Leases – What, Why and How About Me?

However to provide some light and if not stimulate some further debate of this much discussed topic I would consider as follows.

What Is A Lease?

If you were to strip back all the case law and legislation that now is in front of us, and that contributes to a seemingly insurmountable hurdle in presenting such a definition or explanation,  a lease in its simple context is a contract between two parties.

In such a contract, an interest of land or property is being created or given by the land owner (commonly referred to as the landlord), to the tenant (commonly referred to as the lessee). In such a contract, land or property has been demised to the lessee for a period of time. When such an interest in land or property is being granted, often there is consideration, (that’s money to me and you), passing from the lessee to the landlord. Such consideration may be a one-off premium payment being made at the start of the lease or a yearly premium, (rent), being paid over the term of the lease. In some instances there maybe a combination of both a one-off premium and a yearly rent being paid to the landlord.   

The creation of this contract, the lease, gives rise to many rights, often bestowed on the lessee which, without this lease, the lessee would not have. Obligations both positive and negative between the two parties involved are recorded in this lease contract, where should one party fail to comply with such obligation this would give rise to a breach of lease, which is essentially a breach of a contractual obligation, resulting in someone probably getting sued. Or at least that was and is the theory. The contract, or lease, attempts to strike a position of equality between both landlord and lessee, but does it?

Clearly by looking at both the evolution of common law and statute which governs the relationship between landlord and lessee, it can been seen that the ‘powers that be’ have attempted to bring some certainty and 'proper' equality between the parties. One must remember, historically this contractual relationship between landowner and tenant often was not in written form. There was a time in English law where contracts for the sale of land or a disposition of an interest in land were enforceable by oral agreements as well as written ones. You can imagine the disputes that these oral contracts would have given rise to. Legislation was brought about which then sought to crystallise the position; such making it mandatory for transactions involving the sale of land/property and or disposition of the same to be in a written agreement. Reference can be made to both the Law of Property Act 1925 and The Law of Property (Miscellaneous Provisions) Act 1989.  

There are many types of leases which relate to many types of properties and or relationships between the landlord and lessee. I shall not be attempting to either describe the numerous types of leases and the difference between a commercial lease and a residential lease for the purpose of this article. The fact is that this is an on going debate which the Judiciary constantly deal with, and is a topic of legal debate depending on what right you are trying to enforce at the time, or the position you want to adopt for personal achievement and or benefit.

In general terms, there are leases which are commercial in nature which attempt to regulate the business relationship between the landlord and lessee and there are leases which are residential in nature (in that the lease relates to a flat or house), which attempt to regulate the relationship between a landlord, who views his interest in the property purely from a commercial basis and a lessee, who views their interest in the demised property as a home. The residential lessees position theoretically changing of recent years, for example the lessee being one of these landlords in his own right, who has acquired the lease property for the purpose of renting the same out for short periods of time and earning a rental income. Whether the lease property is residential or commercial in nature, there is both ample common law and statute to provide guidance and regulations regarding the conduct of both the landlord and lessee.   

For the purpose of the rest of this article I shall discuss in broad terms what you the reader should consider and reflect when dealing with a lease which relates to a residential property such as a flat or house. We shall discuss what they are, and why they are needed.  Finally, we’ll look at the importance of being familiar with your lease and some of the things to look out for.

The first thing to realise when dealing with leases, is that there is no such thing as a standard lease.  There may well be standard prescribed covenants, obligations and clauses which can be adopted and utilised when drafting a lease, however you should always ensure you take good independent legal advise before entering into or purchasing a lease.

Do not be afraid to ask your lawyer any question regarding the lease/property you are acquiring and any benefit you believe the same has. For instance you may believe the lease demise you are acquiring includes a particular car parking space and as such the premium you are paying is reflective. You therefore need to ensure that the car parking space you think you are acquiring is the actual car parking space demised within the lease and or the car parking space will actually belong to you, rather than the lease just making provision for the lessee to park a car in a particular space determined by the landlord from time to time; the landlord even having the ability to withdraw the offer to provide a car parking space. Such other questions you must ensure are investigated are other benefits you believe come with the acquisition of the lease, such as the use of communal gymnasium facilities or other such leisure facilities such as a communal garden etc.     

