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Why a properly drawn up tenancy can save you money in the long run

A stitch in time can save nine, so the saying goes. This was certainly the case for a small business owner recently after he took what he thought was a money saving exercise which resulted in him having to pay almost double to resolve the issue some years later.

At Wards Solicitors we see this kind of scenario unfolding regularly and although, of course, we are always happy to help resolve any issues, instructing a solicitor earlier rather than later can undoubtedly avoid unnecessary expense further down the line.

What happened?

A small business owner took on a shop lease for a 15 year term. He instructed solicitors at the time and the lease was properly drawn up and the relevant stamp duty paid and finally the lease was registered at HM Land Registry exactly as it should have been.

However, at the end of the 15 year term, the tenant and the landlord completed an agreement between themselves, which they called a supplemental lease. This stated that the current arrangement was to continue for another ten years. On this occasion neither party instructed a solicitor.

Fast forward three years, and the tenant decides to sell his business and assign his lease to a third party. The tenant approached a solicitor and they quickly realised that the 'supplemental lease' was fraught with problems, namely:

  • It had failed to create an interest which could be legally transferred;
  • The supplemental lease had not been drawn up in a form acceptable for submitting to HM Land Registry;
  • The supplemental lease required extra provisions and redrafting which meant the tenant's solicitor had to deal directly with the landlord's solicitor to agree that those relevant changes could be made. The tenant subsequently had to bear his landlords solicitors' costs for this;
  • The tenant's landlord also had to be granted the consent of his lender to grant any lease. As he had not instructed a solicitor at the time he had failed to seek this consent. This consent was eventually granted but this caused further delay and costs which the tenant had to bear.

Stamp Duty Land Tax

The next problem was that no Stamp Duty Land Tax (SDLT) had been paid when the supplemental lease was created so not only was the tenant liable for the SDLT fee, he also had to pay a £300 late payment fine and also pay interest on the SDLT fee.

Once all of those issues had been deal with the lease then had to be registered at the Land Registry.

Delays and costs

Because of all the work which was require to resolve the issues the tenant - who had initially wanted to transfer the lease before Christmas - was not able to complete matters until the following February which further meant that he was liable for rent and rates until the date of completion.

Had he instructed solicitors at the time of his lease renewal, his legal fees would have been between £700 - £900. The failure to instruct a solicitor meant that he paid legal fees of £1,500 plus VAT as well as the additional cost of his landlord's costs and the SDLT penalties and interest.

For help and guidance on this area of the law, please contact Wards Solicitors' Commercial Property team.

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