Agreements for lease

An agreement for lease is a contract for the sale or disposition of an interest in land and so it will be void unless it complies with s 2 Law of Property (Miscellaneous Provisions) Act 1989. It must:

• be in writing

• contain or incorporate all of the terms expressly agreed by the parties, and

• be signed by or on behalf of the parties

If a contract is varied after exchange then the variation must be in a document which also complies with s 2.

It is possible that the elements required to comply with s 2 could be contained in an email. The judge in J Pereira Fernandes SA v Mehta [2006] 2 All ER 891 said that he had 'no doubt that if a party creates and sends an electronically created document then he will be treated as having signed it to the same extent that he would in law be treated as having signed a hard copy of the same document'. Consequently, any email that contains the terms of a proposed agreement should state that they are 'subject to contract' to avoid inadvertently and prematurely creating a binding agreement.

Excluding security of tenure

If a landlord and tenant agree to exclude or ‘contract out’ from the security of tenure provisions of the Landlord and Tenant Act 1954 they must follow the procedure set out in Landlord and Tenant Act 1954, s 38A.

The landlord must serve a ‘warning notice’ on the tenant, explaining that security of tenure will not apply. The tenant must then sign a declaration to confirm that it has understood and agrees to the exclusion of its statutory rights. If the tenant’s declaration is made within 14 days after the landlord’s warning notice it must be sworn as a statutory declaration.

The whole ‘contracting out’ process must be completed 'before' the tenant takes the lease or becomes contractually bound to do so. If this requirement is not met before the agreement for lease is exchanged (or becomes unconditional) then the agreement to exclude security of tenure will be void and the tenant will have the full protection of the Act.

Landlord and Tenant Covenants

The Landlord and Tenant (Covenants) Act 1995 includes an agreement for lease within the definition of 'tenancy'. The result is that obligations contained in an agreement for lease will bind successors unless they are expressed to be personal. This can be extremely important if the agreement for lease obliges the original landlord to build or to carry out extensive works to the property before the tenant can be obliged to take the lease. Any buyer of the landlord's interest should check that they will not be bound by those obligations, which could include costly obligations to remedy defects.

Forfeiture

An unconditional agreement for lease, or one where all conditions have been satisfied, falls within the definition of 'lease' in s 146 Law of Property Act 1925. This means that the landlord cannot terminate the agreement where the tenant is in breach (other than non-payment of rent or insolvency) without first serving a s 146 notice specifying the breach, indicating whether it is capable of remedy and, if so, giving a reasonable time for it to be put right. If the landlord goes on to forfeit the agreement then the tenant may apply to court for relief from forfeiture.

It is not possible to exclude or 'contract out' from s 146 and so termination clauses in an agreement for lease will be subject to that section.

Landlord's mortgage

If the landlord's interest is mortgaged then the mortgagee's written consent should be obtained before entering into the agreement for lease. An agreement for lease entered into without that consent will be void against the mortgagee. If no consent is obtained by the time the lease is granted and registered, the Land Registry will enter a notice on the register stating that the lease is subject to any rights of the mortgagee.

Agreements for lease and SDLT

SDLT is payable on completion of a lease or, if earlier, on 'substantial performance' of an agreement for lease. 'Substantial performance' occurs when the tenant:

• pays at least 90% of the contract consideration or premium

• pays the first rent

• occupies the property

• grants (or agrees to grant) an underlease

HMRC guidance makes it clear that occupation under a licence (eg one that allows early access for the tenant to carry out works) will count as 'substantial performance' and will trigger SDLT liability.