to be taken, or the activities to be discontinued

In Wales, an LPA can serve an enforcement warning notice where it appears to the LPA that there has been a
breach of planning control and there is a reasonable prospect that planning permission would be granted if an
application was made.
Stop notice Since enforcement notice not effective until 28 after service —> LPA can serve a stop notice to bring activities
in breach of planning control to an end before the enforcement notice takes effect.
 Temporary stop notice is effective for 28 days only – allowing time for further investigation.
Breach of Can only be served where the breach of planning control is a breach of a condition attached to a planning
condition permission.
notice No right of appeal (≠ enforcement notice)
Injunction LPA can apply to court for an injunction to restrain an actual or apprehended breach of planning control.
LPA must show injunction is expedient and necessary and that the remedy is appropriate in the circumstances.

—
Building regulation control:

Building regulations = concerned with the health and safety aspects of buildings being constructed or altered.
Building Reg consent required for many works (including internal) even where planning perm. not required.
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  App for consent —> work inspected by building control officer —> local authority should issue a
certificate of compliance.
Self-certification schemes (eg plumbing and installation of windows): do not require a separate application.

Proceeding for breach of building reg must be brought within two years of relevant work being completed.
Local auth. can issue enforcement notice within one year of the work, requiring work to be altered/removed.
They can also take out injunctions, which are not time limited, if the work is unsafe.

Listed buildings:

List of buildings of special architectural or historic interest by the relevant government department (England:
Department for Digital, Culture, Media and Sport).

3 grades of listing (Grade 1, Grade 2* and Grade 2) - includes the building and any object or structure fixed to
it or within the curtilage of the building that forms part of the land and has done so since before 1 July 1948.

If building is listed: owner will probably require listed building consent to demolish, alter or extend the
building in addition to planning permission.
Planning permission needed if change of class allowed by GDPO is in relation to a listed building.

Conservation areas:

LPAs are obliged to designate as conservation areas any parts of their own area that are of special
architectural or historic interest, the character and appearance of which it is desirable to preserve or enhance.
 Changes to the external appearance: may require planning permission from the LPA that is not
required elsewhere, as some permitted development rights are curtailed.
 Demolition or substantial demolition: will require planning permission from the LPA.
 Any work planned to a tree in a conservation area must be notified to the LPA six weeks in advance so
that the LPA may determine whether or how the work to the tree should take place.

INVESTIGATION OF TITLE:

= establish who owns the property and if there are any rights/rules affecting owner’s use and enjoyment of it.
 Buyer and lender: similar concerns
 Seller’s S: investigate their client’s title and deal with any issues in advance to produce draft contract.
Typical sale contract: seller promises to sell property ‘free from incumbrances’ unless stated otherwise.

Investigation of title to Freehold Registered Land:

Seller S: obtain copies of the register of title for the property (‘official copies’) + ‘title plan.’
‘Deduction of title’: seller’s obligation to prove to the buyer their ownership of the property they are selling.
 Seller should supply official copies that are less than six months old.

Buyer S: investigate whether there are any overriding interests affecting the property - searches and enquiries.

How official copies are set out in registered land:

Three register entries:

Property Description of the land: address and title plan.
Register Also indicates: (i) Easement or rights benefiting the land and whether they are subject to obligations; (ii)
rights that have been excluded from the title (ie right of light and air).
Proprietorship Identifies the current owners and their address and the class of title – 3 possible classes:
Register  Absolute title: registered proprietor has vested in them the legal estate subject only to the entries on
the register.
 Possessory title: proprietor is in possession of the property but has lost the title deeds or is claiming

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 through adverse possession ie subject to all adverse interests existing at the date of first registration.
 Qualified title: specific identified defect which the Registrar feels cannot be overlooked or ‘cured’ by
the grant of absolute title.
Indicate the price paid for the land by the current owners (only if: sold since 1 April 2000).
Show if the owners gave an indemnity covenant when they bought the land.
Contain any restrictions on the owners’ ability to sell.
 Ie co-ownership restriction; lender restriction; restriction ordered by the court.
Charges Identifies incumbrances - in particular: (i) covenants (restrictive or positive); (ii) easements; (iii) charges (ie
Register mortgages); (iv) leases granted over property; (v) notices registered by 3 rd parties.

Issues that might be revealed in an investigation of title and further action required:

When right benefit the property: the buyer’s solicitor need only check that the rights are sufficient for the
intended use of the property and whether a contribution is required for upkeep.

When rights which burden the property are not properly considered and evaluated by the buyer’s solicitor,
this may amount to negligence.

Easements In Charges Reg but may also be in Property Reg if easements that burden the property are mixed in with
easements that benefit it.
Property Reg includes financial obligations to contribute attached to easements that benefit land.
The mutual benefit and burden rule from Halsall v Brizell applies.

Buyer S: enquiries about whether and to what extent seller has been complying with the obligations
attached to the rights + request for detail of any disputes + surveyor to inspect property.
Mines and Property reg: whether seller previously excepted or reserved the mines and minerals beneath the surface,
minerals together with a right to come onto the land to extract the valuable coal and other substances.
exceptions and Mining exception: seller does not own any mines and minerals underneath the surface of the property and
reservations cannot transfer them to the buyer.
A reservation creates an incorporeal right in the mines and minerals by way of a profit à prendre.

Buyer S: enquiries as to the ground stability and whether there has been any subsidence.
 Info on who can exercise these rights and if they have ever been exercised in the past.
 Conduct an Index Map search at the Land Registry, on form SIM = check whether the mines and
minerals are registered under a separate title; if so, will help to identify the owner of those mines.

All interests in coal vested in the Coal Authority (Coal Industry Act 1994): coal mining search.
Declarations as Proprietorship reg: Sale of part: Part A and Part B. To preserve rights to develop Part B in future, seller
to rights of light may declare in the transfer that Part A does not enjoy the benefit of any rights of light and air over Part B.
and air
Buyer S: enquiries about the extent and location of the adjoining land.
 Buyer informed and asked whether this reservation of rights to light and air causes concern.
Co-ownership In registered land: can be assumed that the equitable interest is held as a joint tenancy unless a restriction
appears in the Proprietorship register in the following terms:
RESTRICTION: No disposition by a sole proprietor of the registered estate (except a trust corporation) under
which capital money arises is to be registered unless authorised by an order of the court.

Property is jointly owned but sold by only one co-owner - establish what happened to missing co-owner:
 Alive: must be a party to the contract and the transfer of the property.
 Dead: seller’s solicitor will need to provide a certified copy of the death certificate.
If the equitable interest also held as joint tenants = surviving co-owner can transfer the property alone.
 In registered land: buyer can assume that the equitable joint tenancy was not ‘severed’ prior to the
death of the deceased co-owner in the absence of the restriction in the Proprietorship register.
If the equitable interest was held by the co-owners as tenants in common, another legal owner (‘second
trustee’) must be appointed to overreach the equitable interest of the deceased co-owner.
 Can be made in the transfer or by a separate deed of appointment.
If the deceased co-owner’s interest has passed to the surviving co-owner by will/intestacy rules, this can be
proved through copies of the grant of probate and the assent from the PRs.

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Restrictive Charges reg: prevent land being used in particular ways and usually bind successors in title to og parties.
covenants
Buyer S: consider following options to deal with restrictive covenants:
 Ask seller if they know who currently owns the property with the benefit of the covenant —>
ask that owner if the buyer can come to some arrangement with them over the proposed use.
 Obtain a restrictive covenant insurance policy for the proposed breach of covenant. But: not
appropriate if the person with the benefit of the covenant is likely to know that they have the
benefit of the covenant and object to the proposed use (such as the immediate neighbour).
 = if buyer wants to rely on insurance, MUST NOT approach beneficiary of covenant.
 Apply to the Upper Tribunal (Lands Chamber) for modification or discharge of the covenant
under s 84 Law of Property Act 1925, on the grounds that the covenant is obsolete or confers no
practical benefit and the loss of the covenant can be compensated in money.
Positive Charges reg: positive cov obliges the covenantor to carry out works or incur expenditure.
covenants Always binds og covenantor, but the burden of a positive covenant does not run to a successor in title.
However: chain of indemnity could be in place. Check for indemnity covenant in Proprietorship Register.
If seller gave indemnity, they will provide in contract for buyer to give equivalent indemnity covenant.
Unknown Charges reg: sometimes property subject to covenants whose nature and wording are unknown.
covenants “… contains covenants but neither the original conveyance nor a certified copy or examined abstract thereof
was produced on first registration.”
Safest option: assume cov is restrictive and binding —> obtain indemnity insurance policy.
Mortgages Seller usually discharges mortgage using proceeds of sale.
Two entries in the Charges register:
 Date and purpose of the charge: Ie. REGISTERED CHARGE dated 1 September 2005 to secure the
moneys including the further advances therein mentioned.
 Identity of the lender.
Lender may place a restriction in Proprietorship reg preventing borrower from disposing of the property
without consent of lender: RESTRICTION: No disposition of the registered estate by the proprietor of the registered
estate is to be registered without a written consent signed by ….

Buyer S: check that the contract states that the seller is selling the property free of the mortgage and that
the seller’s solicitor gives an undertaking to discharge the mortgage immediately on completion.
Leases Issue only if buyer expects property with vacant possession, as tenant has possession + control for duration
of the lease. In registered land:
 Grant of a lease of more than 7 years requires registration with separate title number and
registration as notices in the Charges register (such leases are 3rd party interests).
 If registered: bind the buyer.
 If not registered: not binding but may be an overriding interest if the tenant is in occupation.
 Legal lease not exceeding 7 years and equitable leases: overriding interests if T in occupation.
 Parol lease (s 54(2) LPA): no formalities – will be binding.
Notices (reg Charges reg: entry in respect of the burden of an interest affecting a registered estate or charge.
land only) Notices can be: (i) agreed where put on reg in agreement with registered owner; and (ii) unilateral when
reg owner refused consent to the entry or has not been asked about it.
The entry of a notice does not guarantee that the interest is valid or that it even exists.
 Notice does not give rights: ensures that priority of the interest is protected vs subsequent interests.
Notice of greater concern if in respect of a valid interest such as a contract for sale, covenants or a lease
Two courses of action available to the buyer:
 Refuse to proceed any further until the seller deals with the unilateral notice —> buyer should
require the seller to get the notice cancelled by the Land Registry before exchange of contracts.
 Walk away from the transaction.
Home rights Charges reg: s 30 FLA – statutory right for a non-owning spouse to occupy the matrimonial home.
A home right does not create an interest in land —> binding if protected by notice in Charges reg by the
date when the transfer of the property to the buyer is registered.

Buyer should require seller to obtain from the non-owning occupier a release of all rights in the property
and agreement to vacate on or prior to completion – dealt with in the contract.

——————

10
TOPIC 2: INVESTIGATION OF TITLE IN UNREGISTERED LAND

Investigation of title in freehold Unregistered Land:

First: check whether land is registered or is the subject of a pending application for first registration.
 Pending application = warning of an interest on the land.
 Checks: Index Map search at Land Registry on Form SIM + plan of property

If title not registered: title is proved by the title deeds.

 Before exchange: seller gives copies. On completion: seller hands over originals.
 Sale of part: seller keeps originals and gives certified copies.
 ‘Verification of title’: buyer’s solicitor examines the original title deeds against the copies.
 A memorandum of the sale of part is marked on the original deed.

Deducing title: examining the paper deeds used to transfer ownership of the property in the past.
Seller’s S must:
1. Obtain title deeds: (i) from seller if property is mortgage free; (ii) from lender if subject to a mortgage.
2. Consider whether any past transaction should have triggered first registration of title.
o If the title should have already been registered, the seller will be required to register it
before any other transactions can proceed.
3. Find the document that will be the ‘root of title’, doc from which to begin the title investigation.
o seller’s s must pick the single document that will be the root of title for that particular sale.
o Usually most recent doc that satisfies all requirements.
o Any doc older than the root can be ignored with one exception: where the root document
refers back to a third party right created in an earlier conveyance.
4. Prepare an Epitome of Title: schedule of all docs from and including the root up until the present day.
o Attached to the epitome are copies of each of these docs - ie conveyances, mortgages etc.
o Older properties: ‘Abstract of title’ - précis of all documents comprised in the title.

Requirements for a good root title:

Under s 44 LPA 1925, a root of title must:

 deal with or show who owns the entire interest (legal and equitable) being sold by the current owner
 contain a recognisable description of the relevant land
 do nothing to cast doubt on the seller’s title
 be at least 15 years old.

Double guarantee = soundness of title for at least 30 years as buyer under root investigated the previous 15 yrs
Conveyance - generally preferable doc: details on incumbrances and legal/equitable interests in property.
 Then: mortgage. If neither conveyance nor mortgage: deed of gift or an assent - but less reliable.

Conveyance dealing with legal & equitable interest:

Para begins with ‘WHEREAS’ stating that the Vendor (seller) is ‘seised of the property ... for an estate in fee
simple and is selling the same to the Purchaser’ (buyer).
Should also state that the Vendor conveys the land as ‘beneficial owner ... unto the Purchaser’.

Checking each title deed in the epitome of title:

Root and all subsequent title deeds must be checked in a systematic and thorough manner. Relevant matters:

11
Chain of Unbroken chain of ownership from the owner indicated in the root of title up to the present seller.
Ownership  Documentary evidence of every change of ownership
 Person who acquired the property in the root =same person transferring title in the next document.
 Not the same person when owner died —> grant of probate identifying PRs must be produced.
Description of Title deeds need to be checked to ensure the description of the property is consistent throughout.
Land Exception: sale of part - conveyances of part indicate the land was once a larger estate.
Stamp Duty Stamp duty: payable on conveyancing docs prior to December 2003 - evidenced by stamp on top margin.
Stamp duty on property transactions was largely replaced by SDLT on 3 December 2003.
Incumbrances Each title deed should be checked for incumbrances such as easements and covenants.
Easements: words ‘EXCEPTING AND RESERVING’ = seller reserved an easement on an earlier sale.
Incumbrances: ‘SUBJECT TO’ - ie. an obligation to pay towards the maintenance of a road.
Execution Most docs will need to be executed as a deed (s 52 LPA) = formalities (s 1(2) LP(MP)A) must have been
complied with: (i) writing; (ii) clear on its face it is a deed; (iii) signed by seller/person granting interest in
the presence of a witness; (iv) delivered as a deed.
Seller always executes conveyance to transfer legal estate in land. A buyer will only do so if they are giving
a new covenant or they will be holding the land on trust (ie will need to declare that trust).
Land Charges Some incumbrances will only bind unregistered land if correctly registered at Land Charges Department.
Searches Most common:
 C(iv) —> estate contract
 D(ii) —> restrictive covenant
 D(iii) —> equitable easement
 F —> Home Right
Searches against the names of all the estate owners revealed in the epitome of title and the attached docs.
Search, on form K15, should be against each estate owner for the period that they owned the land.
It is possible to rely on valid searches done by others in the past, on previous sales.