Whilst a lease may seem like a complicated document, in actual fact as mentioned already the role it plays is essentially simple.  It is the backbone of the contractual relationship between the landlord and lessee.  It is important to remember, a fact most residential landlords attempt to forget, that the lease document is not only the binding agreement in this relationship. Rather it is the blueprint or starting point of the relationship setting out the terms between the parties. Statute plays a large role in determining various obligations and the exercise of such rights that each has a part in  

The most common residential lease types are those that we are probably all most familiar with i.e. those where there exists a freehold owner of a property or land, and the leaseholder who is granted a lease over a part of it.  However there are other arrangements in which residential leases are fundamental, such as those where a Resident Management Company is in place.  In such situations, it is common for most if not all persons owning a flat to also own a share of the freehold via ownership of a share interest in the Resident Management Company. This can result in the leases functioning slightly differently to reflect the make-up of the property.  In recent years, the rise of the shared ownership lease has also come to the fore, with its own unique elements such as allowances for the shared ownership leaseholder to gradually purchase the full extent of their individual property.

Some of the more complex estates may even contain multiple levels of ownership, such as head leases and under leases, or have a mixture of leasehold units like flats and freehold dwellings such as houses, commercial units and social housing.

In such instances it is important you are sure that there is adequate provision for each person or entity within such an estate to enjoy the use of their premises in harmony and in conjunction with each other and where necessary each party contributing their equitable share to any costs resulting from them exercising such a right in common with all who reside or occupy such an estate.

As briefly mentioned, the advantage of residential leases in particular is that there is a wealth of both common law and legislation designed to serve as a protection to those party to such leases. Some would argue notably to the benefit of the lessee, but it would be fair to say that such legislation also provides to a discerning landlord a clearer obligation they must provide when seeking to profit in the relationship they are seeking to create.  Leasehold ownership is unique to England and Wales, in the way that Acts of Parliament such as the various Landlord and Tenant Acts (notably 1985 and 1987), the Leasehold Reform, Housing and Urban Development Act 1993, and more recently the Commonhold and Leasehold Reform Act 2002, to name but a few, have been instrumental in helping to define and shape the landlord and lessee relationship. Such acts of Parliament have sought to apply guidance and in some instances clarify previous statute and provide further understanding to the contents and workings of residential leases and the way in which the same can be handled by the various parties.

Why Is It Needed?

In any event, the job of the residential lease, no matter who or what the parties are, is to provide a framework under which security of ownership can be given from the landlord to the lessee, under which services can be provided to the demised property in question and perhaps more importantly how such services are to be paid for.  This is why the leases for a specific property will often reflect the specific nature of the property in their wording.  

In most cases, the lease will provide an obligation for the landlord to;  

• Insure the buildings and or estate in which the demised property is located

• Maintenance and upkeep of the building and or estate areas from cleaning and gardening to inspecting the roof and foundations and keeping the same in good repair ,in some instances renewing the same

• General management functions

In exchange for the landlord providing such services the lessee within their lease will covenant to pay their proportionate costs incurred or to be by the landlord in undertaking such management obligations, which come at a cost. Such maintenance costs are often referred to as service charge costs. It is in this particular area that there has been much development in statute and common law, which seeks to ever provide the ongoing frame work and guidance to which a landlord must comply with, failing which they could be found responsible for the service charge costs in whole or in part.  

From looking at the evolving relationship between the landlord and lessee, it is clear that governance has been and is being provided to ensure those parties who are subject to lease must treat each other justly and reasonably. This is why most modern leases will also contain covenants, in other words promises that the parties make to each other with respect to their obligations under the lease.  Provisos are also an important aspect of the lease, as these detail what will happen should any of the parties fail to uphold their end of the agreement.  

