12.1 Drafting New Lease Terms - Lease Extension Deeds
The Statutory Basis for New Lease Terms
The drafting of the new lease is governed primarily by section 57, which sets out the terms on which the new lease must be granted. This framework ensures consistency with the original lease while accommodating necessary adjustments for the extension. The Leasehold and Freehold Reform Act 2024 introduces significant changes, including extending the additional term to 990 years for both houses and flats, with ground rent reduced to a peppercorn, though many provisions await commencement orders and may not yet fully apply as of the current legislative landscape. For houses, reference should also be made to the Leasehold Reform Act 1967, as amended, but the principles of drafting remain analogous, focusing on preserving the essence of the existing demise while incorporating statutory mandates.
The process begins with the tenant's notice under section 42 of the 1993 Act, fixing the relevant date for mirroring terms. Any deviations must align with the Act's provisions, balancing the interests of landlord and tenant without imposing undue burdens.
Mandatory Provisions in the Draft Lease Extension Deed
Certain elements are non-negotiable and must be included to comply with the statute. Foremost is the extension of the term: for flats, this is the unexpired term of the original lease plus 90 years, though under the 2024 Act, this will shift to a standard 990-year extension once implemented. The ground rent is extinguished, replaced by a peppercorn rent, ensuring no ongoing financial obligation beyond service charges or other agreed contributions.
The new lease must replicate the terms of the existing lease as they stood on the relevant date, including covenants for repair, insurance, and use, subject only to statutory adjustments. This includes any rights or easements appurtenant to the property, such as access or parking provisions, unless expressly modified. A prescribed statement is essential: the lease must declare that it is granted under section 56 of the 1993 Act, facilitating registration at HM Land Registry without requiring mortgagee consent in most cases.
Where the original lease includes provisions for services, maintenance, or insurance, these must carry over, with adjustments for any fixed sums that may no longer be appropriate. For instance, if the original lease lacked variable service charge mechanisms, the new lease must incorporate terms allowing the landlord to recover reasonable costs, as mandated by section 57(2).
Permissible Modifications Outside the Statute, Subject to Agreement
While the statute provides a baseline, section 57(6) permits modifications by mutual agreement, offering flexibility to update outdated or inefficient clauses. These are not mandatory but can enhance the lease's functionality, provided they are reasonable and do not contravene the Act's intent. Common examples include modernising service charge apportionment to reflect current building usage or introducing energy efficiency covenants, such as obligations for sustainable upgrades, which may align with broader environmental regulations.
It is common to increase fixed notice fees from the original lease, particularly in older documents where sums like 10 shillings are specified, rendering them impracticable today. Agreements often adjust these to £50 to £100, ensuring administrative processes remain viable without exploiting the tenant. Other permissible additions might include clauses for alternative dispute resolution or data protection compliance, reflecting contemporary legal standards.
Such modifications must be proposed in the landlord's counter-notice under section 45 and negotiated thereafter. If disputed, the First-tier Tribunal (Property Chamber) can determine reasonableness, drawing on precedents where overly onerous terms were rejected.
Rectifying Errors and Defects in the Original Lease
The extension process presents a prime opportunity to address flaws in the original lease, as empowered by section 57(6). Defects might include ambiguous repair obligations, inadequate service charge recovery mechanisms, or omissions regarding structural works. For example, if the original lease fails to allow the landlord to recoup costs for major repairs, this can be rectified to prevent future disputes and ensure the building's upkeep.
In practice, parties often agree to insert clarifying language or redefine boundaries to resolve historical inaccuracies. Where agreement falters, the tribunal may impose corrections, prioritising equity. This rectification extends to collateral agreements under section 57(3), ensuring they adapt logically to the extended term without perpetuating errors.
Practical Considerations in Drafting the Deed
Drafting requires meticulous attention to execution formalities. It is standard to prepare the deed in counterparts, with one for each party to sign, facilitating remote completions and reducing logistical hurdles. This practice, while not statutorily mandated, aligns with conveyancing norms and minimises errors in multi-party transactions.
Regarding parties, include a management company only if it was a party to the original lease or holds a relevant interest, such as under a tripartite structure. Unwarranted inclusion could complicate enforcement and invite challenges. Always verify the chain of title to confirm necessary joinders.
Beyond the basics, consider integrating provisions for emerging issues, such as cyber security in smart buildings or adaptability to climate change regulations. These "outside the box" elements, while optional, can future-proof the lease, provided they are consensual and proportionate.
Insights from Case Law on Lease Terms
Case law underscores the tribunal's role in ensuring fair modifications. In Re 32 Cranleigh Road (Decision of the Upper Tribunal (Lands Chamber), 21 May 2021), the tribunal permitted rectification under section 57(6) to address a defect where the original lease omitted provisions for recovering structural repair costs, emphasising the Act's remedial purpose.
Similarly, in Flat 23, Kings Court Mansions (First-tier Tribunal, 17 January 2019), the decision highlighted the need for terms to be workable, quoting section 57 to affirm that modifications must not undermine the tenant's rights while allowing practical updates. These cases illustrate a judicial preference for balanced reforms, rejecting proposals that disproportionately favour one party, such as excessive fee hikes or restrictive covenants without justification.
In broader jurisprudence, decisions like those in Clarise Properties Ltd (referenced in Upper Tribunal rulings) reinforce that modernisations must be reasonable, often drawing on comparable market leases to gauge acceptability. Professionals should reference these when advising on drafts to mitigate tribunal interventions.