Issues that might be revealed in an investigation of title and further action required:

Easements Easements are usually granted or reserved immediately in the first operative paragraph of the conveyance.
TOGETHER WITH a right of way for the Purchasers and their successors in title to pass and repass over the
land shown hatched brown on the plan attached hereto with or without vehicles during normal working hours
for the purpose of gaining access to and egress from the rear of the property hereby conveyed SUBJECT TO the
Purchasers and their successors in title paying a fair and reasonable proportion of the costs of maintaining the
land shown hatched brown on the plan attached hereto.
Same checks as for registered system.
Mines and Such a provision will appear in the conveyance itself.
minerals
exceptions and Buyer S: Index Map search at the Land Registry, on form SIM to check whether the mines and minerals are
reservations registered under a separate title – same as for registered land.
Declaration as Same checks as for registered system.
to rights of light
and air
Co-ownership Buyer entitled to assume that the joint tenancy was not severed if the following three conditions set out in
the Law of Property (Joint Tenants) Act 1964 are met:
1. No memorandum of severance endorsed on the conveyance of the property to the joint tenants.
2. No bankruptcy proceedings registered vs either of the joint tenants at the Land Charges Registry
3. The transfer by the surviving joint owner to the buyer contains a statement that the survivor is
solely and beneficially entitled to the land.
Same checks (and overreaching) as for registered system.
Restrictive A post-1925 restrictive covenant will only be binding against the buyer if it was validly registered as a
covenants D(ii) Land Charge against the name of the original covenantor. Same checks as for registered system.
The Purchaser with the intent and so as to bind the property hereby conveyed into whosoever hands the same
may come and to benefit and protect the adjoining and neighbouring property of the Vendors or any part
thereof HEREBY COVENANTS with the Vendors and their successors in title not to use any building
erected on the property hereby conveyed other than as offices.
Positive Positive cov only binding if indemnity was given. Example of indemnity in a conveyance:
covenants THE Purchaser hereby COVENANTS with the Vendors to observe and perform the covenants contained in
the Conveyance and shall indemnify the Vendors from and against all actions costs proceedings and claims in
12
 respect of any future breach thereof.
Unknown Existence of covenants may be apparent on the face of the conveyance. Ie The property is sold:
covenants ‘SUBJECT TO the covenant contained in a Conveyance dated the 18th July One thousand nine hundred and
thirty and made between Harold Stephens (as vendor) of the one part and Gerard Howard (as buyer) of the
other part’, but the seller is unable to produce the original or a copy of the 1930 Conveyance.
Safest option: indemnity insurance policy.
Mortgages A mortgage will appear as one of the title deeds listed in the epitome of title.
A mortgage which has been discharged: usually a ‘vacating receipt’ – ie.
NATIONAL MIDLAND BANK LIMITED hereby acknowledges to have received from [THE
BORROWER] all monies intended to be secured by the written deed.
Same considerations as for registered system.
Leases A legal lease (other than a parol lease) will have been created by deed and should be one of the title deeds
scheduled in the epitome of title. Parol lease: no formalities – always binding.
Home rights A home right must be protected as a Class F land charge in order to be binding on a buyer.
Seller should be required to obtain from the non- owning occupier a release of all rights in the property and
agreement to vacate on or prior to completion.

——————

PRE-CONTRACT SEARCHES AND ENQUIRIES:

Seller has no duty to disclose (ie physical defects of property, whether there is planning permission for any
extensions built on the property etc) = buyer’s solicitor must carry out due diligence.
Failure to make the correct searches and enquiries can give rise to a claim of negligence from a buyer.
Info revealed of equal important to a lender intending to make a loan to B secured by mortgage over the property.

Type of search Standard Search Form Sent to Purpose Particularly indicated where:
Survey/personal Structural survey: detailed All transactions, but the type
inspection commentary of the structure - if and level of detail required will
buyer has concerns on state of vary
the property/wishes to carry out
alterations.

‘Homebuyers’ valuation and

survey’: less expensive - less
detailed than structural s but
contains advice on necessary
repairs /maintenance.
Local search LLC1: details of any The local To identify matters imposed by All transactions, but CON29O
financial charges or authority or known to the local authority. enquiries should only be raised
restrictions – ie planning where appropriate.
consents. The local search only relates to
CON29: standard enquiries the property itself and not
- important info - Planning adjoining land.
permissions, any
restrictions on permitted
development (such as an
Article 4 Direction),
whether the land has been
designated as contaminated
land, etc.
CON29O: optional
enquiries - raised depending
on the locality.
Water and CON29DW: residential The statutory To establish connection to All transactions.
drainage search properties. undertaker, a public sewer and public water Major concern for B: liability
CommercialDW: usually a supply. for the costs of drain and
commercial properties. water If the property does not drain sewage repairs.
company into a public sewer: buyer will
be liable for the costs of

13
 maintaining the drains and
sewers and may be liable for
the costs of bringing them up to
adoption standard
Pre-contract Typical enquiries include: The seller To seek information All transactions: usually a
enquiries of the • whether seller had any that the owner/ occupier of the standard set of enquiries, but
seller disputes regarding property property can be expected to additional specific enquiries
• whether there are any 3rd know can be raised
parties in occupation
• compliance with any covs
contained within the title
• any planning permissions
• issues about boundary
maintenance and
• in the case of commercial
properties, the VAT status
of the transaction

Environmental Both CON29 standard and Various To identify contaminated land. Desktop search: looks at all
searches the CON29O optional sources of plans of the area, information
enquiries contain questions information published by local authorities
relating to Environmental available and the Environment Agency.
Protection Act 1990.
** CON29 asks if land is If desktop search identifies risk
contaminated, BUT of contamination —> buyer
negative reply = local considers commissioning a
authority may not have physical survey of the land by a
inspected the property yet. speciality environmental
surveyor – ie samples of soil.

Consider insurance.
Flood search Various To identify whether the Risk screening searches for all
sources of property is at greater than transactions; more detailed
information normal risk of flooding. report where risk identified.
available Indicated where property is
close to a river or in the case of Insurance for flooding: Flood
water surface flooding (heavy Re (residential properties only)
rainfalls)
Chancel repairs Unregistered land: the Search done To identify potential liability to Particularly relevant when the
search buyer will only be bound if by pay for repairs to the chancel of property is unregistered
the chancel repair liability commercial a Church of England Parish or where there
is referred to in the title provider Church. has been no disposal for value
deeds or protected by a of registered land since 13
caution against first October 2013
registration lodged prior to
first registration,
Coal mining CON29M Coal To establish whether the For properties in a coal mining
searches Authority property is in a coal mining area and/or with a mines and
Searches for area and whether there has been minerals reservation in the title.
other types of a claim for subsidence.
mining
available for Subsidence: when the ground
specific under a building collapses, or
geographic sinks lower, damaging the
areas foundations and causing cracks
in the structure above.
If a claim has already been
paid, it may prevent a future
claim being made.
Canal & River Canal & River To establish liability for Where the property is adjacent
Trust search Trust maintenance of waterways to a canal or river

14
 banks and towpaths
Commons Enquiry 22 in the CON290 Local To check that the property is Where the property is adjacent
search form. authority not protected as common land to open land – as may be
or a town and village green subject to commons rights - ie.
right to pasture.
Railways The reply to enquiry 22 in Network Rail To establish liability for No general search available,
search the CON29 form in the boundary maintenance and/or owner can raise a specific
Specific local search will reveal if restrictions on use proposal with NR where a
searches the property might be property adjoins a railway line
available for affected by a proposed rail
proposed major scheme.
rail
undertakings
Highways The replies to enquiry 22 of Local To establish whether verges and Where there appears to be land
search the CON29 form in the highway pavements are publicly in private ownership separating
local search will provide authority maintainable the property from the highway
certain information about
the roads adjoining the
property (verges and
pavements not covered).
Index Map SIM Land Registry To see if the Where the property appears to
search land is already registered, or be unregistered land or where
registration is pending, or if there is a mines and minerals
there is a caution against first reservation in the title
registration
Land Charges K15 Land Charges To see if certain types of Where the property is
search Department incumbrance have been unregistered land
Plymouth protected by registration against
the relevant estate owner so as
to be binding on the buyer
Company Online application Companies To check capacity, signatories Where the seller is a company
search House and charges (and against all corporate estate
owners where the property is
unregistered).
The search will need to be
repeated just before completion
to check for insolvency issues.
Bankruptcy/ Individuals: K16 Individuals: To check there are no All transactions when acting
insolvency Companies: Company Land Charges insolvency or bankruptcy for the lender.
search search department in proceedings
Plymouth
Companies:
Companies
House

Online search providers:

The National Land Information Service, known as NLIS, was developed by Government departments in
conjunction with the Land Registry, local authorities and other bodies.
To use the service, a firm must register with one of the ‘channel’ providers, certain channels that are licensed
by NLIS to provide searches to solicitors and licensed conveyancers.
The search is submitted by the solicitor via a secure internet connection to the chosen channel, which in turn
passes it to the NLIS hub which acts as the gateway for information and services from NLIS data providers.

Order searches without using a licensed NLIS channel:

An umbrella group, the Council of Property Search Organisations (CoPSO), publishes a list of its current
members, all of whom agree to abide by code of conduct for the provision of property searches.

15
 Replies to enquiries:

Planning Check for planning permission – unless it wasn’t needed (ie building dates before 1946).
permission Check for planning conditions attached to permission – will they prevent buyer’s intended use/alterations?
Check for existing breaches of conditions for which action may be taken against the buyer after completion.
 Local planning authority: can take enforcement for up to 10 yrs from breach.
Buyer S: check CON29 results (enforcement and stop notices) & CON29O results (completion notices)
Road adoption Check CON29 for info on roads & public highways adjacent to the property.
If road/highway not maintainable at public expense = no automatic right to use it and that the local
authority is not paying for its maintenance.
Buyer S: establish how buyer will have right to use the road – ie express easement in existence or by prescr.
Ask seller for any current private arrangements for maintenance + amount of recent contributions.
Tree Tree preservation order (‘TPO’) will be revealed as a local land charge in the LLC1 result.
preservation Criminal offence to lop or fell a tree subject to a TPO without consent of local planning authority.
orders Pre-contract enquiries: copy of TPO, establish location of protected tree(s), check compliance with TPO.
Smoke control Revealed in the LLC1 result. Purpose: restrict the use of non-smokeless fuels in domestic fireplaces —>
orders might be a problem for the buyer if the property has an open fireplace which they intend to use.
Conservation Revealed in either the LLC1 or CON29 results. The buyer should be informed as it will be more difficult to
areas make changes to the property than would normally be the case.
Occupiers An occupier may be able to claim an equitable interest or a tenancy in the property (ie Home Right).
Adult occupier: seller should obtain from occupier a release of all rights + agreement to vacate prior to
completion. Usually dealt with in the contract.

——————

TOPIC 3: PREPARATION FOR AND EXCHANGE OF CONTRACTS

Exchange of Cs —> parties become bound to complete transaction: they fix the terms of the transaction.
Contract: agreement to transfer the land at a later stage -provides with:
 Certainty as to nature and extent of property, financial terms and timetable.
 Prevents either party withdrawing from the transaction without being liable for breach of contract.

Contract may be drafted by Seller S or a pre-printed form can be used.

There are two sets of standard conditions commonly in use:
 Standard Conditions of Sale (5th edition – 2018 Revision) (‘SC’) —> used for all residential
transactions and some simple commercial transactions.
 Standard Commercial Property Conditions (3rd edition – 2018 Revision) (‘SCPC’) —> suitable for
use with high value commercial properties and contain more detailed provisions for the management
of occupational leases.

Both the SCs and the SCPCs are divided into three parts:
 Front page: description of the property and the terms of the sale – ‘particulars of sale’
 Middle: standard conditions (either SC or SCPC) – ie terms that will govern the transaction.
 SCPC – 2 parts: Part 1 applies unless excluded & Part 2 only applies if specifically included.
 Back page: special conditions – specifically drafted to meet particular reqs of this transaction.

Key conditions in SC and SCPC:

Particulars Info on parties, property and financial terms of the transaction.

 Some practitioners include rights/incumbrances in the description of the property.
Registered property: contract must state title number and class of title.
Unregistered property: defined in the contract by reference to the root of title.
Specific Specify in the contract all the burdens on the property – 3rd party rights which will survive the transfer.
incumbrance If not specified: seller could be in breach of SC 3.1.1, which says that the seller sells free of all incumbrances
s other than those specified in the contract or of a type listed in SC 3.1.2.
 Equivalent: SCPC 4.1.1 and SCPC 4.1.2

SC 3.1.2 and SCPC 4.1.2 both list the following as incumbrances subject to which the property is sold:
16
  those specified in the contract
 those discoverable by inspection before the date of the contract
 those the seller does not and could not reasonably know about
 public requirements.
SC 3.1.2 also includes in its list:
 those, other than mortgages, which the buyer knows about
 entries made before the date of the contract in any public register, except for those maintained by the
Land Registry, the Land Charges Department and Companies House.
SCPC 4.1.2 expresses the same concept slightly differently and includes in its list:
 matters, other than mortgages, disclosed or which would have been disclosed by the searches and
enquiries which a prudent buyer would have made before entering into the contract.
Seller S must list everything not covered by SC 3.1.2 or SCPC 4.1.2.
Non-disclosure —> Buyer has right to rescind the contract and/or claim damages.
As burden of positive covenant does not run with land – could be excluded from list – but usually included.
Buyer S: make sure Seller’s mortgage not included: must be discharged on completion.
Title A seller can sell with either full or limited title guarantee:
guarantee  Full title guarantee if they own the entire legal and equitable title to the property
 Limited title guarantee where seller has limited knowledge of the property, eg executor or trustee.
 No title guarantee where ie seller is a person appointed following the insolvency of the owner.

