Underlet leasehold flat query

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  • Underlet leasehold flat query

    Hello all,

    I have just read my lease one more time and noted the following wording in the lessee's covenants section:

    (a) Not at any time during the said term to assign transfer underlet or part with possession of any part (as distinct from the whole) of the Demised Premises.

    (b) Not during the last seven years of the said term to assign or underlet the Demised Premises or any part thereof without the consent in writing of the Lessor first obtained.

    The lease has 160 years left to run. My question is as follows (apologies but I am no legal expert and find the above wording hard to understand):

    Can I create a lease covering the whole of the Demised Premises under my existing lease in exactly the same terms and sell the newly created lease whilst I still remain the direct leaseholder of the freeholder? Do I require freeholder permission to do this bearing in mind that we are definitely very far off the last 7 years of the term?

  • #2
    Yes but not as you think

    The lease would be one day shorter, typically, than the existing term and the wording would vary from your lease to properly reflect the various obligations of the FN, you and your underlessee.

    Based on your post there is no need for consent for an underlease of the whole.
    Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

    Comment


    • #3
      You cannot sublet part. You can sublet the whole for any period so long as you do not create the sub-tenancy within the last seven years. (There is a slight inconsistency between paras (a) and (b) but they are of no consequence until you get to the last seven years.)

      Generally speaking subleases should not be in "exactly the same terms" as the head lease. What you have in a sub-lease has to depend on what is reasonable having regard to the length of term.

      Comment


      • #4
        Thank you for your advice.

        I only want to sell the whole flat with an underlease, which I can do, the reason being that I want to protect my buyer from a planning permission that the freeholder has managed to get from the local authority that would constitute a trespass into the Demised Premises. I sued the freeholder a couple of years ago and obtained a Consent Order as a result of him backing off just before the Court hearing which requires the freeholder not to implement the planning permission until he and I dispose of our respective interests. If I sell my own lease, the Consent Order is void and the freeholder can extend. But if I sell through an underlease, I retain my interest and therefore protect my buyer against the freeholder. Further details here http://www.landlordzone.co.uk/forums...ith-freeholder

        Comment


        • #5
          I see.

          There may be a problem there which will turn on the meaning of "dispose". If the word is used but not defined in the order then I think that "dispose" has to include "underlet". Whilst only strictly relevant for the purposes of the Act, I draw your attention to section 205 (1)(ii) of the Law of Property Act 1925 which says:

          “Conveyance” includes a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein by any instrument, except a will; “convey” has a corresponding meaning; and “disposition” includes a conveyance and also a devise, bequest, or an appointment of property contained in a will; and “dispose of” has a corresponding meaning

          I think any court would need some persuading that the definition should not apply to any instrument relating to property where the word is not defined.

          If not an established rule of law it is a rule of thumb that if you do something in a particular way and the sole reason for doing it that way is to get round something you will probably fail to achieve your object. To put it another way, without I hope causing offence but to make the point, the courts do not like people who are too clever for their own good.

          Comment


          • #6
            The Consent Order states that the freeholder cannot implement the planning permission for so long as he and I retain our respective interest in the property. If I sublet by granting an underlease that expires 24 hours before my own lease, I retain my interest as is, which totally allows me to sublet the whole of the Demised Premises. The way I see it is that only if I sell my own lease, then the freeholder may implement the planning permission because I will have got rid of my interest in the property completely.

            The alternative is that I sell my lease to a limited company and then sue the freeholder in the name of the limited company in which I would own the entire share capital. The Consent Order would become void upon transferring the flat to the limited company and I would be taking the risk that a) the freeholder implements the planning permission and b) that I lose in Court if the latter doesn't see the development as a trespass into my property. It's just too risky whereas if I go for the subletting or underlease option, I am able to give full protection to the underlessee from the freeholder. Don't know, worth thinking about very carefully.

            Comment


            • #7
              I think we need to know precisely what the relevant part of the order says.

              Comment


              • #8
                The Consent Order doesn't include the word "dispose" anywhere. It says that for so long as Mr Leaseholder and Mr Freeholder retain their respective interest in the Demised Premises and property, Mr Freeholder cannot implement the planning permission. It also goes on to protect me if Mr Freeholder tries to avoid the order by transferring his interest into a limited company, a member of his family, a friend or any other relative, and also those who act under his control, management etc. The key wording on my side is "retain interest in the Demised Premises" so if I underlet, am I not retaining my interest in the Demised Premises?

                Comment


                • #9
                  Noted.

                  It could be argued by the freeholder that if you grant a long underlease whilst you still have an interest it is not quite the same interest you had when the order was made. A court may take the view that whilst you may not be going against the wording of the order you are going against its spirit.

                  However, let us assume that underletting is "allowed". I am not sure that any purchaser is protected. Whilst you still retain an interest what is your loss going to be if your value in the property is minimal? You will not personally be losing any amenities. How in any event is the purchaser going to be able to be sure that you would take action if the permission is implemented?

                  Comment


                  • #10
                    Underletting the whole flat is permitted under the terms of my headlease and without freeholder's consent. Therefore, if I underlet, I am not in breach of my headlease, which I keep intact. I take your point that by granting a long underlease, I would effectively transfer ownership of the property to someone else, although I still retain the headlease with all its obligations (which obligations would also be fully covered by the underlease). But my point is that whilst I keep the headlease, there is a reversion to me as the underlease will be shorter than the headlease by at least 24 hours. Therefore, whilst the value of the property could be diminished if the freeholder decides to breach the order he has with me, I can still sue him for breach of the order on the grounds that a) I am still his direct (head) leaseholder and retain the headlease and b) this property will revert to me at the end of the underlease so I still have a strong interest in making sure that its value is protected.

                    I think the order is not specific about the circumstances of the property itself. It says that so long as I retain my leasehold interest, the freeholder cannot implement the permission. And since my lease allows me to sublet, I am not in breach of my lease whilst I retain it to protect myself from having a devalued property once it reverts to me at the end of the underlease.

                    Comment


                    • #11
                      Verylonglease,

                      I was just going to suggest you let your flat on AST's, and hopefully get your freeholder to sell up because he was annoyed by your tenants.

                      Does the consent order say that it only lasts while both of you are there, or just you?

                      The reason I ask, is what if the freeholder sells up? Will his successor be bound by the consent order?

                      If not, this could scupper your long lease scheme.

                      Comment


                      • #12
                        Originally posted by JK0 View Post
                        Verylonglease,

                        I was just going to suggest you let your flat on AST's, and hopefully get your freeholder to sell up because he was annoyed by your tenants.

                        Does the consent order say that it only lasts while both of you are there, or just you?

                        The reason I ask, is what if the freeholder sells up? Will his successor be bound by the consent order?

                        If not, this could scupper your long lease scheme.
                        What is AST's? Apologies for my ignorance!

                        Comment


                        • #13
                          AST=Assured Shorthold Tenancy

                          Comment


                          • #14
                            As a buyer, I do not think I would be happy with the situation you propose. It seems messy. How would service charges work - would the freeholder bill you and then you in return bill the leaseholder?

                            Comment

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