A concurrent lease (or lease of the reversion as it is sometimes also called) arises where a landlord grants a lease to T1 and subsequently grants a lease to T2 of the same premises for a term to commence before the expiry of the lease in favour of T1. The two leases, even though staggered in time, run concurrently with or parallel to one another. Significantly, although the earlier lease is akin to a subtenancy, it is not derived out of the concurrent lease, so the two leases are entirely independent of each other: see section 149(2) of the Law of Property Act 1925, which confirms that a legal term may be created in this way to take effect in reversion expectant on a longer term.
Since the two leases run concurrently, the disposition in favour of T2 operates as a part assignment of the landlord’s reversionary interest entitling T2 to the rent reserved under the original lease and the benefit of T1’s covenants as landlord for the duration of the concurrent term: see London & County (A&D) Ltd v Wilfred Sportsman Ltd [1971] Ch 764. Moreover, the landlord is not required to seek T1’s consent to the grant of the concurrent lease. Whereas historically, a concurrent lease was ineffective to pass an estate during the term of the earlier lease unless the attornment (ie approval) of T1 was obtained, no attornment of the tenant in possession is now necessary. However, until such time as T1 is given formal notice of the concurrent lease, it is entitled (as the existing tenant) to continue to pay its rent to the landlord which, in turn, is liable in restitution to T2 for the amount of rent paid to it.
Security for a loan
A concurrent lease is, therefore, a useful device whereby, for a definite period, T2 becomes a temporary owner of the reversionary estate of the landlord. Such a lease may, therefore, also provide security in favour of T2 for a fixed period in return for T2 advancing a loan to the landlord. A landlord, in return for the money borrowed from T2, will grant a concurrent lease whereby T2 is entitled to the benefit of the rental payments issuing out of the land paid by T1: see, Re Moore and Hulm’s Contract [1912] 2 Ch 105 and Adelphi (Estates) Ltd v Christie [1984] 1 EGLR 19. In the latter case, for example, it was held that the tenant of a concurrent lease was held to be the landlord for the purpose of recovering from the occupying tenant a proportion of the service charge relating to the premises.
A landlord may, therefore, wish to consider negotiating a loan from a third party with the premium payable for the grant of a concurrent lease reflecting the amount of money lent to the landlord. In this way, the concurrent lease also acts as a security for the loan in favour of the third party (T2) who, in turn, becomes entitled to the rent qua landlord throughout the duration of the concurrent lease. In this way, the payment of the rent derived from the premises is treated as either the agreed interest on the loan, or repayment of the loan itself (together with interest).
Obtaining possession of the earlier lease
If the earlier lease in favour of T1 is prematurely determined before the expiry of the concurrent lease, T2 is entitled to possession of the premises as landlord: see Neale v Mackenzie (1836) 1 M&W 747, at 762. Let us assume, therefore, that T1 is in breach of covenant having failed to pay rent or perform one of the other obligations under the lease (eg to repair). In these circumstances, T2 may use the breach as a means of recovering possession with a view to, perhaps, redeveloping the property. If T1 is without sufficient means to meet the rent or remedy the breaches complained of, it is unlikely that the court would be minded to grant relief against forfeiture of the lease. The upshot, therefore, of a successful action to forfeit T1’s lease would be to enable T2 to take possession of the property and redevelop it according to its plans. If the property is then redeveloped into say, separate units for letting, this would (in turn) provide T2 with a new (and potentially much higher) source of rental income, which again could be treated by the parties as a means of repayment of the loan to T2. The parties could also, no doubt, agree that rent received after the loan had been fully repaid would continue to belong to T2 during the remaining term of the concurrent lease.
There is one further (potentially significant) benefit of this type of scheme to both the landlord and T2. Let us assume that the property comprises commercial premises. The Landlord and Tenant Act 1954 permits a business tenancy to be excluded from the statutory protection of Part II by means of a relatively straightforward procedure that does not involve a court application. The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 abolished the need to make an application to court for a contracting out order where the parties wish to enter a lease that is excluded from the 1954 Act’s security of tenure provisions. Instead, the landlord now serves a prescribed form of notice on the tenant confirming that the new letting is to be excluded from the Act and the tenant then signs a declaration confirming it has received the notice and understood its contents. The only formality is that reference to the notice and declaration must be contained in or endorsed on the new lease.
The upshot of this is that T2 could grant excluded business tenancies in respect of each of the newly developed letting units forming the demised premises. The length of the term for each of the units would need to be negotiated with the tenants so as not to extend beyond the expiry of the concurrent lease. Once the concurrent lease came to an end either by effluxion of time or before, if duly surrendered, the premises in their redeveloped state would revert to the landlord in the normal way. At this point, the landlord and T2 may have agreed to sell the vacant premises and share the proceeds of sale in agreed proportions reflecting, in particular, T2’s significant financial involvement in the scheme.
Some degree of relaxation of security of tenure would also be possible if the premises were residential by simply granting assured shorthhold tenancies falling within the statutory regime of the Housing Act 1988. Once the contractual term of the tenancy ended, T2 would be in a position to obtain possession relatively simply without the need to show grounds for possession, although this would necessitate a formal application to court for an order for possession.
Final words
In summary, the device of the concurrent lease gives a landlord the opportunity to obtain significant finance from T2 with the relatively troublesome facility of repayment by means of the rent payable to T2 qua landlord under the concurrent lease. Such rent would be forthcoming initially under the earlier lease, but subsequently could come from the excluded tenancies granted in respect of the newly formed letting units following redevelopment of the premises.
Both the landlord and T2 would also be able to share in the redevelopment value of the property once it is sold either at the end of the concurrent lease or sooner when the lease is conveniently surrendered back to the landlord. The finer (financial) points of such a scheme would, no doubt, be negotiated between the parties.
Mark Pawlowski is a barrister and professor of property law at the school of law at University of Greenwich and James Brown is a barrister and reader in law at the school of law at Aston University