A covenant for title is referring to those implied promises given by seller to protect buyer, which statute
implies into a transfer where the seller agrees to give ‘full title guarantee’ or ‘limited title guarantee’.

Full & limited title – impliedly covenant in the transfer that:

 They have the right to dispose of the land
 They will do all they reasonably can to transfer the title
 In case of leasehold: lease is subsisting at the time of disposal and there is no breach of covenant
making the lease liable to forfeiture.
Full title: covenant that land is disposed free from incumbrances other than those the seller does not know
about and could not reasonably know about.
 S 6 LP(MP)A 1994 - excludes: (i) matters to which the disposition is expressly made subject; (ii)
matters about which the buyer knows at the time of the disposition and (iii) matters which at the time
of the disposal were entered on the registers of title.
Contract rate Contract rate: rate of interest that will be charged if a party is late in completing.
 Interest charged on purchase price (less the deposit if it is the buyer in default)
 Most conveyancers opt for ‘the Law Society’s interest rate from time to time in force’, which is
published weekly in the Gazette and is currently 4% above the base lending rate of Barclays Bank plc.
o This is what the SCs and SCPCs already provide at 1.1.1(e).
o Parties can agree to a different percentage.
Deposit Deposit is paid on exchange of contracts:
 SC: paid by electronic means or cheque drawn on conveyancer’s client account
 SCPC: electronic means only
In both cases: (1) funds must come from an account in the name of a conveyancer at a clearing bank. (2) An
electronic payment must be paid into the account in the name of the seller’s conveyancer at a clearing bank.
Where SC 2.2.5 applies:to an account of a conveyancer nominated by the seller’s conveyancer.

If buyer fails to complete, under SC 7.4 or SCPC 10.5 the seller may forfeit and keep the deposit.

SC 2.2 and SCPC 3.2: deposit of 10% of the purchase price payable on exchange and is paid to the seller S as
‘stakeholder’, ie Seller S cannot hand it over to the seller until completion.
NB. If SC is being used: SC 2.2.5: Seller can use the deposit as a deposit on a related purchase of a house.
 Not permitted by SCPC 3.3.2: a special conditions would need to override SCPC 3.3.2.

Parties can agree differently: ie (i) seller may accept a reduced deposit (clearly state this in contract + special
condition requiring the buyer to top up the deposit to the full amount if completion is delayed); (ii) deposit can
be held by seller S as agent and not ‘stakeholder’ = deposit released and seller can use it for any purpose

Special conditions:
17
= relate to the individual characteristics of the property and the particular circumstances of the transaction.

There are some pre-printed special conditions:

 Special condition 3: whether the sale includes any contents or excludes any fixtures
 Special condition 4: whether the property is to be sold with vacant possession or subject to leases
 Special condition 5: only where time for completion has been altered by agr and should be deleted
 Special condition 6: standard clause that should be left in as it makes it clear to the parties that they
should not rely on any representations that have not been made in writing.
 Special condition 7 will need to be completed where there is a non-owning adult occupier

There is space to incorporate new special conditions - these may be:

 appointment of a second trustee for the purposes of the transfer;
 arranging for the seller to obtain or pay for a restrictive covenant insurance policy;
 disclosing a defect in title;
 seller selling with limited or no title guarantee;
 deposit of less than 10% and/or for the deposit to be held as agent rather than stakeholder;
 payment of VAT;
 removal of fixtures by the seller;
 inclusion of an indemnity covenant in the transfer to protect the seller from liability;

SC 4.6.4 and SCPC 7.6.5 : where the seller has an ongoing liability (due to indemnity chain) in relation to the
property, the buyer must give the seller a personal indemnity covenant in the transfer.

Insurance and risk:

The risk of damage to the property passes to the buyer on exchange of contracts (SC 5.1.1 and SCPC 8.1).
 = must complete purchase even if the property is damaged/destroyed between exch and completion.

Insurance arrangements can be put into place at the moment of exchange – insurance must be adequate.
 If property bought with a mortgage, lender may insure the property.

SC 5 and SCPC 8: seller under no obligation to insure a property unless required by a special condition.

Parties can agree that the risk remains with seller —> then SC 5.1.3 and SCPC 8.1.2 require the seller to
maintain the policy until completion and if the property suffers damage prior to completion, to hand the
insurance proceeds over to the buyer.

Two policies on same property: risk that buyer’s insurer will reduce the proceeds because another policy
exists. —> SC 5.1.5 and SCPC 8.2.4(b) provide that if this happens and the buyer is unable to recover the
full amount of the proceeds, the purchase price is reduced accordingly.

VAT:

VAT not normally charged in residential transactions – SC 1.4: purchase price is inclusive of any VAT.
Commercial property: VAT payable if: (i) new building (less than 3 yrs); (ii) seller exercised option to tax.

Three possibilities:

1. SCPC 2: The purchase price is exclusive of VAT and VAT will be added on top:
 standard rated supply of a commercial building within three years of construction where seller has no
choice but to charge VAT.
 old commercial property where the seller needs to opt to tax to recover VAT paid on
refurbishment and/or professional costs and the buyer is not VAT- sensitive.

2. SC 1.4 or a special condition in a SCPC contract: purchase price inclusive of VAT so that VAT, if any,
cannot be added on top:
 supply of an old commercial building where the seller does not have input VAT to recover (eg the
seller has not carried out a refurbishment)

18
3. SCPC Part 2, Condition A1: purchase price exclusive of VAT, so VAT can be added on top in the
unlikely event that the law changes to make an exempt supply chargeable at the standard rate, but the seller is
contractually obliged not to opt to tax:
 Supply of an old commercial building where the seller does not have input VAT to recover so does
not need to opt to tax, but is not willing to take the risk that there will be a change in the tax regime
between exchange and completion.
 ** disapplies SCPC 2, instead seller has right to charge VAT in addition to purchase price if law
changes between exchange and completion.

The requirements of a lender:

Even cash-rich buyers of commercial property will choose to borrow the money to purchase because the
interest payable on the loan is a deductible expense for tax purposes and, for a large company, could be less
than the return they will make by investing the cash or using it in other ways in the business operation.

Mortgage lenders seek to limit their exposure to the risks by setting out their own specific instructions and
requirements for a conveyancer.
Lender: property is good security + buyer is creditworthy —> once lender is satisfied: issue a document to the
buyer setting out the terms on which the lender is prepared to make the loan:
 ‘Mortgage offer’: for residential and simple commercial loans
 More complex loans: commitment letter with a term sheet attached followed by a facility
agreement containing the detailed terms of the lending arrangement.

The mortgage offer may allow the lender to withdraw the offer, even after the buyer has exchanged contracts.
Most lenders will want a first legal mortgage over the property owned by the borrower.
 Legal mortgages: made by deed and completed by registration.

Mortgage made by deed has implied into it a power of sale under s 101 LPA 1925 —> first legal mortgage: in
the event that the borrower cannot repay the loan, it is paid first out of any proceeds of sale.

Acting for the lender:

S can act for both provided that the clients have a substantial common interest and all the safeguards in para
6.2(i)–(iii) are in place.

(Even when acting for B only) Buyer S reports to lender on results of title investigation and pre-C searches.

Buyer S —> prepares certificate of title for lender: disclose any problems with the property

The majority of UK mortgage lenders are members of UK Finance or the Building Societies Association.
 = Instructions for individual member lenders available to view online in the UK Finance Mortgage
Lenders’ Handbook for Conveyancers.
 Ie. Matters a specific lender will lend on, type of searches required, what circumstances for indemnity
insurance etc.
 Part 1 —> all lenders
 Part 2 —> individual lenders set out specific requirements
 Part 3 —> standard instructions where a conveyancer is representing the lender but not the borrower.

The lender’s requirements must be met before the conveyancer will be in a position to request the release
(draw down) of the mortgage funds.

Certificate of title to the lender:

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 Certifies that the property has ‘good and marketable’ title. Given immediately prior to completion.
Usually required in the form approved by the Law Society and UK Finance.

The certificate confirms to the lender:

 there are no legal problems with the property (it has a ‘good and marketable title’)
 who will own the property once the sale is completed
 the completion date when the funds are needed.

Commercial transactions: more detailed certificate.

 Report about a property, a summary of the information which has been ascertained by a solicitor in
the title investigation and the pre-contract searches and enquiries.
 Reduces the volume of paperwork to be reviewed and avoids the need for duplication of info.

Certificate = series of statements about the property.

Certificate of title in the City of London Law Society’s form:

 A special type of report on title which is set out in a series of statements which cannot be altered.
 If a statement cannot be agreed with, the solicitor makes a disclosure against the statement which
sets out how the statement does not apply to the property.
 By giving the certificate of title, S confirms that title is good and marketable.

Info in certificate wrong —> lender can sue the firm = there are warranties as to the correctness of the info.

Buyer S will not exchange Cs until they know the lender is satisfied with certificate and any disclosures.

Preparation for and exchange of contracts:

Report to client ‘Pre-contract report’: Buyer S should report to the buyer in writing, explaining the results
of title investigation, searches and enquiries and the terms of the contract and the
mortgage offer.
Report to lender Buyer S should report to the lender, who will need to know the property is good security
for the loan and has ‘good and marketable title’.
Ensure deposit funds are The deposit funds should be available to the Buyer S in cleared funds, ready to send to the
available Seller S at exchange of contracts.
Check the mortgage offer is in B needs to have the mortgage offer in place (and accepted it) and to have complied with
place and that the client has any conditions attached to the mortgage offer.
sufficient funds to complete
Ensure arrangements are in Risk passes to the buyer on exchange and therefore the buyer needs to have insurance in
place for insurance immediately place from exchange.
following exchange Arrangements made in advance of actual exchange.
Contract signed Both solicitors need to ensure that their client has signed their copy of the contract.
In many cases a client will sign in ‘wet ink’, although a 2019 Law Commission report
concluded that an electronic signature can lawfully be used to execute a doc provided the
person signing doc intends to authenticate it and any execution formalities are satisfied.
Completion date Both solicitors will need to discuss this with their client and the other side in advance of
exchange of contracts.

Practice, method and authority to exchange:

Solicitors must obtain clients’ authority to exchange (if not: negligence). Authority: in writing + note on file.
Formalities: s 2(1) LP(MP)A: in writing, all terms (in one contract or in each copy), signed by both parties.

Exchange of contract can be done in any of three ways:

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In person One solicitor attends the other’s office and hands the contract over.
By post Each solicitor sends their client’s part of the contract by post to the other solicitor’s office.
By telephone Law Society Formula A: used where one solicitor holds both parts of the contract duly signed —> the
undertakings are that the S holding both signed parts of the contract will, that same day, send their client’s
signed part of the contract to the other side by first class post, through a document exchange, or by hand +
Buyer S also undertakes, that day, to send to the other side a banker’s draft or client account cheque for the
agreed deposit.

Law Society Formula B: used where each solicitor holds their own client’s signed part of the contract —>
undertakings: each S holds their own client’s signed part of the contract; each S will, that same day, send the
signed part of the contract that they are holding to the other side by first class post, through a document
exchange, or by hand duly dated; + Buyer S, together with the signed part of the contract, will that day also
send to the other side a banker’s draft or client account cheque for the agreed deposit.

Law Society Formula C: used mainly in residential property work when there is a chain transaction (ie where
there are 2+ properties being sold) = aim: synchronise all the exchanges in the chain so that nobody ends up
owning two properties or no property at all (Very complex) —> in each case, solicitor should record the
exchange; this is done at the time of the phone call exchanging contracts. A file note is also made recording the
fact of exchange with the following information:
 the date and time of exchange;
 the formula used and the exact wording of any agreed variation to the formula;
 the completion date;
 the deposit to be paid; and
 the identities of the solicitors involved in the exchange.

Consequences of exchange:

Exchange = binding contract exists from which neither party may withdraw without incurring liability.

Seller: retain legal title until completion, but holds beneficial interest on behalf of the buyer.

During this period, the seller is entitled to remain in physical possession of the property (although it is
possible for the parties to agree that the buyer can occupy the property as licensee (see SC 5.2.2)).

Seller must pay the outgoings, such as the community charge or business rates, until completion.

Unless otherwise agreed, buyer bears the risk of any loss or damage to the property —> need to ensure that
insurance of the property is in place and effective from the moment of exchange.

——————

TOPIC 4: COMPLETION

After exchange:
 Inform client exchange has taken place
 Comply with undertakings given during telephone exchange

Completion: commonly 2 weeks after exchange. Sometimes: ‘simultaneous exchange and completion’

Main tasks in pre-completion stage:

 Preparation of the transfer deed
 Pre-completion searches
 Making practical arrangements for completion
 Ensuring the finances are in order for completion

Order of steps after completion:

 Arrange for TR1 to be executed
 Pay balance of purchase price to seller's solicitor

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  Agree date of TR1
 Date mortgage deed
 Pay stamp duty land tax
 Register transfer of title at Land Registry
 Check Title Information Document when received back from Land Registry
 Deal with safe custody of Title Information Document and other papers
 Close file

Formalities for execution:

S 52 LPA: deed required. S 1 LP(MP)A: formalities of deed.

Deed executed by individual: signature witnessed by an independent witness.

Company - must execute deed in one of three ways:

(i) using the company seal in accordance with the articles of association
Executed as a deed by affixing the common seal of [name of company] in the presence of:

(ii) having it signed by a director and the secretary, or by two directors of the company, provided that the
deed is expressed to be executed by the company
Executed as a deed by [name of company] acting by [a director and its secretary]/[two directors]

(iii) having it signed by a single director in the presence of a witness who then attests that signature:
Executed as a deed by [name of company] acting by a director in the presence of: signature of witness
Name, Address

Seller: always executes the transfer deed.

Buyer: executes deed if buyer is entering into an obligation or making a declaration in the TR1.

Delivery: a document which makes it clear on its face that it is intended to be a deed is presumed to have
been delivered on execution, but this presumption can be rebutted by a contrary intention.

Registered land: Deed for transferring whole registered freehold title: Land Registry Form TR1.
 TP1 for transfers of part.
Unregistered land: subject to compulsory first registration - solicitors often choose a Land Registry transfer
form - but possible to use a conveyance.

