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Posted on February 21, 2018

Lease Issues – Protecting Property Owners

One of the unique facets of common law is that it is in a constant state of change. As case law progresses, standards change. Things which were once acceptable are often no longer so. Leases provide a great example of this. Many long leases were drafted by the standards of the time but those standards are now no longer acceptable. This gives rise to a situation where selling the leasehold interest, or refinancing, is a challenging process.

A good example of this issue is mortgagee step-in rights. This is the right for the lender to step into the shoes of the mortgagor should they become insolvent. It protects them from the leasehold interest being forfeited to the freeholder, which would cause them to lose their charge, as opposed to taking on the long lease and selling it to recoup their mortgage value. Case law surrounding this is, unfortunately, rather murky. It would appear that these rights would be implied into the lease, but the law is not obvious and certain. This means that a cautious lender is unlikely to risk a loan if there is a chance they may lose the full value.

There are also issues with leasehold properties which are simply the result of bad drafting. We have seen a few examples where it seems as though a short lease template has been used to create a long lease, simply by increasing the term. This can leave some problematic clauses in the lease, such as the forfeiture of the property in a situation where the property is destroyed and reinstatement is frustrated. A common term in short leases, but a disastrous one for a long lease.

Fortunately, insurance can be placed for these risks via certain legal indemnity insurers. If you’re a property owner, get in touch with one of our team to find out more about how you can protect yourself from these risks.

Tel: 0203 058 2536