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Friday, 8 January 2010

11 Reasons Not to Negotiate a Lease Without a Legal Adviser

In these recessionary times, it is very tempting to think you can avoid legal costs by re-using a Lease you have granted before especially if you have the Lease in electronic form. However, I have seen some real howlers which have been drafted by clients and which have ended up costing the client tens of thousand of pounds and in one case hundreds of thousand of pounds. All for the sake of a modest legal bill. You are probably not looking at more than £750 plus VAT for a simple lease with no extra documents. Here are some of the pitfalls I have come across for clients wanting to do a DIY job.

1. Rent review clauses are a minefield and a mistake can be very costly as the error will come up every time there is a rent review. An assumption the new lease is on a "best rent" can lead to a massive hike to take into account a special bidder, Landlord's trigger notices which propose an exorbitant rent and if the Tenant does not respond become binding, false assumptions which result in enhancements of the rent, an assumption that the lease being reviewed is the same as the current lease excluding rent review provisions which means the valuer assumes a lease without rent review provisions which could produce a collossal rise in the rent. I have seen all of these in DIY leases and it has cost the client dearly.

2. The Tenant's break clause is inoperable because it is subject to pre-conditions which effectively mean the Landlord can thwart the break option. For example, the break can only be operated if the Tenant has complied with all of the obligations in the Lease. Any trivial breach of the lease will render the break option inoperable. If a solicitor missed this, you would have a negligence claim just like that.

3. The Lease does not contain adaquate rights for the tenant to use the premises or grants the Landlord intrusive rights over the property which make it impossible to assign/sub-let.

4. The Lease needs registering at the Land Registry but the Lease does not contain the prescribed clauses required in order to register the lease. The Landlord then demands hefty fees to cover his legal fees in varying the lease to include the prescribed clauses.

5. The lease plan is defective and the Land Registry refuses to register the lease or a dispute later arises over what was and was not included in the demise which is only resolved by costly litigation over what the parties' intention were when they granted the lease.

6. There is no mutual enforceability covenant in the Lease so the ground floor tenant cannot get the Landlord to enforce the upstairs tenant's repairing covenants. The resulting damage to the ground floor unit caused by a leaking roof is not covered by insurance because it is a defect in the Lease and the Tenant has got anyone to sue because they dealt with the lease themselves. This was resolved by paying the Landlord a hefty premium to vary the lease.

7. The notice under the Landlord and Tenant Act 1954 was not served (despite the lease containing exclusion provisions) and the Tenant never made a statutory declaration so the Tenant got security of tenure. The Lease contained no rent review provisions and so the renewal negotiations broke down and the matter went to court and the court ordered highly tenant-favourable terms on renewal which the tenant then renewed a further two times. This landlord's loss was considerable because of the loss of a decent market rent and because they were stuck with an unprofitable tenant paying a very low rent for 10 years.

8. The Lease imposed unlimited service charge which resulted in a crippling liability for the tenant who went into liquidation subsequently.

9. The Lease contained extreme restrictions or an absolute prohibition on assigning, sub-letting or charging the premises which means the Lease could not be sub-let, assigned or charged. Another very costly omission.

10. The repair clause failed to take into account the dilipidated state of the premises resulting in the tenant having to put the premises back into a high standard of repair when the repairing obligation should have been qualified by reference to a schedule of condition limiting the tenant's repairing obligation to no better than the condition shown in the schedule.

11. The Lease did not exclude latent defects/environmental liability for past contamination resulting in the tenant having to repair damage caused by negligent design and to cover clean-up / remediation costs imposed by the environment agency resulting in loss running into the hundreds of thousands.

Now the cynical amongst you will say that I am bound to emphasise the importance of using a legal adviser as I have a personal interest in doing so. All I would say is that all of the above examples are based on numerous real-life examples I have come across and in practically all cases the experience was a chastening one because the losses were so large. For no more than £750 on a simple lease, you are tapping into 23 years of practical experience, 3 years at uni studying law, 1 year at law college and 2 years apprenticeship. Not a bad investment really. Is it?