Conventionally: deed completed by buyer’s solicitor and sent to seller’s solicitor for agreement.
Straightforward residential transaction: prepared by seller S and sent to the buyer Sin pre-exchange package.

Date on the deed: date of completion - not to be inserted before it has been signed and witnessed.

Panels 1 and 2: the title number and the address of the property should be checked against the details in the contract and the official
copies.
Panel 3: the transfer will only be dated upon completion.
Panels 4 and 5: the names of the parties should be checked against the details in the
contract and, in the case of the transferor, the official copies.
Panel 6: the buyer is buying this property to live in and so they will want communications to go to their new address, not their old
address. If the property will be tenanted, the buyer may want communications sent to another address, such as a registered office in the
case of a company.
Panel 7: the operative part of the deed and it should not be amended.
Panel 8: the purchase price should be written in figures as well as words. VAT?
Panel 9: on the front page of the contract the seller has stated they are selling with full title guarantee. In addition, SC 4.6.2 states the
seller is selling with full title guarantee.
Panel 10: there is only one buyer so none of these boxes apply. The purpose of this panel is for co-owners to declare how they are
going to hold the equitable interest in the property, as tenants in common or joint tenants.
Panel 11: there should be an indemnity covenant to observe the covenants in the charges register. This is provided for in the contract
by SC 4.6.4 as the seller will remain liable on the restrictive covenants in the 1968 Conveyance which will appear in the official copies
following registration of the client’s purchase
Panel 12: the signature of the seller, being an individual, must be witnessed Panel 12: the buyer should also execute the transfer as
they are entering into an
indemnity covenant.

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 A. Pre-completion searches:

Buyer S carries out searches to: (i) ensure seller hasn’t further encumbered property; (ii) check financial
strength of borrower (when acting for lender); (iii) gain priority for the buyer (and lender) over anyone
making application before buyer registers ownership; (iv) (if seller is a company) check finances at CH.

—> Pre-completion search of the title:

Registered Land Registry search against title number: see if any new entries were made since the ‘search from’ date (ie
land date on which official copies were produced).
Form OS1 is used if the whole property is being sold, or an OS2 if the sale is of part only (OS2 + prop plan).
 In app form: title number, address, names of reg owners, name of applicant and reason for the search.
Results: in Form OS1R or an OS2R as appropriate.
 Reveal any new entries & confers a ‘priority period’ of 30 working days from date of search result.
 ‘Priority period’: protection vs entries on register after date of search but before buyer is registered.
Buyer will take free from any such entries, IF they submit their application for registration by 12 noon on the
last day of the priority period.
If buyer financing with the aid of a mortgage: application for a Land Registry search should be in the name of
the lender and not the buyer —> results confer priority over both buyer and lender.

Panel 7 in Form:

Unregistered Land charges search: form K15. Results in form K18 : priority period of 15 working days from date of result.
land
Land charges search (done pre-exchange): need to be repeated against the current seller’s name unless the
transaction can be completed within the 15 working day priority period of pre-exchange search.

Comparison of Land Registry and Land Charges Department searches:

Checking for Buyer = individual: app on behalf of the lender for a land charges search against the buyer.
buyer’s  Registered title: land charges search vs name of buyer (+ pre-completion search vs title number). It will
solvency on be a special land charges - ‘Bankruptcy only’ search using a form K16.
behalf of the o Using a K16 limits the search to the bankruptcy register at the Land Charges Department.
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lender:  Unregistered title: solicitor already makes search vs seller, so the name of the buyer will be added to
the name(s) to be searched against on form K15.

Buyer = company: company search.

Company Land searches vs title + further company search prior to completion.
search against Search reveals: (i) existence of company, (ii) solvency, (iii) fixed or floating charges.
a company
seller: Company search has no priority period. To be carried out as close as possible to completion.
High stakes: telephone search at Registry of Winding Up Petitions at Companies Court on completion day.
Bankruptcy Unregistered land: form K15 search vs the seller as estate owner will reveal any entries relating to bankruptcy.
search against
an individual Registered land: usually not necessary —> s 86(5) LRA 2002 = where no notice or restriction relating to the
seller: bankruptcy appears on the registered title, a buyer for value acting in good faith without notice of the
bankruptcy petition or adjudication will take good title from the bankrupt seller, even though legal title to the
land has vested in the trustee in bankruptcy. – bankruptcy search (K16) can still be done.

B. Practical arrangements for completion:

‘Completion information form’ (buyer’s s sells to seller’s s)

Different versions - commonly used for residential properties: Form TA13 Completion information and
undertakings. This asks the seller to confirm info including:
 arrangements for handing over the keys
 the place and method of completion
 the documents to be handed over at completion
 the exact amount payable by the buyer on completion

Form contains seller S undertaking to redeem the mortgage out of the completion money on completion.
 Send evidence (receipt) to Buyer S as soon as it is received from the lender through form DS1.

—> Ensuring finances are in order:

Before releasing the mortgage advance a lender will expect to receive:

 a certificate of title to confirm that the property is adequate security for the loan being advanced
 a solvency search against the borrowers
 a clear OS1R in the name of the lender
 an executed but not completed mortgage deed

Buyer S sends to client a Financial Statement advising on funds. Amount to forward to S includes:
 balance of the purchase price
 any SDLT/LTT due
 the registration fee
 the amount outstanding for any other disbursements
 usually the solicitor’s fees and
 any other amount owing

Buyer S should ensure to receive both mortgage advance from lender and balance of p price from buyer.
Balance of p price then sent to Seller S to bank account specific in Completion information form.
Once money is received —> Seller S contacts Buyer S = completion takes place.

C. Methods and effect of completion:

Completion: Buyer S sends balance of o price and releases deposit to the seller.

SC 6.7 and SCPC 9.7 require the completion money to be paid by direct transfer/electronic means in cleared
funds from an account held in the name of a conveyancer at a clearing bank.

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 Receipt of money: seller’s s completes transaction by dating form TR1.
Then: lender’s solicitor dates mortgage deed.
 Not before: buyer does not own property until then = not in a position to grant a mortgage over it.

Completion Requires one solicitor (usually B’s) to attend office of other solicitor - usually seller’s.
in person All parts of the transfer should be already executed and completion money received.

Completion meeting:
 Buyer’s S will check any title documents against the evidence of title previously sent to them (only of
real significance in unregistered land).
 Seller’s solicitor will hand over title documents and other documents relating to the property, such as
planning permissions, and guarantees or insurance policies.
 Seller’s solicitor arranges for the release of the keys to the property by whoever is holding them.
Completion Law Society Code for Completion by Post:
by post  Involves seller’s S acting as the agent of the buyer’s S for purpose of carrying out completion.
 Buyer’s S must set out in writing precisely what the seller’s solicitor is to do on their behalf = whatever
it is that they would have done if they could have attended the completion in person.
 Seller’s S carries out instructions on receiving completion money.
 Seller’s S should then contact the buyer’s S to inform them that completion has taken place.
 Documents to be handed over to B’s S: sent by first-class post or document exchange.

Under the code, seller’s solicitor gives an implied undertaking to carry out the buyer’s solicitor’s instructions.

Effect of completion:

Unregistered: legal title passes to the buyer on completion.

Registered: legal title does not pass to the buyer until the buyer is registered at the Land Registry as proprietor
of the land.

Important to protect the buyer from the creation of adverse 3rd party rights in the intervening ‘registration gap’
using a Land Registry search which confers priority.

D. Post-completion steps:

Discharge of Agreed in completion information form.

seller’s Commonly: buyer allows for Seller S to discharge mortgage with proceeds from sale (S undertaking).
mortgage: Or: buyer sends amount to redeem mortgage directly to lender and balance is paid to seller.

Once lender received the money, they will either:

 Send Land Registry form DS1 to seller S for onward transmission to the buyer’s S; or
 submit an e-DS1 electronic discharge through the Land Registry portal; or
 use the Electronic Discharge (ED) system, sending an electronic message to the Land Registry which
automatically removes the charge from the register.
If ED or e-DS1 system is used, the seller’s solicitor will not be sending a DS1 form to the buyer’s solicitor.
SDLT/LTT Seller S sends TR1 to Buyer S who must then arrange for SDLT/LTT to be paid.
 SDLT: paid within 14 days of completion
 LTT (paid to the Welsh Revenue Authority (‘WRA’)): within 30 days of completion.
Payment + tax return (SDLT1 in England) —> sen to to relevant authority.
HMRC will produce an SDLT5 form, and the WRA will return a WRA certificate, as proof of tax payment.
Failure to pay: fines/penalties + rejection of application to register new buyer (app must contain SDLT5/WRA)
Registration If buyer used mortgage to purchase = register charge at CH within 21 days of its creation (Ie at completion).
of new charge Register charge at the Land Registry within the priority period conferred by the OS1 search result.
at CH: Failure to register: renders charge void against a liquidator or administrator of the borrower and the borrower’s
other creditors, so would seriously prejudice the lender’s security.
Land Registry SDLT/LTT paid (and charge registered) —> B’s s applies to have buyer registered as registered proprietor.
Application Lender’s s applies to register the charge (above).
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Registered Registered land:
land On form AP1 - Applications for:
 Register buyer as proprietor of the land
 Register lender as proprietor of the charge
If seller’s mortgage was electronically discharge: entries automatically removed from register.
If discharge was through DS1 form: B’s s must apply for the mortgage to be discharged (still on form AP1).

Documents: Certified copy of transfer + form AP1 + fee SDLT/LTT certificate and DS1 if used.
+ Form DI - any overriding interests that burden the title—> entered on register and cease to be overriding.

If buyer created a new mortgage, also include:

 Certified copy of mortgage deed
 Buyer is a company: certificate of registration issued by CH
 B is a company: solicitor’s /lender’s written confirmation that the enclosed certified copy mortgage
deed is the same as the one filed at CH and to which the certificate of registration relates.

Application(s) must be made within priority period of the OS1 search —> failure to do so: B and lender lose
benefit of priority period and take land subject to matters registered within that period.

Unregistered Unregistered land:

land App for first registration to be made within 2 months of completion of the transaction on form FR1.
Docs accompanying app must be listed in duplicate on form DL.

Send to Land Registry —> Application form + fee + docs listed below.

Docs should be numbered in chronological sequence on form DL. Relevant docs are:
 all the documents which formed the evidence of title supplied by the seller’s solicitor
 all the buyer’s pre-contract searches and enquiries relating to the title with their replies
 the contract
 requisitions on title with their replies
 all pre-completion search certificates
 the transfer deed
 the seller’s mortgage, duly receipted
 SDLT/LTT certificate
 Form DI

If there is a mortgage: same docs as above (registered land section) + og mortgage deed.

Registrar investigates title on app for first registration to decide which class of title can be allocated to the title.
Conveyancers: option of lodging first registration apps made up entirely of certified copy deeds and docs
Non-conveyancers: must submit original deeds and documents with first registration applications.

—
Forms AP1 and FR1 - for properties of more than £5,000 - require applicant to give details of the conveyancer
acting for each party (if party not represented: party’s identity).

Once registration occurs, Land Registry will forward an official copy of the entries on the register, known as a
Title Information Document (or ‘TID’) to the buyer’s solicitor.
 Not strictly a doc of title - but evidence B is the new owner.
Lender will be asked if it wishes to retain the docs.

All such matters dealt with: file can be closed.

Remedies for delayed completion:

If exchange contract does not contain date for completion —> SC 6.1.1 and SCPC 9.1.1: completion date is
20 working days after the date of the contract.

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Money due on completion must be paid before 2pm on the day of completion – parties can agree other time.
If not, completion treated as taking place on the next working day.

Both sets of standard conditions provide that time is not of the essence of the contract unless a notice to
complete has been served: no immediate right for non-defaulting party to terminate/rescind.

Contractual compensation:
SCs: both buyer and seller can be asked to pay this compensation (SC 7.2).
SCPCs: only the buyer can be required to pay compensation (SCPC 10.3).

Compensation calculated at contract rate specified in the contract on the balance of the purchase price (= less
deposit (if defaulting was B)). Rate paid for period between contractual completion date and date of actual
completion.
 Daily rate x number of days of default.
 If the non-paying party was also at fault for some of that period then those days are ignored.
 Payable on completion.

Common law damages:

Seller can make a claim for breach of contract under normal contractual principles.
Damages assessed under Hadley v Baxendale ( ‘within the reasonable contemplation of the parties’ test
remoteness rule).
Damages: awarded for losses naturally flowing from the breach as well as for any reasonably foreseeable
consequential loss.

Notice to complete:
Delay seems not to be resolved quickly —> either party may serve a notice to complete. (SC 6.8)
 can only be served after the contractual completion time

Effect: once served, it makes time of the essence and gives other party 10 working days to complete.
Additional consequence:
6.8.3 On receipt of a notice to complete:
(a) if the buyer paid no deposit, he is forthwith to pay a deposit of 10 per cent
(b) if the buyer paid a deposit of less than 10 per cent, he is forthwith to pay a further deposit equal to the
balance of that 10 per cent.

Failure to complete within 10 workings days from service: party who sent notice can rescind the contract.
 If the C is rescinded and the defaulting party was the buyer, the seller is able to forfeit the deposit.
 If the defaulting party was the seller, then the seller must repay the deposit to the buyer.

The non-defaulting party can also claim damages for any losses they suffer as a result of the other’s default.

Rescission:

SC and the SCPC provide for rescission in specified circumstances, including:

 where a party has failed to comply with a notice to complete
 where there has been a misrepresentation by the seller in a plan or statement in the contract, or in the
negotiations leading up to the contract
o NB. rescission will only be allowed where the seller’s error or omission results from fraud or
recklessness, otherwise buyer must accept a property differing substantially from what the
error had led them to expect.
Less serious misrepresentations: only damages.

——————

TOPIC 5: STRUCTURE AND CONTENT OF A LEASE

27
 Advantages and disadvantages of owning a leasehold property:
T’s Disadvantages:
perspective  From the date of its grant the lease will be a depreciating asset;
 No return on the rent: at end of lease property still belongs to landlord;
 Landlord retains control and can specify what the tenant can and cannot do;
 May be repairing obligations in the lease (extra expenditure).

