What to expect from the legal process after agreeing heads of terms to lease your first office
We outline below seven steps you should expect once you have instructed solicitors on an office lease.
1 – Onboarding with the Landlord’s Solicitors and Property Searches
Once we have on-boarded you as a client and carried out the necessary AML checks, the first step is to make contact with the landlord’s solicitors. We will request: (a) the title pack; (b) the draft documentation; and (c) replies to standard enquiries (known as CPSEs).
We will also ask you if you would like us to run searches (which we recommend). Searches determine (amongst other things) whether:
- there are any notices recorded against the property;
- there are any planning issues;
- your proposed office use is permitted without securing further planning consents;
- there is a risk of chancel repair liability (an archaic, but potentially costly liability);
- whether there is direct access to the highway (or whether you might have to pay a third party for access to the office / a third party might prevent your access to the office).
- there are any public rights of access;
- there is any potential environmental liability or other environmental issue;
- the property is connected to mains water and drainage (or whether you might be beholden to a private sewage system / septic tank, with maintenance and cost issues attached); and
- If you decide to run searches, we will provide you with a quote from our search provider and following your confirmation that the quote is in order, will submit these on your behalf. You should expect results within four to six weeks of their submission. If you need to complete the lease sooner, then we can discuss other options with you.
If you intend carrying out an initial fit-out of the office, we will ask you to supply us with a copy of your plans. We will liaise with the landlord’s solicitor for a draft licence to alter and progress this simultaneously with the lease documentation, to ensure that you can start your fit-out works immediately on completing the lease. If fit-out plans are not available at early stage of the deal, then this can create delays.
Should the office not be equipped with the necessary telecommunications apparatus to allow you internet access from day one, we will recommend that you discuss this with the landlord and / or make contact with a suitable telecommunications provider. The landlord / telecommunications provider will want to document the installation and retention of the equipment within the property by way of a wayleave agreement. Procuring a wayleave agreement can be another pinch point in terms of timings; you are dealing with an additional party who has other competing time demands and so it is worth starting this process as early as possible.
2 to 4 – Reviewing and Negotiating the Documentation
Once we have received the draft documents from the landlord; we will review what we have received as against the heads of terms to check that they line up with what you understand you have agreed. We will also check to make sure that there are no terms which might create additional financial liabilities; cause a significant burden to you; or are otherwise unreasonable. We will report to you on the terms of the documentation and let you know which points we would recommend you negotiate. It is up to you, as to whether you want us to take a point up with the landlord or whether you think the risk associated with that matter is one that you can accept.
We will also review the title pack and the management pack received from the landlord’s solicitor. We will check (amongst other things):
- that the landlord is the registered owner of the office;
- that there is no superior landlord or if there is a superior landlord, their consent is not required to the grant of the lease of the office to you;
- if the landlord has a leasehold interest in the property, that their interest extends beyond the end of the proposed lease term;
- that we have been told if the landlord has opted to tax the property and therefore will be charging VAT on the rents;
- that there is no mortgage on the property or if there is a mortgage, that the lender’s consent has been obtained / is not required for the grant of the lease of the office to you;
- that no other third party consents are required for the grant of the lease of the office to you;
- whether there is any asbestos at the property and if so, how this is being managed;
- the energy efficiency rating of the property.
- that we have details of the last three years of service charge costs; the service charge budget for the current service charge year; and the insurance costs (we will pass these documents through to you); and
- If you have requested searches, we will report to you on the outcome of these searches. If any issues are flagged in those searches, we will make suggestions to you as to how we mitigate the risks associated with those issues.
5 – Engrossments and Execution
Once you are happy with the documents and the landlord’s solicitor has answered all questions raised satisfactorily, we will ask for execution copies of the documents. Since Covid, many more landlords are happy to permit electronic signing and if this is something you are interested in, we can set this up for you.
If the lease is to be contracted out of the Landlord and Tenant Act 1954 (meaning you do not have rights to remain in occupation after the end of the lease term / to a new tenancy) then you will be required to hand over either a simple declaration or statutory declaration to the landlord. A simple declaration only requires a signature by an authorised person, but also requires a 14 day gap between the landlord serving notice that the lease is contracted out of the Landlord and Tenant Act 1954 and completion of the lease. Note that the landlord will only serve this notice, when the documents are in an agreed form. Given the delays caused by a simple declaration, most tenants will provide a statutory declaration. This requires an authorised person, to attend an independent solicitors offices (i.e. not the landlord’s or tenant’s solicitors) to swear the declaration before a solicitor.
We will request a completion statement from the landlord’s solicitor. This will normally include an apportionment of rent from the term commencement date to the next quarter day and the rent deposit sum (if one has been requested by the landlord). These funds will need to be paid to the landlord / landlord’s solicitor before completion.
6 – Completion
Completion just means dating the signed documents. Once the documents are dated, they become legally binding on both the landlord and tenant. Often the term commences at completion of the lease and in these circumstances, this is the day you will be provided with the keys to your new office.
7 – Post Completion Administration
If your lease term is between 3 and 7 years, we will apply to note this at the Land Registry against the landlord’s title. If your lease term is 7 or more years, then it must be registered at the Land Registry and the Land Registry will allocate the lease its own title / title number. We will attend to this registration process.
Stamp duty land tax may be due to HMRC on completion of the lease. In some cases, even where no stamp duty land tax is payable, we might still need to complete a form (known as the stamp duty land tax return) to HMRC. We will prepare the first draft of this form for your approval and will tell you how much, if any, stamp duty land tax is payable. We may ask for the money to be paid across to us before completion, to ensure that we can send the money to HMRC before the deadline for payment. HMRC provide a calculator on their website which allows you to work out what is due in your particular circumstances.
Sophie Henwood is a Senior Associate in the Commercial Real Estate team at Boodle Hatfield.