Regearing Leases

It is fairly common these days for tenants to re-gear their lease on the basis that they remove a break clause or agree to an extended lease in exchange for a reduction in rent.

Whenever a lease is to be extended the natural response, particularly of the more mature practitioner is “I need a reversionary lease”. A reversionary lease being a lease that starts at some date in the future. In this case, it would be when the original lease expires. The purpose of the article is to say that most of the time there is a snappier solution. Assuming the original lease is a SDLT lease i.e. granted from December 2003 onwards it is easier for the landlord and the tenant just to grant a brand new lease which takes effect from the date this new lease is completed. This new lease impliedly surrenders the original lease. The advantages of this are:

1) The entire relationship is covered in the new lease (i.e. 1 document)

2) There is no need to worry about tying in the assignment or under-lettings provisions between the documents

3) If there were any other variations agreed at the same time, you don’t need a deed of variation of the original lease

The points made above, also apply even if a tenant just wants the security of a longer lease.

This solution didn’t exist before 2003 because a tenant would have had to be stamp duty twice. However, provided that the original lease is a stamp duty land tax lease a tenant is entitled to claim overlap relief for the period of the original lease that is “surrendered” on the grant of the lease. The result is that the SDLT treatment is exactly the same as if a reversionary lease has been granted.

There is one circumstance where this route may not be suitable and that it where a former tenant is still liable under an AGA as this cannot be easily replicated. However, in the majority of transactions I believe that avoiding the reversionary lease route is simpler, quicker and in the interests of both the landlord and the tenant.