Advantages:
 Commercial tenants: A lease is flexible: if it is a short-term lease, the tenant can move easily at the end of
the term if they need smaller or larger premises. - Subject to negotiation of a break clause
 No capital outlay: the capital of their business is not tied up in the premises.
L’s Disadvantages:
perspective  T may prove unreliable and not pay the rent or not take care of the premises —> depreciation of premises;
 Income and capital are not guaranteed and are dependent on the state of the property market.

Advantages:
 Positive covenants harder to enforce on sold freehold land —> leases: necessary to enforce covenants in
buildings with multiple occupants;
 L retains capital interest in freehold; & can retain control of management = capital value preserved.
 In a properly drafted lease, L will be able to recover all expenditure (ie repairs)
 Steady income by renting the property at a market rent.
Structure of a typical commercial lease:

A typical business lease of a whole property will contain the following elements:

Prescribed Leases on/after 19 June 2006 granted out of reg land and compulsorily registrable must contain ‘Prescribed
clauses clauses’ (standard set clauses) at start of the lease. —> Prescribed clauses: summary of the important details
in the lease, contain all info Land Registry needs to complete registration.
Commencement First words of lease: ‘This lease’ —> then: date of grant + names and addresses of parties.
If granted out of reg land: doc will carry the usual Land Registry heading (county and district, landlord’s title
number, brief description of the property, and date) at the top of its first page.
Interpretation Definitions will appear with a first capital letter.
Grant of the Operative part: L grants T a lease of the property for the term.
lease Term can be fixed, periodic or at will.
Ancillary rights These give the tenant rights over other land to enable them to use the leased property more effectively, eg a
right to use roads, car parking spaces or an area for loading/unloading.
Rights excepted Rights in favour of the landlord over the leased property - ie right to enter to do repairs to service media.
and reserved
Annual rent Rent payable by the tenant - usually payable quarterly in advance on the historic quarter days, 25 March, 24
June, 29 September and 25 December.
Rent review Mechanism to increase the annual rent in line with rises in rental value in the wider property market.
T’s covenants Obligations on the tenant as to how they use and look after the property.
L’s covenants A few obligations imposed on the landlord - ie obligation to insure.
L right to enter Gives the landlord the right to enter and inspect, give notice to the tenant to repair and if the tenant fails to do
on breach of so within a certain period, then L can do the work instead.
repair covenant
Re-entry and Allows L to bring the lease to an end if the tenant fails to pay the annual rent or is in breach of one of the
forfeiture other tenant covenants.

Lease of part:
 Additional ancillary rights: ie rights to use common reception areas, lifts, corridors and stairwells to
access the leased property to use shared facilities such as toilets, storage and parking.
 Also contains a mechanism for reimbursing the landlord for a proportionate part of the common
repair and maintenance expenses, usually referred to as a ‘service charge’.

Options for the term of the lease:

Fixed Term Fixed period can be weeks, months or years. Longer leases will sometimes have a ‘break clause’. End of fixed
28
 term: lease ‘expires’, or comes to an automatic end - no notice required.
Periodic Not fixed period but continues indefinitely from one period to another. Runs until either party decides to
tenancy terminate it by giving the other party notice that they want to bring the arrangement to an end.
Notice: length of one period of the lease
 Exception: a yearly tenancy can be terminated on six months’ notice.
Tenancy at T occupies the property with L’s permission on the terms that the tenancy may be terminated by either party at
will any time. Length: indefinite. Too uncertain: not often used for commercial property.
Tenancies at will can arise without knowledge of pp: ie
 where T remains in occupation at the end of the formal lease, or
 where pp want an informal agreement, such as a tenancy between family members.

Types of leasehold covenant:

Absolute Covenant T absolutely cannot carry out the stated action according to the lease.
L can allow it by one-off consent or permanent variation of lease.
Qualified covenant T can carry out the stated action, but only if it obtains L’s consent first.
Fully qualified T carry out the stated action if it obtains L’s consent first, but L will not be able to withhold consent
covenant unreasonably.
Full repairing and insuring lease: Historically, commercial leases: ‘FRI’, full repairing and insuring = L gets
a ‘clear’ rental stream (all profit) and does not have to pay for repairs, maintenance and insurance
contributions.

Repair:

‘FRI’ leases protect Ls from incurring any expenditure that cannot be recovered from Ts.
 T: normally responsible for the non-structural parts of the premises
 L: responsible for the structural parts of the building and the common areas.
 Lease of part: provisions which enable L to pass on the costs in maintaining the structure and common
parts to the tenants via a service charge.

Case law clarification around meaning of a covenant ‘to repair’:

 There must be disrepair first, before T in breach of cov to repair. Physical condition of prop deteriorated.
 Need not be in perfect repair, but fit for occupation of reasonably minded T of a class likely to take it.
 Repair is restoration by renewal/replacement of parts of a whole, not renewal or improvement of whole.
 Repair cov can oblige T to remedy an inherent defect in the design and/or construction of the building if
that is the only way to effect the repair.

NB. A covenant to ‘keep’ a building in repair also means ‘put’ it into repair, even if that involves T putting
the building into a better state of repair than when they entered into the lease.
NB. A covenant to ‘keep the property in good condition’ is more onerous than a plain covenant to keep it in
repair. It can mean that T is obliged to carry out some works, even though there is no actual disrepair.
NB. Where L is insuring the building, T should ensure that they are not responsible for repairing damage
arising as a result of insured risks: this type of damage covered by the insurance provisions in the lease.

Insurance provisions:

L cov to insure the Inclusive list of the risks which L must insure against. Issue: if new risks arise, not covered.
property against defined Thus: common for list to conclude with ‘such other risks as the landlord may reasonably require’
risks (‘insured risks’):
L’s obligation to insure should be limited so that it does not include exclusions, limitations,
excesses and conditions imposed by the insurer and any risks that are not commonly available -
these are passed to T through repairing covenant.

Property should be insured to its ‘full reinstatement value’ - includes costs of demolition and site
clearance, professional fees (eg architects, surveyors etc) and an allowance for inflation.
T’s cov to pay for the Cov to pay a sum reserved as rent (‘insurance rent’), which includes the premium for the buildings
insurance policy: insurance policy + associated policy covering L for loss of the annual rent for periods where T
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 unable to use building following occurrence of insured risk.
L’s cov to reinstate the Cov to use the insurance proceeds to reinstate the property (rather than absolute obligation to
property: reinstate even if the proceeds are insufficient). T would want L to cover any shortfall.
Provision for where reinstatement is impossible: usually cov that L can keep the insurance monies,
but T can negotiate that proceeds will be passed over to the T who has been paying the premiums,
or that they are shared between T and L.
Rent suspension: If no provision to the contrary; rent continues to be payable even if prop rendered unusable —> T
should insert provision for rent suspicion during any period prop cannot be occupied due to risk.
L may want to limit rent suspension to duration of insurance (usually 3 yrs).
Termination: If building destroyed, frustration applies only in exceptional circumstances – only if reinstatement
is impossible —> T insert right to terminate if prop not reinstated at end of rent suspension period.

Damage occurred by a non-insured risk? T will be liable to repair the property under the repairing covenant.

Alterations:
= alterations cov: restricts extent to which T can make alterations, while not too onerous for T.

Absolute May be in respect of all types of alterations - more common to be in relation to structural and exterior alterations.
covenants s 3 Landlord and Tenant Act 1927: enables T to carry out ‘improvements’ despite absolute prohibition in lease.
• L has 3 months to object - if it does: T has right to apply to the court for authorisation to carry out improvements.
• Court authorises improvement if they add to the letting value of the property, are reasonable and suitable to the
character of the property and do not diminish the value of any other property of L.
• L can offer to carry out works themselves instead of objecting in return for higher rent. T has no obligation to
accept this - if accepts: L can do works and increase rent accordingly.
• but if T rejects L’s offer: court cannot give T authority to do works itself.
• if L does not offer to do works/works authorised by court/L accepts T does works: T may lawfully carry them
out, even if the lease contains an absolute covenant against the works.
Case law: if the works in question will increase the value or usefulness of the property to T, they will constitute an
improvement, even if they will result in the reduction in the value of the landlord’s reversionary interest.
Qualified Allow Ts to make non-structural alterations and changes to service media, but with consent so that L can retain
and fully control by imposing conditions on how works are done and whether they will need to be removed at end of term.
qualified • Consent and conditions imposed in separate doc: ‘licence to alter’.
covenants s 19(2) of the LTA 1927: implied term into qualified covenant = L cannot unreasonably withhold consent.
• L not able to to withhold their consent unreasonably in relation to improvements

Demountable partitioning - usually minimal impact on building - many Ls allow this to be erected and removed
without the need for consent at all.

T’s solicitor will need to have a practical understanding of the nature of the works and study the particular
alterations clause in order to establish whether or not T’s proposed works are permitted by the lease and whether
the works need to be removed and the property reinstated at the end of the term.

Compensation for improvements: s 1 LTA: T who made improvements under s 3 LTA is entitled to claim
compensation for improvements at the end of the term that ‘add to the letting value of the holding’.

User and planning:

 L chooses to restrict use to a single purpose: ‘Not to use the Premises other than as a restaurant.’
 L allows for possibility of changing user by using categories set out in the Use Classes Order 1987:
‘Not to use the Premises other than as a restaurant or such other use falling within Use Class E of the Town and
Country Planning (Use Classes) Order 1987.’

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  L can impose greater control with a qualified covenant: ‘Not to use the Premises other than as a restaurant or
such other use falling within Use Class E of the Town and Country Planning (Use Classes) Order 1987 as the
Landlord may approve in writing.’ - T would prefer a fully qualified covenant.

NB. no statutory implication that the L’s consent cannot be unreasonably withheld for user covenants.
—> BUT: L cannot charge a fine/increased rent as a condition of giving consent, provided no structural
alteration is involved (s 19(3) LTA)

Alienation:
= generic term including different ways of creating an interest in property for the benefit of a 3rd party.
In absence of restrictions, T can dispose of its interest. L would want control over who else occupies prop.
Alienation includes:
 Assignment
 Assignment: transfer the lease to someone else;
 underletting (also known as subletting)
 Underlease (or sublease): lease created by someone who is already a tenant.
 charging (also known as mortgaging) – prohibited by most leases.
 sharing occupation (allowing a third party in while continuing to occupy, perhaps under a licence or
concession arrangement) – some leases allow it.
 parting with possession (a catch-all term which covers assignment and underletting but also includes
informal arrangements which may be difficult to classify) – usually prohibited.

Granting the lease - 2010:

A was L of B. A owns freehold estate in the building. B became
A’s T. A owns reversionary interest and B owns leasehold estate.

Assigning the lease - 2015:

B sold lease to C by way of assignment. B: assignor, C: assignee.
C cannot negotiate terms of lease as it had
already been granted in 2010 and they’re buying
the unexpired residue of the lease.
Granting the underlease - 2018:
The lease granted in 2010 between A and B is known as the headlease and A is the head L.
A’s consent was obtained and a lease of part of the premises was negotiated between C and D.
Term of underlease must be less than C’s headlease, otherwise arrangement would amount to an assignment.
C is D’s landlord and in relation to A, C is the undertenant.

Assignment S 19(1)(a) LTA 1927: implies into any qualified cov (not to assign without L’s consent) a proviso that such
consent is not to be unreasonably withheld. Effect: qualified cov —> fully qualified cov.

S 19(1A) LTA 1927: allows L and T to agree in advance conditions and circumstances in which it would not be
unreasonable for L to refuse consent.
• Ie conditions: that assignor agrees to give an authorised guarantee agreement (‘AGA’) for assignee and/or that
assignee agrees to provide guarantors.
• Ie circumstances: assignor is up-to-date with the rent and/or that the assignee is of sufficient financial strength
to enable it to comply with T’s covenants in the lease.
• Effect: such pre-agreed conditions and circumstances are deemed reasonable.

S 1 LTA 1988: where there is a qualified cov on assignment (whether consent not to be unreasonably withheld is
express or implied) and T made a written application for consent, L must within a reasonable time:
• give consent, except in a case where it is reasonable not to give consent
• Serve on T written notice of its decision (on giving consent) specifying in addition:
 If the consent is given subject to conditions (and those conditions)
 If the consent is withheld, the reasons for withholding it.
• ** There must be a fully qualified covenant in relation to dealings with the property for s 1 to be engaged.

Guidelines on L’s reasonableness under s 19(1)(a):

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 • Purpose of fully qualified cov: protect L from having his premises occupied in/by an undersiable way/T.
• L is not entitled to refuse its consent to an assignment on grounds which have nothing to do with the
relationship of L and T regarding the subject matter of the lease.
• Unnecessary for L to justify conclusions, if they reached by a reasonable person in the circumstances.
• Reasonable for L to refuse consent to an assignment on the purpose for which assignee intends to use premises.
• Generally L is bound to consider only its own relevant interests when deciding whether to refuse consent to an
assignment of a lease. BUT: unreasonable not to consider detriment caused to T by a refusal.
• It is, in each case, a question of fact whether the L’s consent to an assignment is being withheld unreasonably.
• Ashworth: need to consider all circumstances in each case, and determine whether it is reasonable to withhold
consent. The permitted use covenant does not in itself make it reasonable to refuse consent.

Examples of where consent was reasonably withheld:

 proposed assignee’s references were unsatisfactory
 long-standing and extensive breach of the repairing covenant by the assignor and L could not be
reasonably satisfied that the assignee would be in a position to remedy the breach
 assignee would be in a position to compete with the landlord’s business
 assignment would reduce the value of L’s reversion (*only reasonable if L intends to sell the reversion)
 proposed assignee intends a use detrimental to premises, or use inconsistent with L’s ‘tenant mix’ policy
 assignee would, unlike the assignor, acquire protection under Part II of the LTA 1954

Examples of where consent was unreasonably withheld:

 L has refused consent in an attempt to obtain some advantage for itself
 there are minor breaches of the repairing covenant
 premises had been on the market for 18 months, the rent was significant and the slight harm to L would
be outweighed by prejudice to T.

Reasonableness anticipates a breach of use cov by assignee: correct approach is to examine what the reasonable
L would do when asked to consent in the particular circumstances.
** Equality Act 2010: discrimination in withholding consent on grounds of race, sex or disability = unlawful.
Underlettin T grants a lease —> two leases in existence in relation to the same property (Headlease and underlease).
g Underlease = estate in land. Must be for shorter term of headlease, otherwise it is an assignment of headlease.
Underletting appropriate where T wants prop back at some point.
In underletting: headlease still in place and headT still owes rent to L. = T who has concerns over new occupier.
Concerns for L:
 UnderT becomes L’s direct T:
 if headT’s lease is forfeited and underT successfully applies for relief from forfeiture; or
 HeadT’s lease surrendered/disclaimed by headT’s liquidator;
 Both leases expire and underT gains security of tenure under 1954 Act;
 UnderT has physical control of prop as rights reserved to L are exercisable by headT (= intermediary).

