The importance of tenants obtaining the landlord’s lender’s consent.
Whilst the common goal for most prospective tenants’ is to get the formalities connected to the lease completed as fast as possible, it is important to slow down enough to ensure that the Landlord’s lender has provided his consent to the grant of the lease.
What is the worst that could happen?
Well, the implications depend on the type of lease you are entering into.
A lease granted for a period of more than seven years.
There is a requirement for any lease that is granted for a term a period of more than seven years to be registered at the Land Registry. The Landlord’s title will contain the lender’s charge and will usually be protected by a restriction on dispositions of the landlord’s title, requiring evidence that the consent of the lender has been obtained.
The effect of not obtaining the lender’s consent is that a prospective tenant’s application to register a lease cannot be successful they cannot obtain the legal title, as disposition requires the grant of a lease.
A lease for a period of seven years or less
If a lease grants any easements these must also be registered and as above also falls within the definition of disposition which requires the grant of a lease.
Restrictions and easements aside, other implications of failing to obtain the lender’s consent also exist such as, where the landlord defaults, leaving the lender as a mortgagee in possession or where the lender appoints a receiver.
The lender can then sell the property on to someone else who is not party to the lease and who may decide that they want the tenant to leave the property.
The lender may even be able carry out enforcement actions even where the landlord does not default.
Can the requirements be amended?
It is possible for the landlord to negotiate its funding agreements with the lender to the effect that certain specified short leases can be granted without needing the lender’s consent and would reflected in the restrictions on the title.
The Law of Property Act 1925 (LPA) also contains powers to grant leases and whilst these would be binding on both landlord and lenders they do not include funding agreement.
It is clear from the above that the tenant should not undervalue the importance of obtaining the consent of the landlord’s lender.
A key point to note is that the lender is not obligated to provide a decision quickly or even to grant a lease. As prospective tenants tend to be impatiently eager about completing the process as quickly as possible, it would be recommended that tenants raise this issue quite early on in their negotiations to avoid any unnecessary delays.
Please note that above is for guidance purposes and does not constitute as being legal advice. Should you require further information please contact us today.