Granting a lease or underlease - Pre-contract enquiries and ...

Learning Outcomes

This article outlines pre-contract enquiries and searches required when granting a lease or underlease, including:

• Verification of the landlord’s title and authority, including lender consents and restrictions on title
• Power to grant an underlease under the headlease and licence to underlet requirements
• Distinction between official copies, restrictions and charges on a registered title
• Planning control, use classes, building regulations and heritage controls
• Energy efficiency compliance for lettings: EPC and MEES
• Legal encumbrances: covenants, easements, wayleaves and overriding interests
• Statutory and third‑party searches: local authority LLC1/CON29/CON29O, drainage and water, environmental, flood, highways, commons, mining, index map and land charges for unregistered land
• Company and insolvency checks where relevant
• Interpretation of search and enquiry results and typical cures: consents, variations, indemnity insurance, conditions precedent and price adjustments
• Common pitfalls in SQE1‑style scenarios: confusing local land charges with land charges, omitting lender consent, and overlooking adoption and ransom strip risks

SQE1 Syllabus

For SQE1, you are required to understand the pre-contract due diligence required when granting a lease or underlease, with a focus on the following syllabus points:

• The purpose and process of pre-contract enquiries and searches in lease transactions
• Verification of the landlord’s title and authority to grant a lease
• Identification of planning permissions, use restrictions, and compliance with statutory requirements
• Detection of legal encumbrances such as covenants, easements, and third-party rights
• Conducting and interpreting local authority, Land Registry, and environmental searches
• The practical implications of search results for lease drafting and negotiation
• Use and scope of CPSE for commercial lettings and assignments
• Distinguishing local land charges (LLC1) from Land Charges (K15/K16) for unregistered land
• Search priority and timing: OS1/OS2 vs K15/K16, and the “registration gap”
• EPC/MEES requirements when granting or renewing lettings

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the main purpose of pre-contract enquiries when granting a lease?
2. Which search would reveal whether a property is subject to a planning enforcement notice?
3. Why is it important to verify the landlord’s authority to grant a lease?
4. What legal risks might arise if restrictive covenants are not identified before granting a lease?

Introduction

When granting a lease or underlease, it is essential to carry out thorough pre-contract enquiries and searches. These steps are designed to uncover any legal or practical issues that could affect the validity, enforceability, or value of the lease. Failure to conduct proper due diligence can result in costly disputes, unenforceable rights, regulatory penalties (for example, for MEES breaches), planning or building control enforcement, or professional negligence claims. This article outlines the key pre-contract enquiries and searches required for lease transactions, focusing on title verification and authority, planning and statutory compliance, legal encumbrances, and the main searches and checks required in practice.

Key Term: pre-contract enquiries
Questions raised by the tenant’s solicitor to clarify matters about the property, title, use, compliance, and any issues that may affect the lease.

Pre-Contract Enquiries: Purpose and Scope

Pre-contract enquiries enable the proposed tenant to test the factual matrix against their intended occupation and use. In commercial transactions, replies are usually provided on the Commercial Property Standard Enquiries (CPSE), with supplemental forms where appropriate (for example, for properties sold subject to tenancies, or where a lease is being granted or assigned). Replies are representations and, if inaccurate or misleading, can found a misrepresentation claim.

Key practical aims include:

• Confirming the physical state of the premises and services (often verified via survey and inspection, but addressed through CPSE and supporting documents)
• Clarifying planning history (permissions, conditions, enforcement), building regulation approvals/completion certificates or self‑certification
• Establishing use and occupancy (including employees, sub-occupiers, storing licensees, or any persons in actual occupation)
• Verifying insurance, fire safety, access/egress, utilities and service charge regimes (where relevant)
• Disclosing disputes, notices, proposed schemes, and environmental issues
• Identifying whether the property meets energy efficiency requirements for letting (EPC/MEES) and whether any exemptions are registered

Key Term: CPSE
Commercial Property Standard Enquiries: a standardised set of detailed enquiries used in commercial property transactions (freehold and leasehold) to elicit practical and legal information relevant to occupation and use.

