Tenants must be careful when considering the variation of certain terms within their existing leases. A variation to increase the extent of the tenant's demise and a variation of the length of the term of the lease may, in certain circumstances, constitute a deemed surrender of the original lease and a grant of a new lease on the varied terms. The intention of the parties is not relevant and an unintended surrender and regrant cannot be undone because the parties did not intend the result.
An unintended surrender and regrant can have a number of unwelcome consequences for a tenant. For example, a tenant may be obliged to pay additional stamp duty land tax (SDLT), although it may be possible to make a claim for SDLT overlap relief. The regranted lease would have to be registered at the Land Registry as a new lease with a new title number, rather than being noted as a variation on the existing title. Failure to do so could render the lease void. This can cause further issues for a tenant. If the old lease is charged, the lender's security will fall away on the accidental regrant.
There are ways to prevent an unintended surrender and re-grant. Where the tenant seeks to extend the term, the use of a reversionary lease should be considered. A supplemental lease may be used where the variation is to the tenant's demise.
It is therefore critical that a surrender and regrant is identified in advance so that tenants can ensure their interests are protected.