If the lease was not in place and there was not this ongoing legal definition of the parties relationship with each other, the landlord and tenant arrangement would be open to abuse. Often leases are now in fact drafted to provide both parties equal grounds. In the unlikely event a lease or a group of leases within an estate/building have been drafted with a defect, do not fear, as statute makes adequate provision for the appropriate application to be made to a Court for an order to remedy such a defect.  This is another example of the law taking positive steps to safeguard the interests of both lessee and landlord.   

A lease will also provide adequate provision to allow the lessee access to and from their property by crossing the landlords retained land from the public highway. Leases also create rights, commonly referred to as easements, which the lessee needs to have to ensure they are able to enjoy and use their property without interference from the landlord or the landlords other lessees. Again, a lessees lawyer when reviewing the lease will be able to ensure such rights do exist. It is important however that the proposed lessee does inform their lawyer of any particular benefit the property has which you want to ensure you have full use of both now and in the future, for example a garden terrace or balcony with views.  Ensure also that you raise the question regarding whether your lease restricts the landlord from encroaching or hindering such rights of light.

Depending on the make-up of the property, the lease may also impose further rules and regulations designed to properly cater for and protect the ongoing running of the property and or its neighbours.

It can be clearly seen therefore that the provisions of the lease are essential for the smooth running and management of both the building in which the demised property is located and the demised property itself. A prudent landlord would not seek to entrap lessees by having a poorly drafted lease offered for sale, as the proposed lessee would simply not proceed to purchase the same.

How About Me?

Even though a residential lease is a legally binding document, and can include fairly unique and in some cases convoluted writing styles, it is not in the lessees interest to ignore the contents of the lease in the hope the same contains adequate provision. Forewarned is forearmed.  Unfortunately it is still often the case that new leaseholders, or even existing ones, are not adequately informed about what exactly their lease contains and what obligations are being placed upon them. You should take the time to read your lease and have the same explained to you by a qualified person.     

As we have seen, a lease contains a number of elements that can have a direct effect on the individual living at the property, from the services being provided which do come at a cost to the lessee. It would therefore be a good idea for the lessee to familiarise themselves with the basic responsibilities of the lease, for example how and when the service charge and or ground rent is collected, what services can be included in the service charge, or whether they require the landlords permission if they want to rent out their property or make alterations which may need their landlords consent and or approval.  A lessee’s familiarity with their lease can also give confidence in dealing with their landlord and ensuring their relationship starts on and continues on a good footing.

As a result of the developments and evolving relationship between landlord and lessee, the aim of any lease should be to form an equitable and reasonable relationship as best as practically possible between the parties to the lease. Should a dispute arise which cannot be resolved between the parties the matter in most instances can be referred to the Leasehold Valuation Tribunal, which is a specialist court set up by legislation, who will provide an interpretation of the lease terms and apply the various laws that govern the relationship between landlord and tenant with a view to resolving the dispute, or at least passing judgement on the same.  

In recent years the government has spent considerable sums of money to ensure that lessees and landlords understand the role they play and the rights and responsibilities they have to each other. Also the World Wide Web being readily available provides for ease of reference in obtaining information and understanding your rights. Professions that deal with leases on a regular basis have also seen improvements and strides to achieving better professional standards. As a result most experienced managing agents can also be a good source of information and advice on leases.

Individual articles could easily be written on the various specific elements of a lease, and the above is not intended to be an exhaustive description by any means. Rather this article is intended to inform the reader of the importance of understanding your lease, be you a landlord or lessee. I would provide further comment, specifically to lessees, that you recognise the importance of your lease as a vital document that dictates the method and machinery by which you hold your property and how it is looked after, so take the time to have a read of your lease and if there is anything you are unsure about, don’t hesitate to ask!

Shalim Ahmed F.Inst.L.Ex Assoc RICS MIRPM, Managing Director of Sterling Estates Management Ltd