Title Verification and Authority to Grant a Lease

Before granting a lease, confirm that the landlord holds the legal estate and has power to grant the lease (or underlease), and identify any prior consents required.

• Registered title: obtain official copies and title plan, and any filed documents referred to on the register (such as transfer deeds, restrictive covenants, rights and plans). Review class of title, proprietorship restrictions, charges and notices.

Key Term: verification of title
The process of checking the landlord’s ownership and right to grant a lease, including any restrictions or lender consents required and any status issues (class of title).

• Lender’s consent: if the title is charged, a restriction or the charge conditions may require the mortgagee’s written consent to the lease. Consent must be obtained before completion; if the lease is registrable, the Land Registry may refuse registration in the absence of consent or compliance with a restriction.

• Company landlord: perform a company search at Companies House to confirm the landlord’s corporate status, powers, officers, insolvency position and any registered charges. Ensure execution formalities for a deed by a company will be satisfied.

Key Term: company search
A search at Companies House to confirm a company landlord’s status, powers and insolvency profile, including fixed or floating charges.

• Underleases: check the headlease. An underlease must be shorter than the headlease term and compliant with the alienation clause. If the headlease prohibits or qualifies underletting, ensure the head landlord’s consent is obtained by way of a licence to underlet. Failure to obtain consent risks breach and potential forfeiture action.

Key Term: licence to underlet
A tri‑partite consent where the head landlord permits the grant of an underlease, typically including the undertenant’s direct covenant to the head landlord to observe relevant tenant covenants.

• Deduction of title on grants: for leases exceeding seven years, the tenant is entitled to see sufficient title to allow registration of the lease with absolute leasehold title (commonly the landlord’s freehold or superior title), unless specifically varied. Where a lease can only be registered with good leasehold title (for example, superior title not deduced), consider the implications for marketability and lender requirements.

• Restrictions on title: watch for restrictions that lock registration of the grant unless conditions are met (for example, consent of a named party, compliance with a deed of covenant, or compliance certificate under a s106 agreement).

Planning, Use, and Statutory Compliance

The tenant must ensure that the intended use, layout and operations are lawful, and that any previous works were properly authorised and signed off. This typically involves:

• Confirming existing planning permissions, whether they have been implemented lawfully, and compliance with their conditions
• Checking use class under the Town and Country Planning (Use Classes) Order 1987 and whether a material change of use is required
• Determining if permitted development rights under the General Permitted Development Order apply or whether an Article 4 Direction removes them
• Verifying building regulation approval and final certificates (or competent person scheme certificates) for relevant works
• Considering heritage/designations: listed building consent, conservation area controls, tree preservation orders

Key Term: planning permission
Formal approval from the local authority for the use or development of land or buildings.

Enforcement time limits (England) changed in 2024 so that, subject to transitional provisions, all breaches are ordinarily subject to a 10‑year immunity period. In Wales, the traditional framework remains: 4 years for operational development and change of use to a single dwellinghouse, and 10 years for other breaches (including breach of condition). Listed building control and certain criminal offences do not benefit from ordinary immunity periods, and injunctive relief can be sought irrespective of prosecution time limits. Failure to regularise unlawful development can affect use, lending and insurance; tenants may require conditionality (for example, lease completion conditional on lawful development certificates or retrospective consents).

Building regulations contraventions can lead to enforcement, criminal proceedings within statutory time limits, and, where appropriate, injunctive relief. Lack of approval or completion documentation can also prejudice insurance or lender support.

Energy efficiency is critical:

• EPC: most lettings require a valid EPC.
• MEES (England and Wales): generally unlawful to grant or continue a letting of sub‑standard non‑exempt premises below an E rating unless a valid exemption is registered. Remedies include improvement works or registering a statutory exemption. Penalties and publication of breaches can follow non‑compliance.

