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  • Writer's pictureOliver Riley

Reversionary Leases

I recently acted on behalf of a landowner who less than 10 years ago, granted a lease over part of his farm to a developer. The lease permitted the construction of some wind turbines on his land and whilst the contractual term enjoyed by the Tenant still had a few years left to run, the Tenant did not enjoy Security of Tenure (a statutory right to require a new lease of the demise from the Landlord following the expiry of the contractual term).


Negotiations took place between the respective agents and terms were subsequently agreed for the term of the existing lease to be extended. This would be documented by a ‘Reversionary Lease’. This is a new, separate lease where the commencement date is delayed until a future date (dovetailing the existing lease). The existing lease remains in place and when it expires, the Reversionary Lease will begin. In addition to the contractual term, it is an opportune time to negotiate further points with the Tenant, including any future levels of rent to be paid and the basis upon which they are reviewed. A Reversionary Lease cannot have a term commencement date which is more than 21 years after its date of grant and the Lease, once granted, is registrable at the Land Registry.


Reversionary Leases are preferable to ‘amending’ an existing lease. By extending the contractual term of an existing lease, at law, this would result in a ‘surrender and re-grant’ and that could have many unintentional consequences.


When dealing with a Reversionary Lease, there are a few points to be mindful of. These include:


1. Rents


Careful consideration will need to be given by the landowner as to what any future levels of rent are and the basis upon which they are to be reviewed. This is not straight forward – particularly where a Reversionary Lease will be taking effect 10-20 years in the future!

2. Assignment and other forms of Alienation.


The landowner will need to ensure the existing lease is not assigned to a third party in the future without ensuring there is a simultaneous assignment of the Reversionary lease to the same disponee. To achieve this, a restriction will require adding to the Reversionary Lease and a separate Deed Variation will need to be completed to note a similar restriction in the body of the Existing Lease.


3. Termination of the Existing Lease.


If the existing lease were to end for any reason (be it on grounds of forfeiture, the exercise of a break option etc.), a landowner must ensure the Reversionary Lease will also be void. Careful drafting within the Reversionary Lease can deal with this point.

4. Repairing Obligations of the Tenant


A repairing obligation of the Tenant is normally qualified by the standard of the demise at the date the existing lease is granted. If a Reversionary Lease is to be granted, the Tenant should be obliged to yield up the demise in the condition required by the original lease – not at the date the Reversionary Lease is to commence. Further, any works authorised by during the term of the Existing Lease should also be captured.



5. Miscellaneous terms


Are there any previous rights enjoyed by the Tenant in their existing lease that a landowner is no longer happy for the Tenant to enjoy? A Reversionary Lease will typically incorporate all the terms of the original lease, save for any specific terms expressly agreed (for instance, the new level of rent and term commencement date). If the Tenant enjoys the benefit of a rolling break option, or contractual right to renew their existing lease, is this to be dropped in the Reversionary Lease?


Summary


There are plenty of points to consider when dealing with a Reversionary Lease and it is essential appropriate advice be taken prior to entering into the same.


If you require advice in connection with any such lease, do get in touch. My firm has an excellent agricultural / commercial property department, and the team are here to assist you.


For further information please get in touch with Oliver Riley on 01845 522324 (Thirsk).


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