We are receiving enquiries from tenants and landlords about the possibility of extending leases by a period of time equivalent to the duration of the lockdown (during which premises are unusable).
We understand that some landlords and tenants are trying to come to informal arrangements to achieve this but there are risks to that approach which might not be foreseen.
In particular, if a landlord and tenant come to an agreement to extend the lease term, that can be construed as a surrender of the existing lease and the regrant of a new one. The consequences of this can be undesirable for both parties.
For the tenant it means that:
- They have to pay stamp duty all over again on the whole value of the lease.
- They would also have to apply to register the extension of the lease at the Land Registry and pay a fee again.
- If the lease is charged (mortgaged) to a lender, the surrender and regrant would be a breach of the terms of the mortgage and an event of default. (That could be cured – with the co-operation of the lender – but at a cost)
For the landlord it means that:
- Any guarantor of the original lease would be lost. The guarantee wouldn’t automatically transfer to the new lease.
- If the lease is charged, see 3 above
- If the original lease was excluded from the security of tenure provisions of the Landlord and Tenant Act 1954 (LTA 1954), the landlord must ensure that the correct statutory notice procedure is followed for the regranted lease, otherwise the tenant will benefit from the security of tenure and the compensation provisions of the LTA 1954.
Extending the term of a lease by the period of the lockdown is an attractive idea, provided the parties can come to an agreement on price/rent and anything else material. However, proper thought needs to be given to how it is documented, otherwise the parties may find they have inadvertently fallen into some of the traps identified here.
For further information please speak to your usual Druces contact or to:
Please note this article is for general information. You should not rely on it without advice on the specific facts of your case.