S 19(1A) LTA 1927: implies into qualified cov that consent not to be unreasonably withheld.
S 1 LTA 1988: as above. ** there must be qualified cov for it to apply.

If alienation cov in lease imposes conditions for underletting, and there are not complied with —> the lease is at
risk of forfeiture and any underlease created out of it will be at risk too. Common conditions are:
 terms of the underlease mirror the terms of the headlease;
 annual rent in underlease is at least as high as annual rent in headlease and underlease annual rent must be
reviewed at the same time and on the same terms as the annual rent payable under the headlease.
 any underletting must exclude s 24–28 in Part II of the LTA 1954 (security of tenure) —> only way for
underT to remain is being granted a new lease by L.
 UnderT enters into a ‘direct covenant’ with L to perform the T’s covs in underlease and headlease.
o Only obligation to pay annual rent under headlease is excluded from direct covenant.
o Direct cov imposes contractual relationship where normally no liability between L and underT.
o Effect: L can sue underT for breaches of either lease.
 No further underletting of the property is permitted.

Code for Leasing Business Premises:

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Voluntary code of practice launching to introduce fairness and flexibility in leasehold transactions.

2019 The Royal Institute of Chartered Surveyors published and consulted on a new version of the code:
 A key objective is to improve the quality and fairness of lease negotiations and to ensure the heads of
terms agreed at the outset are comprehensive.
 Effect: all RICS members must observe those parts which are mandatory and need a justifiable good
reason to depart from.
 Failure to observe the RICS Code will support a negligence claim vs surveyor + disciplinary action.
NB. Landlords are not bound by the RICS Code.

Mandatory requirements in the RICS Code:

1. Lease negotiations must be approached in a constructive and collaborative manner.
2. Any party not represented by an RICS member or other property professional must be advised of the
existence of the code + professional advice recommended.
3. Transaction terms must be recorded in writing, subject to contract and must summarise specified
details as a minimum. Some specified details relevant to the terms and conditions:
o identity and extent of the premises, together with any special rights to be granted
o length of term including details of any renewal or break rights
o amount of rent, frequency of rent payments and frequency and basis of any rent review
o liability for payment of insurance premiums
o ability to assign, underlet, charge or share the premises
o repairing, permitted use and alterations obligations.
Remainder of code: best practice - RICS member can depart from recommendations in exceptional circum.

PROCEDURAL STEPS FOR THE GRANT OF A LEASE OR UNDERLEASE:

L will accept T based upon T’s ‘strength of covenant’ - L may consider obtaining: (i) references from a
previous L; (ii) guarantee obtained from the parent company, a bank involved or director(s), or (iii) a rent
deposit (a sum of money deposited with L - L may withdraw sums if rent due under lease is unpaid)

Drafting the lease:

L’s S will draft the lease and submit it to T’s S for approval. T’s S makes any amendments.
Underlease: scope for negotiating the doc will be much more restricted as it is likely that the headlease
requires that the terms of the underlease mirrors the terms of the headlease.

1. Solicitors agree on form of lease/underlease

2. Carry out all pre-contract steps
3. Complete grant of the lease

Contract (‘agreement for lease’): where there is a delay between agreeing the lease/underlease and actually
granting it but one (or both) of the parties requires the other to be bound into the transaction.
 Drafted by L’s solicitor in same way as contract for sale of freehold is drafted
 Particulars of sale: must state that property is leasehold and give details of term to be vested in T.
 The final agreed form of the lease/underlease should be attached to the agreement with an obligation
in the agreement for T to take a lease/underlease in that form on the date of completion.
 Disclosure of incumbrances affecting the superior title
 Attached lease/underlease should contain an indemnity in respect of future breaches of any covs.

Standard Condition 8.2 (SCPC 11.2.3): lease/underlease must be in the form annexed to the draft contract.
 L must engross the lease/underlease and supply T with the engrossment at least five working days
before completion date. (Engrossement: final version of the document - usually a deed)

Deduction and investigation of title:

Before drafting:
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  L’s S will investigate the client’s title to ensure that the client is entitled to grant it – ie mortgage
(need lender’s permission to grant lease)
 T will want L to deduce title to the freehold interest. If freehold not reg: T cannot obtain an absolute
leasehold title on subsequent registration of the lease. Even when freehold reg: check incumbrances.
 T is not entitled to call for deduction unless grant of a lease for a term of more than 7 years.
 If so —> SC 8.2.4 (SCPC 11.2.4): L must deduce such title as would enable T to obtain
registration with an absolute title at the Land Registry.
 Underlease: If headlease is registered with absolute leasehold title =no need to see freehold title –
but headlease should be reviewed.
 If headlease unregistered: underT can call for the headlease and all subsequent assignments
for last 15 yrs.
 UnderT not entitled to call for deduction unless grant of a lease for term of more than 7 yrs.

Pre-contract enquiries and searches:

L’s solicitor should provide T’s solicitor with the following docs:
a. draft agreement for lease (if applicable);
b. draft lease/underlease;
c. evidence of the freehold/headlease title;
d. copies of any relevant planning consents; and
e. evidence of the lender’s consent to the grant of the lease/underlease (where relevant).
T’s S: same searches as if client was buying freehold + enquiries specific to lease – ie insurance policy.

Licence to underlet:

Most head-Ls require formal consent to the underletting to be given in the form of a licence to underlet.
 = tripartite doc entered in to by the head-L, headT and underT —> head-L gives consent to the
headT to underlet the property to the underT.
 L’s consent must be given by or on completion of the underletting.

Usual condition: underT enters into direct covenant with head-L to perform covs in both leases.
 Direct cov = contractual relationship enabling head-L to sue underT for any breach (rent excluded)

The key provisions in the licence to underlet are:

a. the consent of the head-landlord to the grant of the underlease; and
b. the direct covenant from the underT to the head-L.
c. HeadT obliged to pay the head- L’s costs for approving the underletting and granting the licence.

Pre-completion formalities:

Lease/underlease: prepared in two identical parts, the lease and counterpart. Lease executed by L and
counterpart executed by T – exchanged on completion.

A top copy (or engrossment) of the lease/underlease and counterpart must be signed by parties.
 L signs the lease itself
 Counterpart sent to T’s S for execution by T (5 working days before completion if SC/SCPC apply)

Lease = legal estate in land —> deed.

Most leases —> rent payable in advance (ie at completion): should be agreed in advance.

Completion and post completion steps:

In addition to matters relevant to a freehold transaction, L will receive:

a. the counterpart lease/underlease executed by the tenant/undertenant;
b. any premium payable for the grant (less any deposit paid on exchange of contracts);
c. an apportioned sum representing rent payable in advance under the lease/underlease.

L should give to T:

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 a. the lease/underlease executed by the landlord;
b. if not already done, properly marked/certified copies of freehold title deeds (unregistered land only);
c. where relevant, a certified copy of the consent of the landlord’s lender to the transaction.
+ ensure consent in the form of licence to underlet has been given.

—> SDLT and LTT:

SDLT A land transaction return must be submitted to HMRC on the grant of a lease in the usual way.
(England): SDLT is potentially chargeable both on any capital sum being paid (‘premium’) and on the amount of the rent.
Non-residential property: SDLT payable on any premium is calculated on the same basis as for the consideration
on the sale of freehold land.
Rental element: complex formula is used to identify the Net Present Value (‘NPV’) of rent and SDLT is then
calculated using this figure = work out how much rent is payable in total over the term of the lease (including
any VAT) and then discounting rental payments to be made in future years by 3.5% per annum.
SDLT is chargeable on the VAT inclusive amount of the premium and the rent.

Net present value of rent SDLT

rate
£0 to £150,000 Zero
The portion from £150,001 to £5,000,000 1%
The portion above £5,000,000 2%
SDLT1 and payment must be submitted to HMRC within 14 days of completion of the grant of the lease.
LTT Non-residential property: LTT charged on the premium and on the rental element using the NPV of the rent.
(Wales): LTT payable on premium calculated on same basis as consideration on sale of freehold - except that the 0% band
for premiums extending to £225,000 is not available where the ‘relevant rent’ exceeds £13,500. The rate of 1%
will apply instead. - ‘Relevant rent’: highest rent payable in any year across the entire term of the lease.

Net present value of rent LTT

rate
£0 to £225,000 Zero
The portion from £225,000 to £2,000,000 1%
The portion above £2,000,000 2%
Land transaction return + payment submitted to Welsh Revenue Authority within 30 days of completion.

—> Registration:

Legal lease of 7 yrs or less: not registrable with its own title at the Land Registry.
 Reg land: overriding interest under LRA 2002 – whether or not T in actual occupation.
 Possible to note leases of over 3 years against the landlord’s title voluntarily.
 Unreg land: legal lease binding on all subsequent owners of land, irrespective of notice.

Legal lease of more than 7 yrs: registrable in its own separate title and title number after completion,
irrespective of whether freehold title is registered. If L’s title is registered, it will be noted against L’s title.
 Unreg title: T’s app to Land Registry is for first registration within 2 months of completion.
 Reg title: T’s app for registration of a dealing with freehold title within the priority period
conferred by the OSR1.
 On first reg: classed as absolute leasehold, possessory, qualified or good leasehold title.

 Good leasehold title: where the Registrar is satisfied that the title to the leasehold interest is sound
but, having no access to the superior title, they are not prepared to guarantee the lease against defects
in the freehold title or guarantee that the freeholder had the right to grant the lease.
o = given when freehold title is unregistered and applicant for 1st reg does not submit title to
the freehold reversion with the app; or
o where the freehold is registered with less than absolute title.
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 —
Self-help/Jervis v Harris clause:

Contractual ‘self-help’ remedy for L, allows L to recover the cost of repairs as a debt and not damages claim.
 L able to avoid statutory limitation on damages claims.

Typical self-help clause allows L to enter the property to check compliance with T’s repair covenant.
 If a breach is found, L can serve a notice specifying the works required to remedy the breach.
 If T fails to start the work within a specified period after service of L’s notice, or is not proceeding
diligently with such works —> L may enter, carry out the works and recover the cost from T as a
debt.

If s 146 notice was served by L and T fails to remedy breach within time specified, L can forfeit the lease.
———————

LEASE TERMINATION AND SECURITY OF TENURE UNDER A BUSINESS LEASE:

‘Security of tenure’: leases can only be terminated in prescribed ways and T may renew or extend them.
 = contractual lease comes to an end and a statutory leases arises on the same terms of previous lease.
Security of tenure for business leases —> Part II of the Landlord and Tenant Act 1954.

Termination of lease at common law:

Effusion of Fixed term lease —> end of contractual term —> lease automatically determines by what is known as ‘effluxion
Time of time’. No notice is needed.
Notice to Periodic tenancies are determined by the appropriate period’s notice to quit given by L or T.
quit  Yearly tenancy: at least 6 months notice expiring at the end of a completed year of the tenancy.
 Other periodic tenancies: one full period’s notice expiring at end of a completed period. (Ie end of month)
Surrender T yields up the lease to L who accepts the surrender. L & T must both agree to it.
On surrender, the lease is said to merge in the landlord’s reversion and is extinguished.
To be legal, surrender must be by deed (LPA 1925, s 52).
Merger T acquires the immediate reversion to the lease (ie acquires L’s estate in land). It is the opposite of surrender.
It can also occur where a third party acquires both the lease and the reversion.
Lease automatically merges with the reversion and is extinguished (unless the tenant/third party expressly
preserves the lease).

The 1954 Act:

If a tenancy comes within the ambit of the 1954 Act, the common law methods of termination may not apply.
Tenancy may continue until terminated in accordance with provisions of the Act.

s 23 of 1954 Act: Must be a tenancy (≠ licence) of a property which is occupied by T for business purposes.
 ‘Business’: includes ‘a trade, profession or employment and in the case of a body of persons any
activity carried on by them’.
 The activity need not be a business or commercial activity; running a tennis club and a hospital have
each amounted to a business use.

NB. Not all types of business tenancy are protected by the Act:

Tenancies at will Can be terminated at any time by either party, do not have the protection of the 1954 Act.
Fixed-term Not protected. Cannot be circumvented by granting a succession of six-month tenancies: if T been in
tenancies not occupation for more than 12 months when another lease is granted, that T will gain protection of the Act.
exceeding 6 If does not exceed 6 months but contains a provision allowing renewal or extension: protected by Act.
months:.
Certain types of Agricultural holdings, farm business tenancies and mining leases expressly excluded from protection of the
business lease: Act.
Fixed-term • L & T can agree that T will not be afforded the protection of the 1954 Act —> effective only if a statutory
36
tenancies that notice procedure must be strictly followed before the start of the lease.
are ‘contracted • L must give T notice in a prescribed form warning T that they are agreeing to a lease without security of
out’: tenure +advise to seek professional advice.
• T must then make a declaration in a prescribed form that they have received the notice and agree that the
lease should be contracted out.
• If T is given notice less than 14 days before the grant of the lease, the tenant’s declaration must be made in
the form of a statutory declaration before an independent solicitor.
• A reference to the service of the notice and T’s declaration must be contained or endorsed on the lease
itself.
*** contracting out only in relation to fixed term tenancies, NOT periodic leases.

—> Effect of the 1954 Act:

T in occupation & not caught by exclusions —> protection under the Act.
Even then: T has the right to apply to court for a new tenancy which can only be opposed by the landlord on
one of the 7 statutory grounds contained in s 30 of the 1954 Act.
s 24 of 1954 Act: tenancy continued until terminated under 1954 Act’s procedure.
The 1945 Act provides for 7 methods of termination:
1. By the service of an L’s notice under s 25
2. By the service of a T’s request for a new tenancy under s 26
3. Forfeiture
4. Surrender
5. In the case of a periodic tenancy, by T giving L a notice to quit - * L cannot serve notice to quit on T.
6. Fixed-term lease, by T serving 3 months’ written notice on L under s 27, so long as the notice does not
expire before the contractual expiry date * L cannot serve notice on T.
7. Fixed-term lease: T ceasing to be in occupation for business purposes at the end of lease under s 27(1A).

