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Five Housing
Leases and Contracts

Leasing Overview

An agreement for lease is required where the landlord and tenant cannot enter immediately into the lease itself, but need to know that the other party is bound to do so on the agreed terms at the relevant point in the future. Common situations where an agreement for lease is used include where:
  • building works are to be carried out on the site (see Precedents: Agreement for lease—landlord to carry out minor works incorporating the Standard Commercial Property Conditions (Third Edition) and Agreement for lease—developer landlord to carry out major works incorporating the Standard Commercial Property Conditions (Third Edition))
  • landlord's consent is required to the grant of the lease (see Precedent: Agreement for lease conditional on superior landlord’s consent incorporating the Standard Commercial Property Conditions (Third Edition))
  • the grant of the lease is conditional upon the landlord acquiring vacant possession of the premises (see Precedent: Agreement for lease conditional on vacant possession incorporating the Standard Commercial Property Conditions (Third Edition))
  • the grant of the lease is conditional upon the landlord obtaining appropriate planning permission (see Precedent: Agreement for lease conditional on planning incorporating the Standard Commercial Property Conditions (Third Edition))

Statutory Requirements

An agreement for lease is a contract for the sale or disposition of an interest in land and so it will be void unless it complies with Law of Property (Miscellaneous Provisions) Act 1989, s 2 (LP(MP)A 1989). It must:
  • be in writing
  • contain or incorporate all of the terms expressly agreed by the parties, and
  • be signed by or on behalf of the parties

Landlord and Tenant Covenants


The Landlord and Tenant (Covenants) Act 1995 includes an agreement for lease within the definition of 'tenancy'. The result is that obligations contained in an agreement for lease will bind successors unless they are expressed to be personal. This can be extremely important if the agreement for lease obliges the original landlord to build or to carry out works to the property. Any buyer of the landlord's interest should check that they will not be bound by those obligations, which could include costly obligations to remedy defects.

Agreements for lease and SDLT


Stamp Duty Land Tax (SDLT) is payable following completion of a lease or, if earlier, following 'substantial performance' of an agreement for lease. HMRC considers that 'substantial performance' occurs when the tenant:

  • pays at least 90% of the contract consideration or premium
  • pays the first rent
  • occupies the property

Forfeiture


An unconditional agreement for lease, or one where all conditions have been satisfied, falls within the definition of 'lease' in Law of Property Act 1925, s 146. This means that the landlord cannot terminate the agreement where the tenant is in breach (other than non-payment of rent or insolvency) without first serving a s 146 notice specifying the breach, indicating whether it is capable of remedy and, if so, giving a reasonable time for it to be put right. If the landlord goes on to forfeit the agreement then the tenant may apply to court for relief from forfeiture.

It is not possible to exclude or 'contract out' from Law of Property Act 1925, s 146 and so termination clauses in an agreement for lease will be subject to that section.

Landlord's mortgage


If the landlord's interest is mortgaged then the mortgagee's written consent should be obtained before entering into the agreement for lease. An agreement for lease entered into without that consent will be void against the mortgagee. If an application to register the lease is submitted without mortgagee consent included (and there is no restriction on the title prohibiting registration of a lease without such a consent), HM Land Registry guidance states that it will enter a notice on the register stating that the lease is subject to any rights of the mortgagee.

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