Commercial Leases – Mortgages and Side Letters

A tenant taking a commercial lease must ensure that the landlord has obtained consent to the lease from any person having a mortgage over the freehold otherwise the lease cannot be registered at H M Land Registry (if it is subject to 1st Registration) and also the lease would not be binding on the lender if they repossessed the freehold.

The landlord, by getting consent, will have to let the lender see a copy of the lease and the lender will see all of the terms and may not give consent if the terms are what the lender may perceive as not being in their commercial interest and prejudicial to their security if they had to repossess.

Sometimes a landlord may try and circumvent lenders consent to some terms in a lease by issuing a side letter, consenting to terms not in the lease as consented by the lender (i.e. rent free periods or other concessions). Such a side letter may not be binding on a lender if the landlord defaults on their loan and therefore such side letters should be resisted by a tenant to protect their position and ensure the lease has all clauses consented by the landlord’s lender and therefore be binding on the landlord’s lender in the event that the landlord defaults on the loan and the lender repossesses the property.

Nick Powe, Senior Property Solicitor

npowe@astonbond.co.uk