RE10
Leaseholds
Advantages and disadvantages of leaseholds
Advantages Disadvantages
Although the term of a lease must be fixed once granted, the As a lease is granted for a fixed period of time,
length of the actual term chosen can be any duration = flexibility. it will eventually expire.
Give tenants a place to live, but also provide landlords with income The tenant will have to approach the landlord
from the rent paid by the tenants. for a lease extension; landlord may not be
Landlord retains an interest which is a saleable capital asset, whilst willing to give. - If the lease has capital value,
also benefitting from a steady income from the property. the lease is a wasting asset in the tenants
The freehold estate can be disposed of separately from the hands.
leasehold interest. Leases impose considerable burdens on
Parties are more easily able to enforce covenants than with tenants (e.g. repair, service charge, restriction
freehold land. Almost all covenants (both positive and negative) on assigning).
are enforceable against successors in title. Landlord can forfeit the lease; capital value
Landlord can enforce positive covenant such as repair on the lost along with lease.
tenants of each unknit, but the tenants can also ensure that Landlord may retain obligations to repair and
common parts retrained by the landlord are maintained. insure, which can be a burden.
Commercial property market
Most commercial property is owned under leases.
Þ Businesses attracted to flexibility that a lease provides, e.g. business growth or down -sizing.
Þ Cost of buying a freehold will often be prohibitively expensive; most businesses do not want to tie up capital in this
way.
Þ Effective enforcement of both positive and negative covenants.
Leases are often for shorter terms between 5-15 years.
Þ Whilst possible for a capital sum to be payable (both on grant of lease and subsequent assignment), this is less usually
than in the case of longer residential leases.
Þ Cost to the tenant comes in the form of payment of a market rent, much higher relatively than the rent which is
payable under a long residential lease.
Þ Rent is usually subject to a review every few years. This means that the lease will contain detailed controls on the
tenant’s freedom to assign or deal with the property, as the landlord will be keen to ensure that any assignee is at
least as able as the current tenant to meet the liability due under the lease.
Terms of commercial leases are often the subject of detailed negotiation between the parties on grant.
Þ Code for Leasing Business Premises in England and Wales 2007
Less usual for the parties to exchange contracts and instead the transaction will often simply proceed straight to
completion as it not as necessary to synchronise a chain of transactions.
Key terminology
1
Leaseholds
Advantages and disadvantages of leaseholds
Advantages Disadvantages
Although the term of a lease must be fixed once granted, the As a lease is granted for a fixed period of time,
length of the actual term chosen can be any duration = flexibility. it will eventually expire.
Give tenants a place to live, but also provide landlords with income The tenant will have to approach the landlord
from the rent paid by the tenants. for a lease extension; landlord may not be
Landlord retains an interest which is a saleable capital asset, whilst willing to give. - If the lease has capital value,
also benefitting from a steady income from the property. the lease is a wasting asset in the tenants
The freehold estate can be disposed of separately from the hands.
leasehold interest. Leases impose considerable burdens on
Parties are more easily able to enforce covenants than with tenants (e.g. repair, service charge, restriction
freehold land. Almost all covenants (both positive and negative) on assigning).
are enforceable against successors in title. Landlord can forfeit the lease; capital value
Landlord can enforce positive covenant such as repair on the lost along with lease.
tenants of each unknit, but the tenants can also ensure that Landlord may retain obligations to repair and
common parts retrained by the landlord are maintained. insure, which can be a burden.
Commercial property market
Most commercial property is owned under leases.
Þ Businesses attracted to flexibility that a lease provides, e.g. business growth or down -sizing.
Þ Cost of buying a freehold will often be prohibitively expensive; most businesses do not want to tie up capital in this
way.
Þ Effective enforcement of both positive and negative covenants.
Leases are often for shorter terms between 5-15 years.
Þ Whilst possible for a capital sum to be payable (both on grant of lease and subsequent assignment), this is less usually
than in the case of longer residential leases.
Þ Cost to the tenant comes in the form of payment of a market rent, much higher relatively than the rent which is
payable under a long residential lease.
Þ Rent is usually subject to a review every few years. This means that the lease will contain detailed controls on the
tenant’s freedom to assign or deal with the property, as the landlord will be keen to ensure that any assignee is at
least as able as the current tenant to meet the liability due under the lease.
Terms of commercial leases are often the subject of detailed negotiation between the parties on grant.
Þ Code for Leasing Business Premises in England and Wales 2007
Less usual for the parties to exchange contracts and instead the transaction will often simply proceed straight to
completion as it not as necessary to synchronise a chain of transactions.
Key terminology
1
