Terms of a lease agreement

The lease is a written agreement that establishes the relationship of freeholder and leaseholder, and sets out the contractual terms that are binding upon each person named on the lease. Leases are often long, complex documents.

There is no 'standard' lease, although all leases contain certain information:

• names of the parties to the lease (the freeholder and leaseholder)

• address of the property concerned

• length of the lease (the term)

• rent (ground rent)

• leaseholder's obligations (for example for service charges and repairs)

• freeholder's obligations (for example to insure the property or repair the common parts)

A typical lease is made up of a main contract and a set of schedules at the end of the document that deal with specific issues such as service charges. It may also have helpful subtitles or margin titles.

As well as the express terms of the lease, certain terms can be implied into the agreement.

Express terms

An express term is a term actually agreed by the parties and contained in the lease. Any ambiguity in one of these terms would generally be interpreted in favour of the leaseholder.

Implied terms

Sometimes the lease does not give full details of what has been agreed. This can be due to omissions or ambiguity in the lease but also where the law contains provisions that are implied into leases. Statute can impose terms on the parties. Such terms operate even if there is an express term to the contrary in the lease.

For example, the right to a court order or to extend the lease applies no matter what is said about giving up possession in the lease.

Ambiguity and omissions generally arise in one of two circumstances, where either:

• only the most important parts of the agreement are set out, leaving the remaining details to be understood

• there are certain situations that are not provided for in the agreement

In these cases, it may be possible to find that the freeholder and leaseholder agreed something additional, implicitly, at the time the lease was signed. The question is then whether a court can imply a term to remedy the deficiency or cover the unexpected situation.

Whether or not a term can be implied depends upon the intention of the parties at the time of the agreement, taking into consideration the words of the agreement and the surrounding circumstances.

A court can imply a term in either of the following circumstances:[1]

• if it is necessary to give business efficacy to the agreement – the court will add a term on the basis that without it the contract will not work[2]

• where the term to be implied represents the obvious, but unexpressed, intention of the parties – the court will not imply such a term unless it is satisfied that both parties would, as reasonable people, have agreed to it, had it been suggested to them at the time of the agreement

The Supreme Court held that were a long lease contained an absolute covenant prohibiting leaseholders from carrying out alterations to the structural parts and provided for the landlord’s enforcement of this covenant at another leaseholder’s request, there was an implied term that the landlord would not be able to prevent this covenant from having effect by permitting one leaseholder to carry out structural works before another leaseholder objected.[3]

Leaseholders may be required to make three different kinds of regular payment to their landlord. These are service charges, ground rent, and administration charges.

Service charges

Service charges are paid for specific services provided by the freeholder or their agents.

Typical services include maintenance, exterior repairs, insurance, cleaning of common parts, caretaking, and porterage. They are normally payable annually.

Ground rent

Ground rent is a fee, separate from any service charge or administration charge, payable by the leaseholder as a condition of the lease.

The lease specifies how much the ground rent is, when it is due and who it must be paid to.

No ground rent can be charged for a residential lease granted after 30 June 2022.[4]The legislation only permits the freeholder to charge a peppercorn rent. A peppercorn rent is defined as an annual rent of one actual peppercorn. The freeholder cannot charge a fee for collecting a peppercorn rent.[5] It is unlikely that a freeholder will require a leaseholder to pay a peppercorn as a rent in practice.

For shared ownership leases, the restriction only applies to the ground rent payable on the tenant's share of the property.[6] The landlord can still require the tenant to pay rent for the assured tenancy.

Government guidance for leaseholders and landlords provides information on exceptions and enforcement.

Demands for ground rent

Where ground rent is payable, the leaseholder does not have to pay unless they have been given notice of payment in the prescribed form by the freeholder.

The notice must be in the prescribed form and specify the amount of payment and the date on which ground rent is due.[7]

The date on which the ground rent is due must be either:

• not less than 30 days or more than 60 days from the date the notice was given

• no earlier than the date set out in the lease for payment of the ground rent

The ground rent can be increased if the:

• lease contains a term that allows it

• leaseholder agrees to an increase

• property is sold

A leaseholder can apply, free of charge, for an Order of Apportionment to legally separate their share of the ground rent from that payable on neighbouring properties.[8]

Administration charges

An administration charge is an amount payable by the leaseholder, directly or indirectly, in respect of:[9]

• an approval under the lease, for example to sublet or carry out works

• the provision of information or documents

• their failure to make a due payment

• their breach of a lease covenant

An administration charge must be reasonable in order for the landlord to recover the charge, and a demand for payment must be accompanied by a summary of the leaseholder’s rights and obligations in respect of administration charges. If the summary is not included, the charge is not regarded as being payable unless, and until, the demand is made with the summary.[10]

For proceedings that began on or after 6 April 2017, where the lease specifies that the costs of legal proceedings incurred by the landlord are to be paid as an administrative charge by the leaseholder, the leaseholder can apply to the specific court or tribunal to exclude some or all of such costs from the amount demanded.[11]

The terms of a lease may be varied by a deed of variation, which is an agreement subsequent to the lease by which the freeholder and leaseholder agree to vary terms in the lease. These may include: the extent of the property, the duration of the lease, or service charges. The lease must be read together with variations.

