Sometimes legal terminology can be confusing.  As lawyers, part of our job is to ‘de-mystify’ legal concepts and to explain them in plain language.  At times and on the flipside, there are also legal principles, which at first glance may appear similar or even the same, when in fact they are really quite different …

 

Freehold v Leasehold

Does it really make a difference if you are buying a freehold property or a leasehold property?  They are just the same, are they not?

The majority of the time when purchasing a property, you will find the property will have a freehold title.  This means you will own the property “in perpetuity”, or in other words forever.

Leaseholds tend to be a little trickier.  Firstly, you do not own a leasehold property forever.  Whilst the length of time you will own a leasehold will be significant (likely to be 100 years plus), you will ultimately only own the property for a set period of time and your interest in the property will be an asset, which depreciates over time.

The likely situations where you will find yourself acquiring a leasehold property, will be where the property is part of a larger estate, or say a flat within a block of flats.  In these situations, there may well be common areas, which need to be controlled by one party (usually the freeholder or a management company), or the freeholder/property owner in general wants to put restrictions on the larger estate/block for the common good.  This is ordinarily achieved through putting in place a leasehold structure.  So, if you are buying a leasehold property, be even more aware of the likely restrictions on its ongoing and future use.

 

Pre-Emption v Option

These two phrases are often used interchangeably, when they really do have significant differences, which need to be considered carefully.

I have the benefit of a pre-emption.  That means I can demand that the property owner sells the property to me?  Incorrect.  A pre-emption right depends on the property owner first looking to sell the property.  Put otherwise, your right is a “right of first refusal” in the event of the property owner looking to sell the property in the first place.

An option on the other hand is a right to require the property owner to sell the property to you, usually upon you giving notice to the property owner that you wish to acquire the property in question.

 

Lease v Licence

Possibly an area of contention and argument for a number of us.

A licence ordinarily is a personal and temporary arrangement, put in place for a limited period and terminable with little fuss or fall out.

The main difference between a licence and a lease is what lawyers will refer to as “exclusive possession”.  Even if you call an arrangement a “licence”, once an occupant is given the benefit of these two words, and to all intents and purposes the licence operates much more like a lease, then potentially you have given the occupant a lease, along with the benefit of the rights of occupation that ordinarily come with a lease arrangement.

 

Security of Tenure v No Security of Tenure

Put basically, business tenancies, unless provided for otherwise, attract what is termed “security of tenure”.  Put into plain language, security of tenure means the statutory right to potentially renew your business lease at the end of its contractual term.

So what is the main difference for me between having a lease with the benefit of security of tenure, or one without any security of tenure?

If you do not have security of tenure, this does not mean that you cannot potentially renew your business lease, by speaking and negotiating with your landlord in good time.  You just do not have this ability to renew “as of right” and are dependent upon successful discussions with your landlord.

If you have security of tenure, then provided you follow the correct procedures and subject to some exemptions, you can potentially “as of right” renew your lease at the end of its contractual term.

Either situation can be a bit of a minefield, with potential catastrophic consequences for your business, and it is important that you engage with professionals in a timely manner when looking to renew your business lease.

 

For further information and help, please feel free to contact the Commercial Property Team on 01524 846846.