Termination by the landlord - s 25 notice:

Can be used to terminate either fixed term or periodic tenancies. L must follow the correct procedure:
 L must serve a s 25 notice on T
o Hostile s 25 notice - L opposes new lease
o Non-hostile s 25 notice - L wants to bring current lease to an end and grant a new lease.
o Often L ends current lease so that a new tenancy can be granted on different terms.
 L must indicate its proposals as to the terms of the new lease in the s 25 notice.
 If L opposes the renewal of the tenancy, the s 25 notice must state the s 30 grounds.
 S 25 notice must state the date upon which L wants the tenancy to end.
o s 25 notice has to be served no less than 6 months and no more than 12 months before the
termination date specified in the notice.
o Termination date cannot be sooner than end at common law (ie lease expiry, or notice to quit
in periodic tenancies), but it does not have to coincide with the exact date of expiry.

Continuation tenancies: If L has not served the s 25 notice in time to terminate tenancy on contractual expiry
date and the six months would end, ie, a month after lease expires, tenancy continues in that extra month.

If L’s s 25 notice is hostile—> T must apply to the court before the expiry of s 25 notice, or they will lose
their rights under the 1954 Act.
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L can pre-empt T’s application to court by applying for an order to terminate the lease on the grounds stated in
its s 25 notice (*** not if T already applied for lease to be renewed).
If L’s s 25 notice is non-hostile —> parties enter negotiations for grant of a new lease, but T should still apply
to court within time limit to safeguard their position. – App usually made to County Court.

Renewal lease by the tenant – s 26 request:

T of a lease protected by the Act who wants to terminate lease on expiry date:
 Ceasing to occupy for business purposes by the end of the lease (s 27(1A)); or
 serving a s 27 notice giving L 3 months’ prior written notice.

T of a lease protected by the Act who wants to terminate lease after expiry date:
 serving a s 27 notice giving L 3 months’ notice; or
 agreeing a voluntary surrender of the lease with L.

T of a lease protected by the Act who wants to remain in the property after expiry date:
 Do nothing: tenancy will continue - wait until L serves s 25 notice; or
 T serves a s 26 notice: brings current tenancy to an end and constitutes a request for a new tenancy.

S 26 request must state: (i) date on which T wants new tenancy to begin; (ii) T’s proposals for new tenancy.
Same time limit as L serving s 25 notice - ie give L between 6- and 12-months’ notice of date of start of new t.
 Cannot be earlier than date tenancy could be terminated in common law.

If L wishes to oppose grant of new tenancy: serve a counter-notice on T within 2 months of the service of the
tenant’s s 26 request stating the s 30 ground(s) of opposition.

T must ensure they apply to court for a new lease - application must be made prior to the date
specified in the s 26 notice or any agreed extension, unless L agrees extension of time limit.

L can pre-empt T’s application by applying for an order to terminate the lease on grounds stated in its
counter-notice (Not if T’s application has already been made).

If L does not oppose grant of new tenancy: not serve a counter-notice and negotiate terms of new lease.
 T should still make app to safeguard their position.
 Parties can agree to extend time limits.

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Landlord’s grounds of opposition – s 30 grounds:

If L opposes new tenancy (hostile notice): its s 25 notice or counter-notice to a s 26 request must state on
which of the 7 specified grounds under s 30 of the 1954 Act it does so. S 30 grounds are:
a. Tenant’s failure to repair
b. Tenant’s persistent delay in paying rent
c. Tenant’s substantial breach of other obligations
d. L has offered alternative accommodation (must be suitable to T’s needs and on reasonable terms)
e. Tenancy is an underletting of part (rarely used)
f. L intends to demolish or reconstruct and could not reasonably do so without obtaining possession
g. L intends to occupy the holding for its own business or as a residence

Grounds (a), (b), (c) and (e) = discretionary —> the court will decide whether or not to allow T a new lease.
 L must (i) establish the ground and also (ii) show T ought not to be granted a new tenancy in view of
the facts giving rise to the ground.
 There will be a court hearing on the ground(s) L is relying on + evidence + submissions of advocates.
 If L wins: court refuses T a new tenancy.

Grounds (d), (f) and (g) = mandatory —> L simply has to establish ground.

Ground (f) most common - L must show that, on termination of tenancy:

i. it has a firm and settled intention to carry out the relevant work (eg obtained necessary planning
permission and the financial arrangements are in place); and
ii. it intends to demolish or reconstruct the premises (or a substantial part of them), or to carry out
substantial works of construction on the holding or a part of it; and
iii. it cannot reasonably carry out the work without obtaining possession (ie L will not succeed if T agrees
to allow L to carry out the work which can be reasonably carried out without obtaining possession).

Ground (g): Ls cannot rely on this ground unless they have owned their interest for at least five years before
the ending of the current tenancy.
 NB. Ground available to L who buys property with vacant possession, lets it and then seeks
possession within five years of buying it.
 L must have:
o firm and settled intention
o considered and taken practical steps to occupy the property.
o reasonable prospect of achieving its intention (no req to show its business will be successful)

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 Terms of the new lease:

T only entitled to a tenancy of the ‘holding’ = property comprised in the current tenancy, but excluding any
part not occupied by T.
L has right to insist that any new tenancy will be a tenancy of the whole of the originally demised property,
including those parts underlet.

Term of lease will be one which is reasonable in the circumstances - but cannot exceed 15 years.
Term does not commence until 3 months after proceedings are ‘finally disposed of’ (ie when time limit for
appeal has elapsed, so 4 weeks after order) —> new lease commences 3 months and 4 weeks after the order.

Rent = open market rent having regard to other terms of tenancy. Court must disregard:
a. the fact that T and their predecessors have been in occupation;
b. any goodwill attached to the holding;
c. any effect on rent of any improvements voluntarily carried out by T during the tenancy; and
d. in the case of licensed premises, any addition in value due to T’s licence.

Court can add rent review clause even if not present in previous lease.
If no agreement between parties: other terms of lease again fixed by court - must regard terms of current
tenancy and all relevant circumstances.

If T finds terms ordered by court unacceptable (ie rent), may apply for revocation of the court order.
L does not have this right. Only remedy for L is appeal.

Compensation:
If L successfully opposes grant of new lease on 1+ of the no fault grounds ((e), (f) or (g)) = T not granted
new lease but entitled to compensation. If one of fault grounds proved as well: compensation not payable.
 Amount of compensation = equivalent to rateable value of holding.
 If T (+ predecessors in same business) been in occupation for at least 14 yrs = twice rateable value.
Any agreement restricting or excluding the payment of compensation = void if T (or predecessors in the same
business) have been in occupation for five years or more.
= clause only enforceable where T has been in occupation for fewer than five years.
———

TOPIC 6: RENT AND RENT REVIEW:

Lease should make clear:

 When rent is payable: annual rent, but annual payment spread out into four equal instalments: ‘usual
quarter days’ of 25 March, 24 June, 29 September and 25 December.
 Whether rent is payable in advance or arrears: if lease is silent, rent is deemed to be paid in arrears but
it is more usual for it to be paid in advance.
 How instalments are to be apportioned: T will need to make an interim payment to take it through
from when it begins to occupy the property until the next rent payment day. So the quarterly rent will
need to be apportioned.
 How rent is to be paid: how the payment is to be made, often by direct debit or electronic transfer.
 VAT: if and how it will arise and who will account for it. A grant of a commercial lease is an exempt
supply, subject to the landlord’s option to tax. If option exercised: VAT added on annual rent.
 Review of the rent: rent cannot change unless there are express provisions to that effect.

Types of rent review:

Fixed At various set dates throughout the term, the rent will increase to a set amount (eg £30,000 for the first five
increase years, £35,000 for the next five etc).
Index-linked The rent is linked to an external index, such as the Retail Prices Index. Supposed to be in line with inflation.
However, this does not track the property market specifically, and therefore there may still be discrepancies
between the reviewed rent and actual rental values at the time of review.
Tenant’s Rent review can also be linked to the tenant’s receipts from its use of the property.

40
receipts Often linked to the tenant’s turnover, but could also be linked to other receipts, such as its profits or the sums
it receives from subletting the property.
Open market Rent is adjusted at regular intervals (usually every 3–5 years) during the term by reference to the open
rent review market rental value of the premises at the time of the review.

Open market rent review: the basis of valuation:

Hypothetical assessment based on two elements: (i) the physical property; and (ii) the terms of the lease itself.
Account also made if T caused damage/disrepair or carried out improvements = valuation issues.

Rent review clause makes certain assumptions and certain disregards:

Common assumptions:
 ‘By a willing landlord to a willing tenant’: there is a L willing to lease and a T willing to rent.
 ‘With vacant possession’: T makes no offer unless property is empty.
 ‘On the terms of this lease other than as to the amount of the annual rent but including the provisions for
review of the annual rent’: terms of hypothetical lease are same as the real lease, except rent payable.
 ‘For a term of [?] years’: the lease should specify the term of the hypothetical lease. Options: (1) specify
original term; or (2) term equal to unexpired residue of the actual term - perhaps with a minimum term to
cover the situation where the actual lease is very close to its expiry date.
 ‘On the assumption that the tenant has fully complied with their obligations in this lease’: T should not
profit from its failure to repair the property.
 ‘On the assumption that if the property has been destroyed or damaged, it has been fully restored’: rent
review goes ahead on the basis of an undamaged property.

Common disregards:
 ‘Any effect on rent of the fact that the tenant has been in occupation of the property’: T’s occupation is
disregarded to prevent L arguing that T would pay an inflated annual rent to avoid the costs of relocation.
 ‘Any goodwill attached to the property by reason of any business carried out there by the tenant’: existing
goodwill (eg a regular flow of customers, a good reputation) = generated by T’s business activities.
 ‘Any effect on rent attributable to any physical improvement to the property carried out by the tenant with
all necessary consents and not pursuant to an obligation to the landlord’: voluntary improvements by T.

Open market rent review: the process for determination:

Lease needs to set out a process for how each rent review will be carried out, dealing with:
 Level of rent: rent review clause may be upwards-only, ie rent stays the same on review, or increases.
 Frequency of review: typically every 3 or 5 years, on the anniversary of the commencement of the lease.
 Instigating the review: parties will negotiate through their specialist valuers and usually reach agreement
in due course. Time will not be of the essence for this process and most leases will provide for T to keep
paying existing rent, together with interest on any delayed increase when rent review is eventually settled.
 Independent determination: should parties fail to agree, lease should make provision for the matter to be
referred to an independent third party - ie appointed through the Royal Institute of Chartered Surveyors.
————

PROCEDURAL STEPS FOR THE ASSIGNMENT OF A LEASE:

The following deals only with matters differing from conveyancing in freehold – otherwise the same.

Conveyancing procedure for assignment of lease:

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Landlord’s consent:

Req for L’s consent = contained in alienation covenant. Assignor responsible to apply for consent.
L’s consent usually embodied in a ‘licence to assign’.

Pre-exchange stage:
Assignor checks lease for alienation covs.
L will want to take up references on the prospective assignee: ensure solvency and financial strength.
L’s S required from Assignor’s S an undertaking for the payment of the legal and other professional costs
involved in the assignment.
 Assignor S first seeks assignor’s authority to give the undertaking, which should be limited to
reasonable costs incurred + a cap should be placed.
L may require assignee to provide a guarantor as a condition of consent and/or assignor to enter into AGA.

L consent must be given by or on completion of the assignment - or assignor likely to be in breach of the
assignment covenant in the lease. Two ways to deal with this - depending on standard conditions used:

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  SCs: either party may rescind the contract by notice if the consent has not been given 3 working days
before completion date (or consent given subject to a condition to which buyer reasonably objects).
 It is safest not to exchange until the L’s consent has been obtained.
 SCPCs (11.3.5): if L consent has not been obtained by the completion date, completion is postponed until
5 working days after the assignor notifies the buyer that consent has been given.
 Contract may not be rescinded until 6 months have passed since the original completion date.
 Safest not to exchange until L’s consent has been obtained.

If no consent —> assignor in breach of T’s alienation covs —> lease itself may be liable to forfeiture.

Licence to assign:

Draft licence to assign is produced by L’s solicitor —> sent to the assignor’s S —> who coordinates with the
assignee’s S to amend or agree the draft.

If assignor and assignee are to enter into covenants in the licence then all three (ie landlord, assignor and
assignee) will be parties to the licence (+ any guarantor(s) of assignee) - which must be a deed.

Key provisions:
 L grants consent to the assignor to assign the lease to the assignee. Often consent is time limited.
 If lease granted on or after 1 January 1996, the assignor will give an AGA to L.
 If lease granted before 1 January 1996, a direct covenant by assignee to L to observe and perform the
covenants in the lease for the remainder of the term.
 The assignor agrees to pay L’s legal and professional costs.

Contractual liability and how the licence to assign deals with this:

Relationship between L and assignee depends on whether the lease is an ‘old lease’ or ‘new lease’.

Old lease Assignee liable under privity of estate for all the convents in the lease which ‘touch and concern’ the land,
but only for as long as the lease remains vested in the assignee.
L will create privity of contract by requiring assignee to enter into a direct covenant to observe the
covenants in the lease for the remainder of the terms of the lease.
New lease Assignee liable for breaches of cov committed while the lease is vested in them - but liable for all T
covenants, not just those which touch and concern the land.
On future assignment, assignee automatically released from all T covs.
If L requires direct covenant from assignee - this should be limited to the period the assignee is actually the
tenant, not the remainder of the entire term.
Statute allows L to require that the assignor enters into an AGA.

Authorised guarantee agreement:

An AGA will typically contain covenants by the assignor:

 guaranteeing that the assignee will perform T’s covenants in the lease, including cov to pay rent
 promising to perform such covenants if the assignee does not
 indemnifying L for the assignee’s failure to pay rent or to observe the other covenants
 promising to take a new lease if the liability of the assignee is disclaimed on insolvency

AGA should provide that the assignor’s liability does not extend beyond that of the assignee: assignee being
released from liability on a further assignment of the lease, so is the assignor.

Deduction and investigation of title:

Assignor S: investigation - same way as for purchase of a freehold property.