Legal Encumbrances: Covenants, Easements, and Third-Party Rights

Identify and assess any restrictions or obligations affecting the premises or estate:

• Restrictive covenants limiting use, trading style, hours, signage, alterations or development
• Positive covenants (for example, contributions to private road maintenance, estate services or boundary works)
• Easements and quasi‑easements serving and burdening the property (rights of way, support, drainage, utilities)
• Wayleaves and licences for utilities or telecoms
• Overriding interests (for example, legal easements obvious on inspection; certain short legal leases; interests of persons in actual occupation)

Key Term: restrictive covenant
A binding promise restricting the use or development of land.

If a covenant would be infringed by the proposed use, alterations or signage, consider a release/variation, an indemnity insurance solution (if criteria are met), or re‑scoping the scheme. Ensure necessary rights are available (for example, vehicular access “at all times and for all purposes” and adequate rights to install, use and maintain service media). For private roads, check the obligation to contribute to maintenance and whether future adoption is anticipated.

Essential Searches Before Granting a Lease

Local Authority Search

A local authority search is essential to reveal:

• Planning permissions and conditions, building regulation history (via CON29)
• Planning enforcement notices and Article 4 Directions
• Conservation area, listed building status and tree preservation orders (some are local land charges)
• Proposed road/rail/traffic schemes affecting the locality (CON29)
• Public rights of way, compulsory purchase and community infrastructure levy (CIL) entries where relevant
• Financial charges and other registrations in the local land charges register (LLC1)

Key Term: local authority search
A search combining the local land charges register (LLC1) and standard enquiries (CON29), with optional enquiries (CON29O), to uncover planning, environmental and statutory matters affecting the property.

Ensure you distinguish the local land charges register (LLC1) from the Land Charges Department search for unregistered land (K15/K16).

Land Registry Search

For registered land, obtain official copies to confirm:

• The landlord’s ownership and any restrictions on title
• Registered charges, notices and restrictions
• The property’s boundaries and extent via the title plan and any filed plans

Where the freehold or superior title is unregistered, review the epitome of title and consider a Land Charges search. Remember that the official pre‑completion search with priority (OS1/OS2) is typically carried out between exchange and completion to protect registration priority; do not confuse its purpose with pre‑contract title verification.

Key Term: official search with priority
A pre‑completion HMLR search (OS1/OS2) that updates entries and provides a 30‑working‑day priority period to register the disposition free of adverse intervening entries.

Environmental Search

Environmental searches are increasingly important, especially for commercial leases. They reveal:

• Historical and current land use suggesting potential contamination (Part IIA EPA 1990)
• Proximity to landfills or industrial processes
• Potential constraints or remediation obligations, and insurance availability

Key Term: environmental search
A search to identify environmental risks such as contamination that may affect the property or result in liability for remediation under the EPA 1990 or common law.

Additional Searches

Depending on the property’s location, tenure and history, further searches may be required:

• Drainage and water search (CON29DW/CommercialDW): confirms connection to mains water, foul and surface water sewers, sewer locations (which can constrain development), and whether the property is billed for water/sewerage.

Key Term: drainage and water search
A search of the statutory undertaker confirming mains connections, sewer locations and adoption status, and billing/charging information.

• Flood search: assesses fluvial, pluvial, coastal and groundwater flood risk and insurability; particularly important near rivers, coasts or low‑lying areas.

Key Term: flood search
A property‑specific risk screening for river, coastal, surface water and groundwater flooding, often supplemented by specialist reports where risk is elevated.

• Highways search: confirms the extent of publicly maintainable highway (including pavements and verges) and identifies potential “ransom strips”.

Key Term: highways search
A search of the local highways authority to confirm the precise extent of the adopted highway and highlight any non‑adopted intervening strips.

• Mining searches: coal (CON29M) or other minerals (for example, tin, brine, clay, limestone) depending on locality.

