Granting a lease or underlease - Pre-completion formalities

Learning Outcomes

After reading this article, you will be able to identify and explain the essential pre-completion formalities when granting a lease or underlease. You will understand the steps for investigating title, the purpose and process of pre-completion searches, and the requirements for executing a lease or underlease. You will also be able to apply these principles to practical scenarios and recognise common pitfalls tested in the SQE1 exam.

SQE1 Syllabus

For SQE1, you are required to understand the pre-completion steps and legal requirements when granting a lease or underlease. In your revision, focus on:

• The process and purpose of investigating title before granting a lease or underlease
• The range and function of pre-completion searches and enquiries
• The formalities for engrossment and execution of leases and underleases
• The importance of obtaining necessary consents (e.g. lender, superior landlord)
• The practical consequences of missing or defective pre-completion steps

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the purpose of a pre-completion OS1 or OS2 search before granting a lease or underlease of registered land?
2. Why must a solicitor check the headlease before granting an underlease?
3. What are the key formalities for valid execution of a lease as a deed?
4. What is the risk if a lender’s consent is not obtained before granting a lease of mortgaged property?
5. Name two types of pre-completion searches that should be carried out before completion of a lease or underlease.

Introduction

Before a lease or underlease is completed, several formalities must be satisfied to ensure the transaction is legally effective and risk-free for all parties. These steps protect the interests of the landlord, tenant, and any lender, and are essential for compliance with the SQE1 syllabus. This article explains the main pre-completion requirements, including title investigation, pre-completion searches, obtaining consents, and lease execution.

Investigating Title Before Grant

Before granting a lease or underlease, the landlord’s solicitor must investigate title to confirm the landlord’s right to grant the lease and to identify any restrictions or encumbrances that may affect the property or the proposed lease.

Key Term: investigation of title
The process of examining the legal ownership and interests affecting a property to ensure the landlord is entitled to grant the lease and to identify any issues that may affect the transaction.

If the landlord’s title is registered, official copies of the register and title plan should be obtained. For unregistered land, an epitome of title with a good root (at least 15 years old) is required. The solicitor must check for:

• Restrictions on granting leases (e.g. lender’s consent, superior landlord’s consent)
• Existing leases or underleases
• Restrictive covenants or easements affecting the property
• Class of title (absolute, good leasehold, possessory, or qualified)

If the property is leasehold, the headlease must be reviewed to ensure underletting is permitted and to identify any conditions or consents required.

Key Term: headlease
The superior lease out of which an underlease is granted. The terms of the headlease may restrict or regulate the grant of underleases.

Worked Example 1.1

A solicitor is instructed to grant a 10-year underlease of a shop. The headlease contains a clause requiring the superior landlord’s written consent to any underletting. What must the solicitor do before completion?

Answer: The solicitor must obtain the superior landlord’s written consent to the underlease, as required by the headlease. Failure to do so may result in the underlease being in breach of the headlease and at risk of forfeiture.

Pre-completion Searches and Enquiries

Before completion, the buyer’s (tenant’s) solicitor must carry out pre-completion searches to ensure there have been no adverse changes to the title or other risks since the initial investigation.

Key Term: pre-completion search
A search carried out immediately before completion to confirm the state of the title and to provide a priority period for registration.

For registered land, an OS1 (whole) or OS2 (part) search should be made against the title number from the search from date on the official copies. This search provides a 30-working-day priority period for registration and reveals any new entries since the official copies were issued.

For unregistered land, a Land Charges Department search (form K15) is made against the seller’s name, providing a 15-working-day priority period to complete the transaction free of new entries.

Other essential pre-completion searches include:

• Bankruptcy search (K16) against the tenant (if borrowing)
• Company search (if landlord or tenant is a company)
• Local authority, water/drainage, and environmental searches (to check for planning, building control, or contamination issues)
• Enquiries of the landlord (for underleases) and superior landlord (if required)

Key Term: priority period
The period during which the applicant’s registration is protected from adverse entries made after the search date.

Worked Example 1.2

A tenant is taking a lease of part of a registered title. What pre-completion search should be made, and why?

Answer: An OS2 search (official search with priority of part) should be made against the registered title. This provides a 30-working-day priority period for registration of the lease and reveals any new entries since the official copies were issued.

Obtaining Consents

If the property is subject to a mortgage, the landlord must obtain the lender’s written consent to the grant of the lease or underlease. Failure to do so may breach the terms of the mortgage and risk enforcement action by the lender.

Key Term: lender’s consent
The written approval required from a mortgagee before the owner can grant a lease or underlease of the mortgaged property.

If the property is leasehold, the headlease may require the superior landlord’s consent to the grant of an underlease. This must be obtained in the correct form and before completion.

If the landlord is a company, a company search should be made to check for insolvency or restrictions on granting leases.

Exam Warning

If a lease is granted without obtaining the necessary lender’s or superior landlord’s consent, the lease may be voidable or at risk of forfeiture. Always check for and obtain all required consents before completion.

Lease Engrossment and Execution

Once all title and search issues are resolved and consents obtained, the lease or underlease must be engrossed (prepared in final form) and executed as a deed.

Key Term: lease engrossment
The preparation of the final, clean copy of the lease or underlease for signature by the parties.

Key Term: execution as a deed
The process of signing and witnessing a document in accordance with legal formalities so that it takes effect as a deed.

The lease must:

• Be in writing and make clear on its face that it is intended to be a deed
• Be signed by the parties in the presence of an independent witness who attests the signature
• Be delivered as a deed (i.e. the parties intend to be bound by it)

If a party is a company, the lease may be executed by two directors, a director and the company secretary, or a director in the presence of a witness.

If a power of attorney is used, the solicitor must check that the power is valid, unrevoked, and authorises the transaction.

Worked Example 1.3

A landlord company is granting a lease. The lease is signed by one director in the presence of a witness. Is this valid execution?

Answer: Yes, provided the lease is expressed to be executed as a deed, signed by the director, and attested by an independent witness, this satisfies the Companies Act 2006 requirements for execution by a company.

Final Pre-completion Checklist

Before completion, the solicitor should confirm:

• All title issues are resolved and the landlord is entitled to grant the lease or underlease
• All necessary consents (lender, superior landlord) are obtained in writing
• All pre-completion searches are clear and within their priority period
• The lease or underlease is engrossed and validly executed as a deed
• Any required completion statements and undertakings are agreed

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• Pre-completion formalities for leases and underleases include title investigation, pre-completion searches, obtaining consents, and lease execution.
• Title investigation ensures the landlord is entitled to grant the lease and identifies any restrictions or required consents.
• Pre-completion searches (OS1/OS2, K15, bankruptcy, company) provide a priority period and check for adverse entries.
• Lender’s and superior landlord’s consents must be obtained in writing before completion.
• The lease or underlease must be engrossed and executed as a deed, following all legal formalities.
• Missing or defective pre-completion steps may result in the lease being void, voidable, or at risk of forfeiture.

Key Terms and Concepts

• investigation of title
• headlease
• pre-completion search
• priority period
• lender’s consent
• lease engrossment
• execution as a deed