The following Property guidance note provides comprehensive and up to date legal information covering:
Enlargement of a long lease into a freehold can be used to preserve positive covenants as, following enlargement, the freehold is subject to the same positive covenants as affected the lease. This is a potential option for a developer who intends to walk away once the final phase is built and sold. The developer could grant enlargeable leases, with the rent for all units dropping to zero after the sale of the final unit. Each unit owner can then unilaterally execute a deed of enlargement, enlarging its lease into a freehold. The result is a freehold scheme in which positive covenants can be enforced.
In practice this is rarely done. The method has not been tested in court and the grant of 999 year lease or an estate rentcharge scheme is a simpler way of achieving the same result and one which is more likely to be understood by lenders. Nonetheless, practitioners should be aware of this option, if only to be able to identify it if it crops up in a due diligence exercise.
The right to enlarge extends to mortgage terms where the right of redemption is barred, enabling the mortgagee to acquire the freehold. It is unclear whether this applies only to cases where the right of redemption is barred under Limitation Act
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