Introduction This playbook provides guidance for negotiating the terms of an underletting clause in relation to a lease of part of a larger building such as an office block or a shopping centre (or some other equivalent retail environment) to make them more favourable for a tenant (‘tenant-friendly’ or ‘pro-tenant’). It includes preferred provisions, fallback language, and drafting notes that favour the prospective tenant. This playbook can be used by lawyers acting for prospective tenants and in-house counsel, who should modify the playbook as necessary to address client-specific issues and ensure that the client’s interests are fully protected. The level of risk noted in the playbook may vary depending on the client. Note that this playbook does not include drafting for scenarios where the tenant enjoys a substantial negotiating advantage (eg where the tenant is an anchor tenant). This is one of a collection of pro-tenant playbooks. For a list of the other playbooks in the collection, together with a list of other content related to commercial tenancies, see the Commercial tenancies subtopic. For examples of precedent

This Practice Note looks at where liability lies following an assignment of the term of a lease or the reversion. It considers the differing liabilities of tenants, landlords and guarantors in relation to both ‘old tenancies’ and ‘new tenancies’. Although it does not directly cover liability as between the assignor and assignee (eg the seller and buyer), the principles outlined in this Practice Note sit behind the drafting of any contract for the sale of property involving leases and govern how the parties should approach drafting and negotiating key topics such as apportionment of rents (including service charge), arrears of rents, outstanding rent reviews, etc—see: Buyer’s practical contract negotiation collection. Preliminary considerations When determining a party’s liability for lease covenants after the assignment of a lease or its reversion, there are two preliminary considerations: • is the liability personal to that party—if it is, then the liability will not bind that party’s successor(s) in title (see Personal covenants below) • if the liability is not personal, does it arise under a ‘new tenancy’

This Checklist sets out the considerations and steps to be taken by a landlord, and relevant timescales or deadlines for those steps, once a tenant has served a request for information and/or a notice of claim under the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993). These include service of a landlord’s section 45 counter-notice, admitting or not admitting a claim and/or opposing the claim on the basis of intention to redevelop, and deadlines for an application to the First-tier Tribunal (FTT) (or Leasehold Valuation Tribunal (LVT) in Wales) for determination of terms if they cannot be agreed and/or the County Court in the event that the lease is not completed within the statutory deadline once terms have been agreed/determined. For guidance in respect of the steps to be taken by a tenant, see: Lease extension of flats under LRHUDA 1993 (preparation and procedure) for tenants—checklist. • Ensure that the landlord responds to any requests made by the tenant for information about the freeholder

This Checklist sets out the considerations and steps to be taken by a tenant, and relevant timescales or deadlines for those steps, for a tenant serving a notice of claim under the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993). These include the landlord’s section 45 counter-notice, admitting or not admitting a claim and/or opposing the claim on the basis of intention to redevelop, and deadlines for an application to the First-tier Tribunal (FTT) (or Leasehold Valuation Tribunal (LVT) in Wales) for determination of terms if they cannot be agreed and/or the County Court in the event that the lease is not completed within the statutory deadline once terms have been agreed/determined. For guidance in respect of the steps to be taken by a landlord, see: Lease extension of flats under LRHUDA 1993 (preparation and procedure) for landlords—checklist. • Ensure that the tenant is a qualifying tenant of a flat under a long lease which is not an excluded lease (see Practice Note: Guide to lease

This is an example of a guide which can be sent to clients. It provides general guidance on extending the lease of a flat under the statutory procedure in the Leasehold Reform, Housing and Urban Development Act 1993. What is a lease extension? A qualifying tenant has a legal right to extend their current lease by 90 years. The tenant is granted a new lease, rather than the current one being amended. The tenant must pay a premium (the price for the lease extension). They must also pay their own legal and valuation costs, and certain reasonable costs incurred by the landlord. The new lease will usually be on broadly the same terms as the existing lease. Some changes may be required or agreed, but the statutory process is not normally an opportunity to replace the lease with completely different terms. Who can extend their lease? The right generally applies if the tenant has a long lease of a flat. For this purpose, a flat is a separate home in a building, with all or a significant part

Operating leases • the accounting standard ‘FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland’ classifies a lease as an operating lease ‘if it does not transfer substantially all the risks and rewards incidental to ownership’ • historically, an asset and the capitalised rental obligations of the lease appeared on the owner's balance sheet in an operating lease. Under FRS 102, lessees accounted for operating leases off balance sheet, with lease rentals generally recognised as an expense over the lease term. However, following the Periodic Review 2024 amendments to FRS 102, revised Section 20 applies for accounting periods beginning on or after 1 January 2026, with early adoption permitted. Under the revised lessee accounting model, lessees generally no longer distinguish between operating leases and finance leases. Instead, most leases are recognised on the balance sheet as a right-of-use (ROU) asset and a corresponding lease liability. There are, however, exemptions for certain leases, including short-term leases, generally being leases with a term of 12 months or less, and leases of low-value assets, such

Property analysis: The judgment gives an interesting analysis of the types of obligations in a guarantor covenant and the implications for pursuing the guarantor in the context of a disputed statutory demand.

