The length of the lease term is generally a matter of negotiation. However there may be tension between a tenant’s or landlord’s desire for flexibility or security.
- A lease may or may not be “contracted” out of sections 24 to 28 of the Landlord and Tenant Act 1954. These sections, if they apply, give a tenant some important rights at the end of the lease term. A contracted out lease simply ends when it says it will end. [Landlord and Tenant Act 1954]
- A landlord that is a registered or excepted charity granting a lease term of seven years or under is subject to a lighter touch valuation procedure under sections 117 to 121 of the Charities Act 2011 than that which applies to a longer lease. [Charities Act short leases valuation procedures]
- A lease of a term for seven years or more will be compulsorily registrable at the Land Registry. [Procedures following the grant of a lease]
- The length of a lease term may also influence whether a Stamp Duty Land Tax (SDLT) return is necessary. In nearly all cases where the lease is to a charity this will be solely for the purpose of claiming exemption from SDLT but there are financial penalties for failure to submit a form. [Stamp Duty Land Tax]
- The landlord may want the security of a rental income from the tenant over a long period, but alternatively may want flexibility, for example to ensure that the property is available for redevelopment when the right market conditions come along. [Assessing the cost of providing space in a building]
- If the tenant is going to make substantial capital investment in the property, either with the benefit of grant funding or otherwise, the tenant will want the benefit of a longer term.
- If the tenant is subject to revenue funding, the tenant will not want to have to pay rent under a lease where there is no funding available to cover this.
- It may be possible for the tenant to negotiate break rights to cover this issue. A long lease with break rights gives the balance between security and flexibility for tenant. [Break rights]
- A tenant will not wish to make a substantial capital investment in a property if the lease is very short and the landlord is able to use a break right to terminate the lease, meaning that the tenant loses the benefit of that investment.
- A landlord will not however have the benefit of a secure income stream from a long lease if the tenant has a break right.
I am text block. Click edit button to change this text.
“I am text block. Click edit button to change this text.”
Mr A B Smith