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 Superior freehold title checked as well as leasehold title: any covenants or easements affecting the freehold
will also bind the leasehold interest.
 Problems/incumbrances found —> disclosed in draft contract.

Assignor S: provide Assignee S with (i) copy of the lease and (ii) any licence permitting assignment.

Also deduce freehold title?

 Assignor’s lease is registered with absolute title —> title to the lease is guaranteed by the Land Registry
= no need to deduct title
 Lease is registered with good leasehold title —> no guarantee of the soundness of the freehold title
(although not entitled to it) assignee will try to insist on deduction of the freehold title.
 Provision for deduction of title: dealt with by special condition in the contract - not required by
SCs/SCPCs.
 Assignor’s lease is unregistered —> assignee is entitled to call for the lease and all assignments under
which that lease has been held during the last 15 years, but not for evidence of the freehold title.
 Without deduction (unless freehold reg with absolute title): assignee will only obtain a good
leasehold title on registration of the lease.
 If freehold registered: search under the open register rules.
 Provision for deduction of title: dealt with by special condition in the contract - not required by
SCs/SCPCs.

Pre-contract enquiries and searches:

Assignee S:
 make the same enquiries and searches, for the same reasons, as on a purchase of a freehold property.
 ask to see the insurance policy relating to the property and the receipt for the last insurance premium due.
 ask to see a copy of the receipt for the last payment of annual rent due - ensure assignor not in breach.
 = if there are any outstanding breaches L will be able to enforce the breach against the assignee.

Where only a short period left in lease: may not to carry out searches, as risk does not justify cost involved.

Deed of assignment and covenants for title:

Transfer legal title to estate in land = deed. In an assignment of a lease = ‘deed of assignment’.
 Deed usually prepared by Assignee S.

Assignment of a registered lease (irrespective of residual TR1

length)
Unregistered lease: assignment of a lease exceeding 7 years = TR1
compulsory 1st registration Also possible: deed of assignment similar in format to a
conveyance of unregistered land
Unregistered land: assignment of a lease for 7 years or less Deed of assignment

Same considerations apply as for the drafting of a transfer deed + the following points:

Covenants Assignor in breach of repairing cov: liable to assignee after completion under covs implied in deed.
for title  = covs for title include a promise that the assignor has complied with T’s covs in the lease
 Conflicts with caveat emptor: assignee’s resp to check physical state of the property.
 Conflict resolved by modifying covs for title to exclude references to repair (in both SCs and SCPCs).
The covenants set out in section 4 of the Law of Property (Miscellaneous Provisions) Act 1994 will not extend to any breach of
the tenant’s covenants in the lease relating to the physical state of the property.
o Panel 9 of a TR1 contains space to insert this wording, but it also Panel 11 (additional provisions).
Indemnity Old leases: indemnity cov from the assignee to the assignor is implied except where, for unregistered leases,
value is not given by the assignee for the transaction.
 Where value not given: indemn cov inserted in transfer deed if req by contract (both SCs and SCPCs).
New leases: assignor automatically released from future liability on the assignment = no need for indemnity.
 If assignor remains liable (ie AGA): indemn cov included in transfer deed (both SCs and SCPCs).

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 Pre-completion formalities:

Pre-completion Registered lease: official search of the registers of the leasehold title (OS1) to check for any new entries
searches and to gain a priority period within which to register the transfer.
Unregistered lease: land charges search vs name of assignor to check no adverse entries made since pre-
exchange land search and ensure that priority period of 15 working days covers completion of assignment.
Company search: same as freehold transaction.
The licence to L’s S will supply engrossments (or ‘top copies’) of licence, which must be by deed if it contains covs.
assign When assignee gives direct cov to L - licence is usually drawn up in at least two parts:
 (i) L executing the original licence (given to assignor on completion for him to give to assignee)
 (ii) assignee executing the counterpart (given to L to take effect on completion)
Assignor’s AGA can be contained in the licence (constituting a 3rd part of the licence) or created in a
separate deed - in either case it takes effect on completion of the assignment.
Apportionments Where assignor has paid rent in advance, instalment will have to be apportioned on completion —>
assignee reimburses assignor for period from completion until next rent day.
Assignor may want reimbursements for other outgoings - ie insurance premium.
Assignor supplies a completion statement showing amounts due and how they were calculated.
 Copies of receipts etc attached to statement: assignee can check apportioned sums.

Completion:

Assignee pays assignor balance of the purchase price (if paid) and any other sums due (ie apportionments).

Assignor hands to assignee relevant docs as:

 Lease
 Transfer deed (TR1 or deed of assignment)
 Licence to assign executed by L
 Evidence of freehold title (lease not registered or not registered with absolute title)
 Evidence of discharge of the assignee’s mortgage
 Copies of duplicate notices served by the assignor and its predecessors on L (in accordance with lease cov
required L to be notified of any dispositions)
 Insurance policy (or copy of it if effected by L) and receipt (or copy) relating to last premium due
 Receipt for rent (and other outgoings for which the assignor wishes to claim reimbursement).

Assignee hands to assignor relevant docs as:

 Money due under completion statement
 Duly executed counterpart licence to assign
 A release of deposit (only likely where the assignee is paying a premium)

S 45(2) LPA 1925: on production of the receipt for the last rent due under the lease, an assignee must assume,
unless the contrary appears, that the rent has been paid and the covenants performed.

Post completion steps:

SDLT/LTT Payable only on any purchase price charged by the assignor, and is due at the same rates using the same
procedure as for the sale of freehold land. No SLDT/LTT on rent.
Registered App for registration of the transfer to assignor should be made within the priority period given by the pre-
lease completion OS1 search.
Unregistered Unreg lease which still has over 7 years of term at time of transfer: must be registered within 2 months of
lease assignment or will be void.
App for registration with absolute title= where assignee can produce satisfactory evidence of superior title.
Freehold title registered: lease will be noted against the freehold title.
Other cases: assignee may consider lodging a caution against first registration vs freehold title, in order to
protect their interests against a subsequent buyer.
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 Lease has 7 yrs or less: incapable of registration with separate title.
Notice of Notice of assignment must be given to L in duplicate accompanied by the appropriate fee set out in the
assignment lease. L asked to signed one copy as acknowledgement of receipt. Receipt then kept with title deeds.
——————-

TOPIC 7: REMEDIES FOR BREACH OF LEASEHOLD COVENANTS:

Breach of T covs —> L can look at current T (+ any guarantor) for a remedy and former T (+ guarantors).
This depends on whether lease is an ‘old lease’ (before 1 Jan ‘96) or a ‘new lease’ (from/after 1 Jan ‘96).

—> Leases granted before 1 January 1996:

Old leases —> original T remains liable for the covenants under the lease for the full term of the lease.
= L can sue current T in privity of estate and og T in privity of contract.
Also, L can sue any intervening tenants in privity of contract IF L required those Ts to give a direct covenant.

—> Leases granted on or after 1 January 1996:

New leases: Landlord and Tenant (Covenants) Act 1995 applies = og T released from liability for the
covenants in the lease when it assigns the lease to another T.

If L requested AGA by outgoing T, that T will be liable for breaches of covs in lease by incoming assignee.

NB. AGA only lasts for the duration of that assignee’s ownership of the lease and so when the assignee
assigns the lease on, T who gave the AGA will be released from it.

Remedies for breach of covenant to pay rent:

Distinction between cov to pay rent and all other covs (Including cov to repair).
Non-payment of rent —> first check if in lease there is cov to pay rent and that T failed to pay rent by due
date —> if breach is established, there are a number of remedies:
Action in Non-payment of rent is a debt: can be recovered through the High Court or County Court. The Limitation Act
debt 1980 puts a limitation of six years on recovery of rent.
Commercial CRAR permits L to enter the property and seize and sell goods belonging to the current T.
Rent Applies only to commercial premises and there are strict procedural rules relating to its use. Eg:
Arrears  L must give 7 days notice of his intention to enter the premises and must use an enforcement agency

46
Recovery to enter the premises to remove goods.
(CRAR) L cannot remove certain goods - items/equipment up to value of £1350 which are necessary for T’s business.
L can only take items belonging to T - items leased or bought on hire purchase cannot be taken.
If T does not pay arrears, L may sell the goods only at a public auction and T must be given at least 7 clear
days’ notice of the sale.
CRAR is only available in relation to rent paid for possession and use of the premises and at least 7 days’ rent
must be outstanding. ** Arrears of other payments (such as insurance rent): NOT recoverable using CRAR.
Pursue Guarantors:
guarantors Current and former Ts’ guarantors remain liable. Consider financial strength.
Guarantee (must be in writing): obliges guarantor to pay the rent and any other sums due under the lease if T
does not pay and to remedy, or indemnify L against loss caused by any breaches.
Guarantors of current Ts sued in same way as current Ts.
If L wants to guarantor of former T:
 Old lease: former guarantor’s liability extends through duration of the lease - regardless of assignment
by guaranteed T.
 New lease: guarantor automatically released from liability on assignment of lease by the guaranteed T
- attempts of direct enforcement vs former guarantor: void.
o But: L may require guarantor of outgoing T to guarantee outgoing T’s obligations under AGA
= indirectly guaranteeing incoming T until a further assignment.
And/or Old/New lease: if L wants to pursue a former T or their guarantor, L must comply with s 17 LT(C)A 1995:
 L must serve ‘default notice’ on any former Ts or their guarantors if L intends to recover a ‘fixed
charge’ from them (= monetary payment ie rent, service charge…)
 Default notice must be served within 6 months of current T’s breach - not necessary to start
proceedings within 6 months, simply give notice of claim.
 Section 17 applies to all leases whenever granted, not just new leases.
 **Under s 17 L can only recover sums that fall within 6 months of the notice being served.
If L does not serve default notice —> former T/guarantor may regain some control over property by (i) paying
sum claimed in notice, and (ii) calling for an ‘overriding lease’ = a headlease between L and former T/
guarantor slotted in between L and the defaulting T, making former T/guarantor the immediate L of the
defaulting T.

Rent Rent deposits:

deposit Rent deposit deed sets out (i) amount of deposit, (ii) circumstances where L entitled to withdraw money from
deposit and (iii) at what point deposit is repayable.
Provided L did not breach RD deed terms, L can draw upon the money as soon as T is in breach of a relevant
lease cov, without taking court action or exercising other remedies.
Deed normally requires T to top up deposit where this happens.
Deed may state deposit is returned to T at end of term or on an earlier lawful assignment.
Forfeiture Forfeiture will bring the lease to end and enable L to gain vacant possession of the property.
To use forfeiture, lease must contain a forfeiture clause (sets out triggering breaches).
Where breach is non-payment of rent:
 clause provides right to forfeit where rent outstanding for X days
 Common law requires a formal demand to be made - but lease can dispense with it.
L could forfeit either by taking possession through ‘peaceable re-entry’ (ie without force) or, if that is not
possible, by obtaining a court order.
 T can apply for relief from forfeiture - where court has discretion to allow lease to continue and subject
to condition that T paid all arrears and costs.
L can waive its right to forfeit by carrying out any act demonstrating an intention to continue the relationship
of L and T - must be careful not to demand/accept rent after

Remedies for breach of the covenant to repair:

First: establish breach - depends on nature of damage and wording of covenant. If breach found, remedies are:
Specific Equitable remedy of specific performance is available to force T to comply with the positive covenant. BUT:
performance only where other remedies are not appropriate. In Rainbow Estates, SP granted:
 There was no forfeiture or self-help clause
 Damages not adequate: condition of property was deteriorating;
 Order not being sought simply to harass/pressure T;

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  It was appropriate to grant SP order in light of all circumstances
Damages Always available remedy. Action would lie in breach of contract. BUT: for breach of cov to repair - 2
important statutory provisions:
1. S 18 LTA 1927: limits amount of damages to amount by which L’s reversion (usually the freehold
building) has diminished in value as a result of the disrepair; (diminution in the capital value of the
building attributable to the disrepair may be less than the cost of the repairs)
2. Leasehold Property (Repairs) Act 1938 —> leases granted for more than 7 years with more than 3
years left to run. If act applies: L must serve notice on T and T can serve counter-notice within 28
days - if T does so, L needs leave of court to proceed with claim.
Self-help Clause allows L to recover the cost of repairs as a debt and not a damages claim. L thus able to avoid statutory
(Jervis v limitations.
Harris) clause Typical clause allows L to enter premises to check compliance. If L finds breach, L can serve notice specifying
the works required to remedy the breach. If T fails to start works within specified time after serve of notice, L
may enter, carry out works, and recover cost from T as a debt.
Forfeiture Procedure for breach of repair cov ≠ of that for non-payment of rent.
s 146 LPA 1925: L must serve a s 146 notice which (i) specifies breach; (ii) requires breach to be remedied
within reasonable time (if capable of remedy); (iii) requires T to pay compensation for breach.
If T does not comply with notice, L can forfeit either by peaceable re-entry or by court order. T can apply for
relief from forfeiture.

Complication in cases of disrepair where lease was for more than 7 yrs and has at least 3 yrs left = Leasehold
Property (Repairs) Act 1938 applies and requires the s 146 notice to include notification of T’s right to serve
a counter notice within 28 days. If T serves counter-notice, L can only forfeit with leave of court.

If L wants to sue og T under AGA, s 17 notice not required as claim is not for non-payment of rent.

Remedies for breach of other covenants:

Other breaches: ie use the property and/or carry out alterations without first obtaining L’s consent or let third
parties into occupation or try to assign/underlet without obtaining L’s consent.
Following remedies are available:
 Forfeiture - no need for s 146 notice to include notification of T’s right to serve a counter notice;
 Injunction for breach of a negative covenant such as a user covenant, or to prevent an anticipated
breach;
 Specific performance, but only where the positive obligation is sufficiently precise, performance or
supervision over a period of time is not required and damages are not an adequate remedy.
 Damages, recoverable under normal contractual rules.
 Pursuing a former T or their guarantor.
 Deduction from a rent deposit deed provided that the deed provides for deduction from the deposit for
costs, losses and expenses suffered by L due to a breach by T of its covenants in the lease.

Surrender of the lease:

T surrenders its lease to L = mutual act by T and L which treats the lease as no longer being in existence.
In commercial leases likely done in a formal way: deed of surrender.
 Deed deals with issues such as areas and terminates T’s obligations.
 Quicker and cheaper than forfeiture for both parties.
 Both parties must be willing.

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