Business Lease Renewals – Knowing Your Legal Position
July 5, 2021 No Comments

Key Factors in Dealing with Defective Leases


Posted by Mario Theodorou in Blog

In the UK, large volumes of homes are being built and sold on a leasehold basis due to the limited space available for new developments. This could become an even bigger problem as the Government looks to relax the planning rules in a bid to boost the house-building sector of the economy.

However, this can create its own issues, particularly if the lease agreement itself has not been property drafted or is ‘defective’ – which can be a problem for landlords and tenants alike.

Maunder Taylor specialise in lease negotiations advice for clients in Hertfordshire and North London. Here we highlight some of the principal issues which owners and leaseholders need to be aware of, including the length of the lease itself.

Repairing the Property

It should be made clear under the terms of the lease who has the obligation to repair communal areas, including the roof and the foundations. This should be the responsibility of the landlord or the managing agents; if it isn’t mentioned or isn’t clear, then the lease can be termed defective.

One possible method around this is for the tenant to take out indemnity insurance to cover any associated risks. Usually this will be funded by the owner or seller.

Insuring the Property

Again, the lease is defective if it does not specify who is responsible for the buildings insurance. While the leaseholder is expected to take out contents insurance for their own possessions, insuring the physical structure of the property should be down to the freeholder or landlord.

Some older style leases for maisonettes and similar properties may still state that buildings insurance is the responsibility of the leaseholder; if you are a tenant, check if this type of clause exists before you sign any agreement, and if it does, try to get it changed. Many lenders will be reluctant to grant you a mortgage if this type of agreement is already in place.

Other ‘Defective’ Issues

Although the two areas outlined above are the commonest issues, sometimes leases can be considered defective if:

  • They don’t allow the property to be bought as an investment. This is a problem if the purchaser intends to rent it out to someone else – ‘buy-to-let’.
  • They don’t grant the leaseholder access to all parts of the property through communal areas. This is sometimes categorised as an Insufficient Rights of Way issue.
  • They don’t include an up-to-date record of the property’s ‘Demise and Plan’. This means the lease may not take account of who is responsible for a roof space, or doesn’t recognise the fact that the layout has been altered over the years by, for instance, the removal of internal walls.

The Length of the Lease

A lease is not ‘defective’ if it does not have many years left, but it can be a problem just the same. If it has 80 years or fewer left to run, then it is much harder to sell or get a mortgage on the property in question. This is because the property’s value starts to drop considerably and it is much harder to have the lease extended.

Previously tenants had to pay ground rent and a so-called marriage value, which meant that landlords were effectively entitled to a share of the profits if any extension increased the value of the property.

Legislation currently passing through Parliament will abolish marriage value, and it will also give tenants the right to extend their leases by 990 years at zero ground rent. For more details, follow this link. It’s unclear when this will become law, and one basic problem remains – lenders may still be unwilling to lend if the property has a very short lease.

What Can You Do About It?

The principal method of correcting a defective lease is to ask for a ‘deed of variation’ which allows the terms to be varied. This will enable tenants to resolve any repairs or insurance issues.

Landlords and freeholders can benefit from this approach as well. If they have a lot of requests on the same matter from different tenants (such as installing satellite dishes or allocation of parking permits) they can resolve all of them at the same time.

It is also possible to apply for a ‘deed of rectification’ which is similar to a deed of variation but is more likely to be concerned with the layout of the property. Another option is to ‘surrender and re-grant’ the lease, in which the landlord and tenant agree to void the existing lease and sign a new agreement. It may not be possible to reach an agreement over this, so one party can apply for a court order demanding alterations to the lease.

This where Maunder Taylor can help. We can help with all matters relating to short or defective leases as part of our ‘troubleshooting’ services. These cover all insurance issues and any structural problems with the property as well. We have all the expertise you need, whether you are buying, selling or investing in domestic or commercial property – and that includes lease negotiations advice for landlords and tenants in Hertfordshire and North London.

In the case of short leases, we can help with leasehold enfranchisement. This allows you to extend the lease if you have owned the property for two years or more and means you can add 90 years to the terms of the lease.

Contact Us

If you would like to know more about our services, which also include residential block management, valuations and legal expertise in Barnet, Watford, Cheshunt and other areas of North London and Hertfordshire, then you can either follow this link or call us on 020 8446 0011.