Lease renewals: how charities can avoid potential pitfalls

Whether a charity as a tenant wants to renew its lease, or as a landlord owns property which it leases out, it's important for trustees to realise that a lease renewal may not be as straightforward as simply signing a duplicate of the old lease and changing the dates.

The seven important issues to consider before renewing a lease are:

  1. Repair obligations: A key point is that where there are dilapidations, the immediate right to ensure these are put right may be lost if they are not specifically dealt with in the new lease. As a separate point, whilst a full repairing lease can simply be restated in the new lease to the same effect, a repair clause that is limited by schedule of condition needs to make it clear which schedule on which date sets the standard.
  2. Alterations: When the new lease is granted any alterations that the tenant has carried out which are sufficiently annexed to the premises automatically form part of the premises and belong to the Landlord (and rent would need to paid for them when calculating rent at rent review). This may not be the intention, and so specific wording is needed if the tenant wants to remove them, or the landlord wants to require that they be reinstated at the end of the term of the new lease, or if they are not intended to increase the rent.
  3. Modernisation: It is important to consider how the law has changed since the last lease and whether any provisions require deleting or updating.
  4. Title issues: Even if you know the property well it is still advisable to re-check the title as it may have changed in the interim. For example, the landlord may have sold off part of an estate which includes an area over which you previously had rights, or the landlord may have charged the property. If your use has changed at all you may also need to review any covenants on the title to make sure your previously compliant use has not become a breach of covenant.
  5. Planning: You may not think to check this, but if your original consent was temporary or your changed use or proposed works require a different consent then this would need to be considered.
  6. Stamp duty land tax (SDLT): Any occupation under a lease gives rise to an SDLT charge whether formally documented or not. Where there is a gap between the expiry of the old lease and grant of the new lease there is SDLT to pay, and some complicated rules as to how it is calculated.
  7. Security of tenure: By not documenting a new lease after a previous unsecured lease ends, as a landlord, you risk the tenant obtaining security. For this reason, during an occupation which has no lease, a landlord would be well advised to confirm formally that the occupation is as a tenant at will. In a situation where a protected lease has ended, the tenant will continue to occupy with security, but there will be various deadlines to be aware of for both landlord and tenant to protect their positions.

Keeping these pointers in mind should help you to negotiate the relevant aspects of a lease renewal, and to be aware of the need to formalise undocumented occupation as soon as possible.

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