The lease by reference: an outdated renewal tool?
Senior associate Christopher Edwards calls time on leases by reference
Picture the scene: a landlord-client reaches out to his solicitor and explains that renewal terms have been agreed with an existing tenant. The lease has been in place for almost 15 successful years, and in the coming months it will expire.
In this briefing, senior associate Christopher Edwards considers whether the lease by reference still has a place in modern lease renewals and argues that advances in legal technology have made more practical alternatives readily available.
With input from the client, the landlord’s solicitor has three options:
utilise the existing form of lease and update it to reflect modernisation and the agreed terms (the ‘updating option’)
use a modern form of lease instead of the existing lease (the ‘modern lease option’)
draft a short-form lease (annexing the existing lease to it) and list all of the clauses that need to be changed when reading and interpreting the existing lease (the ‘lease by reference option’)
Why updating an existing lease is often the best option
As any solicitor will tell you, there is no perfect option and the most suitable will depend on the circumstances.
The updating option should be the default position in most circumstances. It is only where the existing form of lease is materially outdated, or needs to mirror the form of other leases in the building, that the modern lease option should be considered. Whilst sound in principle, historically the updating option was not always available because it required the original Word document for the completed lease to be located.
AI tools can now remove this obstacle by converting completed leases back into Word format. The solicitor can then make the necessary amendments and show the changes in track changes against the existing lease. The solicitor can then make the necessary amendments for the new lease and show them in tracked against the existing lease. This approach ensures that the lease is a readable document (for client and solicitor alike) and the time spent drafting and negotiating the document is minimised: it’s a win-win!
When a lease by reference can work
Despite my pessimism, there is a time for a lease by reference. When a landlord is seeking a short-term lease ‘extension’ on the same terms as the existing lease, they can be a cheap and cheerful one-off solution. From my experience to date though, they are sadly used on a far more frequent basis beyond this narrow set of circumstances.
The practical problems with leases by reference
Returning to the above scenario, a 15-year-old lease would need to be considerably updated to reflect modern lease market expectations. Every change to the existing lease, whether deleting clauses, amending clauses or inserting new provisions, would need to be set out in the lease by reference.
When it comes to actually reading the lease by reference post-completion, you essentially need to have the existing lease and the list of changes side by side, so that you can make sense of the new lease in place. As a consequence, it is far easier to miss something of importance when interpreting the lease.
The risk of 'lease by reference squared'
My biggest criticism of leases by reference, however, is that they fail to consider the future. If a lease by reference needs to be renewed, often the approach taken is a further lease by reference. The new lease would therefore become a lease by reference to a lease by reference, effectively a 'lease by reference squared'. Even as a solicitor, these are tricky to understand and interpret, and are a long way from the cheap and cheerful lease renewal lease by references are seen as being.
Has the lease by reference had its day?
Of the three lease renewal options discussed, the lease by reference option finishes a distant third. It fails on being quick, easy to read, keeping costs down and lacks any truly redeeming features. Given the continued advancement of legal technology and the trend towards shorter lease terms, which generate more frequent renewals, the era of the lease by reference has passed.
About Chris
Christopher Edwards is in the real estate, planning and construction team. He works on a varied range of real estate and landlord & tenant matters including buying and selling a property, the granting or taking of a lease, wayleave agreements and lease surrenders. He acts for a full range of clients from private individuals to household names, and particularly relishes the opportunity to build relationships with new and existing clients.
Get in touch
If you would like to speak with a member of the team you can contact our real estate planning and construction solicitors; Holborn office (Email Holborn) +44 (0)20 3826 7523; Kingston office (Email Kingston) +44 (0)20 3826 7518; Putney office (Email Putney) +44 (0)20 3826 7518 or complete our form.
