12.3 Deeds of Surrender and Regrant in Lease Extensions: The Case for Standard Precedents
In the realm of leasehold extensions under the Leasehold Reform, Housing and Urban Development Act 1993, the deed of surrender and regrant serves as a critical mechanism to effect the extension while preserving the integrity of the existing lease terms. This instrument operates by deeming the surrender of the current lease and the simultaneous grant of a new one, typically for an additional 90 years at a peppercorn rent. The choice between utilising a standard precedent that incorporates the existing lease by reference and embarking on a full rewrite of the lease document raises significant practical, legal, and cost considerations for practitioners advising landlords, tenants, or intermediate interests.
The Legislative Framework Governing Lease Terms
Section 57 of the Leasehold Reform, Housing and Urban Development Act 1993 establishes the foundational principle that the new lease must replicate the terms of the existing lease as they stand on the relevant date, subject only to specified exceptions. Subsection (1) mandates that the extended lease shall mirror the original, save for adjustments necessitated by the extension itself, such as the term length and ground rent reduction.
Modifications are permissible under subsection (6), but strictly limited. These include exclusions or alterations to remedy defects in the existing lease (subsection (6)(a)) or where it would be unreasonable to retain unaltered terms due to changes in circumstances since the original grant (subsection (6)(b)). The Act does not empower landlords to introduce wholly new covenants or obligations absent these grounds; any attempt to do so exceeds the statutory remit and invites challenge.
Guidance from HM Land Registry in Practice Guide 28 reinforces this approach, noting that extensions via deeds of variation invariably trigger a deemed surrender and regrant under operation of law. The guide advocates for clarity in drafting to ensure seamless registration, favouring concise instruments that avoid unnecessary elaboration.
Advantages of Adopting a Standard Precedent
A standard deed of surrender and regrant, often a short-form document that annexes or refers to the existing lease and amends only the essential elements (such as the term, rent, and any statutorily permitted modifications), aligns closely with the Act's intent. This method maintains fidelity to the original terms, minimising disputes and expediting completion.
From a cost perspective, it is inequitable for the tenant to bear the landlord's expenses in drafting an entirely new lease when no compelling justification exists. Section 60 of the 1993 Act obliges the tenant to reimburse the landlord's reasonable costs incidental to the grant, including legal fees. However, commissioning a bespoke rewrite inflates these costs unnecessarily, as it demands extensive drafting time that could be avoided through a precedent-based approach. Tribunals have demonstrated a willingness to scrutinise such expenditure; slashing them on the basis of unreasonableness, highlighting the risks of over-elaboration.
Moreover, the tenant's own solicitor incurs disproportionate fees when reviewing a fully redrafted lease. Every clause must be meticulously compared against the original to detect alterations, a labour-intensive process that far exceeds the scrutiny required for a standard deed. This not only delays the transaction but also burdens the tenant with avoidable professional costs, contrary to the principles of fairness embedded in the legislation.
Risks Associated with Rewriting the Entire Lease
Landlords contemplating a complete rewrite must proceed with caution, as the Act curtails their ability to impose new terms. Modifications are confined to correcting demonstrable defects or addressing unreasonableness arising from evolved circumstances; they cannot serve as a vehicle for enhancing the landlord's position or introducing novel restrictions. Attempts to do so may provoke tribunal intervention, where the burden lies on the proponent to substantiate the need.
Should a landlord insist on a redrafted lease without highlighting deviations from the original, they expose themselves to adverse costs orders. The First-tier Tribunal (Property Chamber) has jurisdiction under section 20C of the Landlord and Tenant Act 1985 (applicable via cross-reference in lease extension proceedings) to limit or disallow recovery of costs deemed unreasonable. Failure to provide a marked-up version delineating changes could be viewed as obstructive, potentially leading to a determination that the landlord's approach lacks transparency and merits sanction.
Landlords Face Penalties for Imposing Unjustified New Lease Drafts
A stark illustration of this risk is found in Sandeep International PTE Limited v London Underground (1) and Goldcane Limited (2) [2019] FTT (LON/00BK/OLR/2017/1571). In paragraph 41, the tribunal underscored the tenant’s statutory entitlement under the Leasehold Reform, Housing and Urban Development Act 1993 to a new lease on the same terms as the existing one, stating,
"Given the Applicant's statutory entitlement to a new lease on the same terms, one would expect a landlord who wants to propose a different lease, to do the running in the sense that they would take the lead in persuading a tenant of either the benefits of an additional clause or the benefits of a re-worded clause, or of the fact that the new clause has exactly the same effect as the old clause."
