No surrender?

Phil Lawrence looks at the options with a lease when it comes to surrenders and re-grants.

After a lease is granted, you may be asked to do more with it. You may wish to increase the time a lease is to run for. For instance, the funding for a project has been extended – and your organisation wants to extend a lease already granted. Or you may want to add more space to the area let. Perhaps a lease has been granted for one area but the tenant or stakeholder would like to use more space, such as an adjoining area. This might suit everyone, for instance to cover maintenance costs or because this space is surplus. So what are the options?

Varying lease terms

A lease is fundamentally a contract for time (ie the term of the lease) in a certain designated area of land (ie the demise of the lease) made in exchange for a payment of money (ie the rent). Most organisations enter in many contracts every day and it can seem a simple concept to agree to change or extend the terms of a lease as a contract. But careful thought is needed.

When parties to a lease enter into a contractual arrangement to change things, typically via a deed of variation, it can have the automatic effect of creating a surrender (ie ending the existing lease) and re-grant (ie the law considers an entirely new lease has come into existence). 

Recent example

The recent case of Tweedie v Souglides [2012] EWCA C iv 1546 has highlighted the issues that can occur.

In this case, the Court of Appeal looked at the position where a landlord had agreed, by a deed of variation, to extend the demise of a lease to include a roof terrace. This deed was made after the date of the grant of the original lease but before the date on which an option was exercised. The original lease contained an option for the tenant to call for a longer lease term. The original lease came to be owned by a Mr Souglides, but Mr Souglides was not a party to the original lease or the option in it.  The court confirmed that the deed of variation had operated as a surrender and re-grant - so a new lease was created.

The relevance in this case was that the court then looked at whether Mr Souglides could be a "successor in title" – due only to his occupation of the property. This related to the position under the Perpetuities and Accumulation Act 1964 in relation to the rule against perpetuities and its effect on the option to extend the Lease. Generally an option to acquire, for value, any interest in land is subject to a perpetuity period of 21 years, but there is an exemption to this where a tenant is acquiring a reversionary interest and providing that the option is exercised for valuable consideration.  Mr Souglides had to serve his option notice with a red rose as consideration – which he duly enclosed with the letter. But crucially the option can only be exercised by the original party or a successors in title. As the deed of variation had unintentionally created a new lease Mr Souglides was not a successor to the original property interest.

So the unintended automatic legal effect operated to catch the parties out.

Conclusion

This case serves as a reminder that when dealing with an existing lease, it is better to start with a new document. Tinkering with the existing 'ease can be a bad option. 

If you are considering extending the term of the lease then using a new lease (a 'reversionary' Lease) will almost certainly be better than a deed of variation. In addition, the Land Registry requirements will need to be considered – a lease which is to take effect more than three months from its grant will need to be registered. This will apply even if it is of a relatively short term (ie less than seven years) and might not otherwise need to be registered. Equally, when adding to a let area, it is likely to be a better bet to create a separate, second, lease for the additional land rather than trying to swap in a new lease plan as a variation.

This email address is being protected from spambots. You need JavaScript enabled to view it. is an associate at Veale Wasbrough Vizards. He can be contacted on 0117 314 5441.