Traps for Tenants:  Signing and Dating Commercial Property Leases – and making sure they are legal!

If you are a commercial property tenant and you did not have a specialist commercial property solicitor supporting you when signing and dating your lease, how do you know if your lease is actually legal? Signing and dating commercial property leases requires strict compliance with many rules and expensive mistakes happen frequently. You may think that signing the terms of your new lease is the end of your problems: you can sign your name, file away the document and settle down to run your business. Unfortunately, that is when things can go wrong, whether you have a local landlord or, as happens often, the landlord is registered outside the UK (even in Jersey or the Isle of Man).

As we have mentioned elsewhere, a commercial property lease is a very flexible document which manages many risks and it is only kept simple when the lawyer involved understands what is going on. The advice of a specialist commercial property solicitor with deep experience can save weeks of delay and prevent expensive problems.

A commercial property lease is not an ordinary contract, but it is a deed. English law has strict rules on the requirements for signing and dating deeds (stricter than the rules for ordinary contracts), and still more requirements for signing and dating commercial property leases. There are good reasons for this and indeed English law requirements are light compared to many neighbouring countries.

Part 1:  Four ways that it can all go wrong

Below are four of the many ways things can go wrong when signing and dating your commercial lease, resulting in the tenants not having a legal lease. In case you think this is all very theoretical, you should note that we have been asked to solve three of these problems in the last four months.

1. The right people signed in the wrong way 

Examples of ways in which the right people signed in the wrong way include the correct person signing their name but not printing their name beside it and the correct person signing their name, but the signature not being witnessed. In the well-known case of Briggs and others v. Gleeds (Head Office) and others [2014] EWHC 1178(Ch), this mistake cost them an estimated £45 million. In both of those cases, the tenant would not have a legal lease as the Land Registry would refuse to register it.

2. The right people signed but they never dated it

A recent case comes to mind as an example. The tenant was in occupation and paying the rent. However, although each party had lawyers to negotiate the lease, the parties decided to handle the signing and dating of the lease themselves. The result was that the lease was signed but not dated. 

That lease was also never sent to the Land Registry. However, if they had tried, the Land Registry would have refused to register the lease. The tenant did not have a legal lease.

3. The lease was signed and dated but not sent to the Land Registry

A lease of registered land should be registered at the Land Registry with its own title (if 7 years or more) or by a note on the landlord’s title (less than 7 years but more than 3 years). If that is not done, the tenant will not have a legal lease.

4. The landlord is not based in the UK (and other countries work differently)

It is common for commercial property in the UK to be owned by a landlord who is not based in the UK. When this happens, the requirements for signing and dating commercial property leases are governed by English Law but also by the law of the landlord’s home jurisdiction.  

Tackling this aspect can be problematic, particularly as even many commercial property solicitors do not have a full understanding of how these rules must be applied. Indeed, the Land Registry’s guidance to use a specific kind of signature clause for overseas companies, has prompted some to the mistaken over-simplification that using that signature clause from the Land Registry is the only required step and is somehow a safe harbour from the rules of the landlord’s home jurisdiction, international law and, incidentally, other Land Registry guidance notes.  An outline of the actual position is as follows:

• The basic position is that when a document is signed by a foreign company, there needs to be an opinion by a lawyer from that overseas jurisdiction to confirm the document is being correctly signed by that company and is enforceable against it. Such a foreign legal opinion is an added layer of complexity and can be expensive, particularly in offshore jurisdictions. 
• Unfortunately, landlords usually refuse to provide such a foreign legal opinion. 
• It is possible to avoid a foreign legal opinion but not always and getting this wrong will mean the tenant will not have a legal lease!
• The first issue to establish is the existence of the landlord. Where it is registered in the UK as an overseas entity, that would be sufficient. 
• The second issue is to establish that the lease has been signed in the correct way.  For example, in some jurisdictions a lease can be signed electronically but in other jurisdictions only a wet signature would be valid. Although an electronically signed lease would satisfy English law, if the landlord is registered in the British Virgin Islands, the lease would not be signed properly, and the tenant will not have a legal lease.
• The third issue is to know that the people who signed the lease are actually authorised to sign it:
  • If the authorisation is because they are a director, there must be a clear, legally binding confirmation that they are a director. In some countries, the company register is publicly accessible but in other jurisdictions such registers are hidden. That makes the clear, legally binding confirmation still possible but difficult. 
  • If the authorisation is because they have a power of attorney, then the Land Registry may need a foreign legal opinion to confirm the validity of the power of attorney. The power of attorney may also need to be legalised or apostilled under the Hague Convention.

In theory, the Land Registry should refuse to register a lease that was not properly signed and dated. However, they do not consider the possibility that one of their own specified signature clauses might be used without complying with the law of the landlord’s home jurisdiction. In practise, that means the tenant may succeed in getting the lease registered but it could still be removed from the register at any time because the tenant will not have a legal lease (even if it is registered at the Land Registry).

Note that, all of the above applies even to the Channel Islands and the Isle of Man because they are not part of the UK and have their own rules and registries. 

Part 2: the consequences of getting it wrong 

To summarise: when things go wrong, it may still be valid in some way, but it is not a legal lease. Instead, it is most likely either an equitable lease or an implied periodic tenancy (but there are other possibilities). It would be up to a court to decide on a case-by-case basis what kind of lease it is and what the terms of it are. It will depend on a variety of factors including not only the written document but also the conduct of the parties and even whether the tenant has breached a covenant.

Depending on what the court decides the terms of the lease are, here are a couple of potential consequences of getting the signature and/or dating of the lease wrong:

• Break clause

A break clause has an unusual status in a commercial property lease because it can only be exercised by the person who holds the legal interest in the lease. In that case of an equitable lease, it may still be possible to use the break clause on a contractual basis between the original parties but there is a considerable risk that the clause would be unusable. In that case, without a legal lease, the tenant will have to remain at the premises and pay rent beyond the break date.

• Right to occupy

An equitable lease may not be valid against a new landlord. Without a legal lease, the tenant could therefore lose its premises after a sale of the landlord’s interest in the relevant property.

Additionally, an implied periodic tenancy can be terminated by the landlord at any time by giving the notice of one rental period (whether that is weekly, monthly, quarterly or otherwise).

Please contact James Williamson directly or the Firm here if you have any questions around the validity of a lease or commercial property law more generally.