LR1. Date of the lease [date in its full format DD-Month-Year] LR2. Title Number[s] LR2.1 Landlord's title number [s] [title numbers out of which this lease is granted. Leave blank if not registered] LR2.2 Other title numbers [existing title number[s] against which entries of matters referred to in LR9, LR10, LR11 and LR13 are to be made] LR3. Parties to this lease Landlord [Landlord's name and address] Tenant [tenant's name and address] Other parties LR4. Property In the case of a conflict between this clause and the remainder of this lease then, for the purposes of registration, this clause shall prevail. [details of the Property] LR5. Prescribed statements etc LR5.1 Statements prescribed under rules 179 (dispositions in favour of a charity), 180 (dispositions by a charity) or 196 (leases under the Leasehold Reform, Housing and Urban Development Act 1993) of the Land Registration Rules 2003 [insert any applicable prescribed statements or state 'None'] LR5.2 This lease is made under, or by reference to, provisions of: Leasehold Reform Act 1967 Housing Act 1985 Housing Act 1988 Housing Act 1996 LR6. Term for which the Property is leased [From and includingTo and includingORThe term

HM Land Registry Prescribed Clauses [ LR1. Date of the lease [date] LR2. Title Number[s] LR2.1 Landlord’s title number [s] [title number(s) out of which this lease is granted. Leave blank if not registered] LR2.2 Other title numbers [existing title number(s) against which entries of matters referred to in LR9, LR10, LR11 and LR13 are to be made] LR3. Parties to this lease Landlord [[OPTION 1—name of Landlord (not an overseas entity)] [of OR incorporated in England and Wales (company registration number [number]) whose registered office is at] [address]OR[OPTION 2—name of Landlord (overseas entity)] [incorporated OR formed] in [territory of incorporation/formation] (registration number [number]) [and registered at Companies House (company registration number BR[number])] (overseas entity ID [[number] OR not required]) whose registered office is at [address]] Tenant [[OPTION 1—name of Tenant (not an overseas entity)] [of OR incorporated in England and Wales (company registration number [number]) whose registered office is at] [address]OR[OPTION 2—name of Tenant (overseas entity)] [incorporated OR formed] in [territory of incorporation/formation] (registration number [number]) [and registered at Companies House (company registration number BR[number])] (overseas entity ID [[number] OR not required]) whose registered office is at [address]] Other

DATE [date] Parties 1 [name of Landlord] [of OR incorporated in England and Wales (company registration number [number]) whose registered office is at] [address] (Landlord) 2 [name of Tenant] [of OR incorporated in England and Wales (company registration number [number]) whose registered office is at] [address] (Tenant) 1 Definitions In this Lease, the following definitions apply: 1987 Order • the Town and Country Planning (Use Classes) Order 1987, SI 1987/764 in its form as at 31 August 2020; 2003 Order • the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, SI 2003/3096; Adjoining Property • any property adjoining or near to the Property; Annual Rent • £[amount] a year; Competent Authority • any authority which has jurisdiction in relation to the Property, its occupation or use; Conduits • any media and associated equipment for conducting energy, data or substances; [Consent • a consent obtained from the Landlord;] Costs • include any costs, losses, damages and liabilities, whether or not resulting from claims, demands, actions or proceedings; [Deposit • £[amount];] Forfeiture Event • (a) the instigation of any process or proceedings: i for the appointment of an administrative receiver, administrator, liquidator, monitor, provisional liquidator, receiver (or manager), supervisor, or trustee in bankruptcy, in relation to the Tenant or its property; or ii by way of execution or enforcement

DATE [date] Parties 1 [name of Landlord] [of OR incorporated in England and Wales (company registration number [number]) whose registered office is at] [address] (Landlord) 2 [name of Tenant] [of OR incorporated in England and Wales (company registration number [number]) whose registered office is at] [address] (Tenant) 1 Definitions In this Lease, the following definitions apply: 1987 Order • the Town and Country Planning (Use Classes) Order 1987, SI 1987/764 in its form as at 31 August 2020; 2003 Order • the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, SI 2003/3096; Adjoining Property • any property adjoining or near to the Property; Annual Rent • £[amount] a year; Competent Authority • any authority which has jurisdiction in relation to the Property, its occupation or use; Conduits • any media and associated equipment for conducting energy, data or substances; [Consent • a consent obtained from the Landlord;] Costs • include any costs, losses, damages and liabilities, whether or not resulting from claims, demands, actions or proceedings; [Deposit • £[amount];] Forfeiture Event • (a) the instigation of any process or proceedings: i for the appointment of an administrative receiver, administrator, liquidator, monitor, provisional liquidator, receiver (or manager), supervisor, or trustee in bankruptcy, in relation to the Tenant or its property; or ii by

LR1. Date of the lease [insert the date in its full format DD-Month-Year] LR2. Title Number[s] LR2.1 Landlord's title number [s] [title numbers out of which this lease is granted. Leave blank if not registered] LR2.2 Other title numbers [existing title number[s] against which entries of matters referred to in LR9, LR10, LR11 and LR13 are to be made] LR3. Parties to this lease Landlord [insert Landlord's name and address] Tenant [insert tenant's name and address] Other parties LR4. Property In the case of a conflict between this clause and the remainder of this lease then, for the purposes of registration, this clause shall prevail. [insert details of the Property] LR5. Prescribed statements etc LR5.1 Statements prescribed under rules 179 (dispositions in favour of a charity), 180 (dispositions by a charity) or 196 (leases under the Leasehold Reform, Housing and Urban Development Act 1993) of the Land Registration Rules 2003 [insert any applicable prescribed statements or state 'None'] LR5.2 This lease is made under, or by reference to, provisions of: Leasehold Reform Act 1967 Housing Act 1985 Housing Act 1988 Housing Act 1996 LR6. Term for which the Property is leased [From and includingTo and includingORThe