The tribunal contrasted this expectation with the respondents’ approach, noting that
"both before the proceedings began and subsequently for a significant period afterwards, the Respondents' position continued to be that they wanted a standardised lease in the form put forward and that it was up to the Applicant to justify any alterations to that lease,"
as reflected in the respondents' solicitor’s email of 31 January 2018. This insistence on a standardised lease, without substantiating the necessity or equivalence of the proposed changes, was deemed unreasonable. In paragraph 50, the tribunal concluded,
"I consider that there has been unreasonable behaviour by way of the Respondents insistence on its standardised lease, in respect of which there is no good explanation and I conclude that the power to make an order for costs is engaged in respect of that behaviour. My view is that the Respondents' behaviour has meant that that the Applicant has been put to unnecessary cost."
Consequently, a substantial costs order of £3,600 was awarded to the tenant, reflecting the additional legal expenses incurred due to the respondents’ unjustified pursuit of a redrafted lease. This case underscores the significant financial peril for landlords who pursue unwarranted redrafts without clear transparency, particularly when failing to justify deviations from the existing lease terms as mandated by section 57.
In practice, if the tenant's solicitor demands a standard deed, the landlord's representatives have little recourse but to comply or furnish a clear comparison of differences. Only in exceptional circumstances, such as profound defects rendering the existing lease unworkable, might a full rewrite be defensible. Even then, the onus remains on the landlord to justify the extent of the redraft, lest they incur unrecoverable costs.
Insights from Case Law and Tribunal Decisions
Tribunal jurisprudence underscores the presumption against wholesale revisions. In Rossman v The Crown Estate Commissioners [2015] UKUT 0288 (LC), the Upper Tribunal permitted a modification to service charge provisions under section 57(6)(a) where the fixed percentage mechanism was defective, resulting in over-recovery exceeding 100% of expenditure. The decision emphasised that variations are warranted only for serious shortcomings, remitting the matter for determination of an appropriate replacement scheme rather than endorsing arbitrary changes.
Contrastingly, in Gordon v Church Commissioners for England LRA/110/2006, the tribunal affirmed its lack of jurisdiction to insert entirely new terms absent agreement, a principle echoed in Cadogan v Chelsea Properties Ltd (No 2) [2008] EWCA Civ 1042. These authorities clarify that section 57(6) enables rectification, not reinvention; proposals for novel covenants, such as enhanced maintenance obligations post-headlease expiry, were rejected in the First-tier Tribunal case of Flat 23, Kings Court Mansions (LON/00AN/OLR/2018/0316), where the existing lease was deemed sufficient.
Further, in 32 Cranleigh Road (CHI/00HN/OLR/2019/0265), the tribunal rebuffed multiple proposed alterations, including updates to rights for telecommunications and arbitration clauses, on grounds that no defects were evidenced and no changes rendered the terms unreasonable. The decision reiterated that tribunals cannot "modernise" or refine drafting for aesthetic purposes; modifications must meet the statutory thresholds objectively.
On costs, the Upper Tribunal in Avon Ground Rents Ltd v Cowley [2019] UKUT 92 ChildrenLC) provided guidance on reasonableness in lease extension claims, reducing an intermediate landlord's fees where efforts were disproportionate. Similarly, tribunal determinations under section 60 have curtailed recoveries where landlords pursued contentious redrafts, as seen in various unreported First-tier decisions collated in residential property tribunal archives, where excessive legal work on unsubstantiated modifications led to downward adjustments.
Practical Considerations for Practitioners
When advising on lease extensions, prioritise a precedent deed that succinctly effects the surrender and regrant while incorporating the existing lease verbatim, save for mandatory adjustments. This not only complies with section 57 but also mitigates cost exposure for all parties.
If modifications are pursued, document the rationale meticulously, drawing on objective evidence of defects or circumstantial shifts. For landlords, supplying a redline comparison is prudent to forestall accusations of opacity; failure to do so may tip the balance towards an adverse order under section 20C.
Surveyors and valuers should collaborate early to identify potential issues with existing terms, informing whether a standard approach suffices or if tribunal referral for determination under section 57(6) is advisable. In contentious scenarios, early mediation can avert escalation, preserving professional relationships in what is often a repeat-player market.
This approach ensures efficiency, equity, and adherence to the statutory scheme, setting a solid foundation for handling complex extensions in subsequent discussions.