Most leases are registered at the Land Registry, where any variation should also be registered. To establish the full position, it is necessary to check the registered title and obtain copies of any variations of the lease as well as the lease itself.

Part 4 of the Landlord and Tenant Act 1987 enables a leaseholder or a freeholder of a flat held under a long lease to apply to the First-tier Tribunal (Property Chamber) for a variation of the terms of the lease if it is defective in respect of certain terms.[12]

The Act permits holders of long leases to apply for a variation. It defines a long lease as a:[13]

• lease or a fixed term exceeding 21 years, whether or not it can be terminated before the end of the fixed term by notice by the leaseholder or forfeiture

• lease for a term fixed by law under a grant with a covenant or obligation for perpetual renewal

• lease granted as a result of the right to buy or right to mortgage provisions in Part 5 of the Housing Act 1985

Where a single lease applies to three or more flats in the same building, or where the lease comes under the business tenancy regime of Part 2 of the Landlord and Tenant Act 1954, there is no right to apply for a variation.[14]

An application can be made where the lease fails to make satisfactory provision with respect to one or more of the following:[15]

• repair or maintenance of the flat, or the building containing the flat

• insurance of the building containing the flat, for example where the freeholder is not obliged to insure under the lease or where the insured risks specified in the lease are inadequate

• repair or maintenance of any installations reasonably necessary to ensure that the occupiers enjoy a reasonable standard of occupation

• recovery of expenditure incurred by one party to the lease for the benefit of the other, for example where the freeholder cannot recover the full costs under the lease

• calculation of the service charge

It is a question of fact in each case for the Tribunal to decide whether the lease fails to make satisfactory provisions. While each case is decided on its own merit, the ‘failure to make satisfactory provisions’ usually goes beyond imposing unequal burdens on different leaseholders, generating expenditure for the freeholder that cannot be recovered from leaseholders or causing inconvenience.[16]

In one case, it was held that in the absence of any evidence of the need for major repairs or structural works beyond the means of the freehold company, the fact that one leaseholder was not required to contribute towards the cost of repair or renewal of the structure of the building and employing staff or agents did not make their lease unsatisfactory.[17]

The Tribunal can vary the lease as it sees fit and not necessarily in line with the application. The Tribunal should not make an order for a variation if the effect would be to substantially prejudice any person – whether they are mentioned in the application or not – and that person cannot adequately be compensated for the loss. The Tribunal has the power to award compensation in appropriate cases.[18]

The order varying the lease is binding on the current freeholder, and on past and future freeholders, even if they were not involved in, or notified of, the proceedings. A person not notified of the proceedings may have a right to apply to the Tribunal to modify or cancel the change, or to obtain damages from any person who should have notified them.[19]

The Act also gives leaseholders of houses the ability to apply to the Tribunal to vary the terms of their leases in relation to insurance only.[20]

Where a lease is varied so as to include additional land, this has the effect of a surrender of the original lease and the regrant of a new lease to include the original and additional land.[21] The new lease will have equivalent terms and conditions, and a term equal to the unexpired term under the surrendered lease.

When an application to vary is made, the freeholder or leaseholder can apply to the Tribunal for an order for corresponding variations to other leases of flats with the same freeholder. The other flat or flats need not be in the same building, and their leases need not be drafted in identical terms, but for the application to succeed it must be in the interests of the applicant or the affected leaseholders to have all of the leases varied to the same effect.[22]

There is also a provision for the variation of other leases held by other leaseholders of the same freeholder. These leases need not be of flats in the same building, nor be drafted in identical terms. An application can only be made if the object of the variation cannot be achieved unless all the leases are varied to the same effect. This provision could be used to make common improvements to a number of leases drafted in defective terms, or to bring into line a number of leases with inconsistent provisions.

There are limitations on such an application. A required number of all leaseholders must consent as follows:

• two to eight flats – all but one leaseholder must consent

• nine or more flats – 75 per cent of leaseholders must consent and the application should not be opposed by more than 10 per cent[23]

Under the Leasehold Reform, Housing and Urban Development Act 1993, where a leaseholder of a flat successfully applies to extend their lease, the new lease will generally be on the same terms as the previous one.

The legislation provides various exceptions which allow for the lease to be varied.[24]

Whether or not a long leaseholder can sublet depends on the terms of the lease.[25]

Where the lease allows subletting subject to the consent of the landlord, the landlord may make a reasonable administration charge for giving consent.

'Airbnb' and holiday lets

The Upper Tribunal has held[26] that a leaseholder who let out her flat for one or two nights at a time to business travellers through the letting agency Airbnb, was in breach of a clause in her lease that required the premises to be used only as 'a private residence'. A traveller who was occupying the flat for a short period of time, such as through Airbnb, was unlikely to consider that they were staying in their private residence. A longer letting might not breach the condition.