Key Term: mining search
A search disclosing past and proposed underground workings, mine entries and any recorded subsidence claims in relevant mining areas.

• Commons/village green enquiry (optional CON29O Q22): essential where the site is on, adjacent to, or crosses open land that might be registered; such designations constrain development and access/enclosure.

Key Term: commons registration search
An enquiry revealing whether land is registered as common land or a town/village green, with associated public and recreational rights.

• Railway, canal and river searches: where near rail infrastructure or waterways, to identify rights, maintenance liabilities or restrictions affecting works.

• Index map search (SIM): helpful where the title appears unregistered, where mines and minerals are excepted, or site assembly is complex.

Key Term: index map search
A Land Registry search that reveals whether land is registered, forms part of a pending first registration, or is subject to a caution against first registration.

• Land Charges searches (K15) for unregistered land: against all relevant estate owners for their periods of ownership (and K16 bankruptcy‑only where acting for a lender).

Key Term: land charges search
A central search (Plymouth) for registrations protecting interests in unregistered land (for example, restrictive covenants, estate contracts, home rights), conferring a 15 working‑day priority for completion.

• Chancel repair liability screening: although protection for registered land was curtailed after 13 October 2013, liability can still bind in certain cases (including unregistered land before first registration). Insurance is a common risk‑management tool.

Key Term: chancel repair liability search
A desk‑based check for potential liability to contribute to chancel repairs; often addressed by indemnity insurance where risk is indicated.

• Company search/insolvency checks: for company landlords (and often for company tenants where a lender is involved). Bankruptcy‑only searches (K16) may be required for individual borrowers before completion where a mortgage is to be granted.

Key Term: company search (insolvency)
A Companies House search confirming corporate capacity, solvency, and registered charges; repeated pre‑completion where appropriate.

Interpreting Search Results and Acting on Findings

The purpose of the due diligence exercise is to identify issues early and agree solutions that align risk and commercial allocation:

• Covenants: if a restrictive covenant blocks intended use or alterations, options include obtaining a release/variation, redesign to avoid breach, or indemnity insurance (provided there has been no approach to beneficiaries). Consider the continuing risk profile and lender acceptance.

• Planning/building control: where consents are missing or conditions breached, consider applying for certificates of lawfulness, retrospective planning permission, variation of conditions, or building control regularisation; or making the lease conditional on obtaining necessary consents. Assess enforcement time limits applicable in the relevant jurisdiction, and confirm that heritage-related controls are met.

• MEES: if the EPC indicates a sub‑standard rating and no exemption is registered, the lease should not be completed until improvement works or a valid exemption is in place; otherwise, penalties and reputational issues may arise for the landlord.

• Environmental: where contamination risk is flagged, seek further investigation (Phase 1/Phase 2), consider remediation responsibilities and warranties, or negotiate price/rent adjustments and environmental indemnities or insurance.

• Access/services: if the road is not adopted or there is a gap (ransom strip) between the site and the highway, confirm legal rights and maintenance responsibility; consider a highways search, easement grant or insurance. For new estates, ensure s38 Highways Act and s104 Water Industry Act agreements and bonds are in place (or robust private arrangements).

• Unregistered land: ensure a sound epitome of title and discharge of any historic charges (receipted mortgage or deed of release), and use K15 search priority properly. For leases to be registrable, ensure the superior title requirements for absolute leasehold title are met.

• Consents and restrictions: where a restriction requires consent or a certificate, the lease should not complete until satisfied. For underlettings or assignments, obtain the appropriate licence (landlord’s consent), mindful that conditions must be reasonable where a qualified covenant applies.

Worked Example 1.1

A tenant intends to open a restaurant in a property currently used as a retail shop. The local authority search reveals that the property’s planning use is for retail (Class E), and there is a restrictive covenant prohibiting use as a restaurant.

Question: What steps should the tenant’s solicitor take before exchange?

Answer:
The solicitor should advise the tenant that planning permission for change of use will be required and that the restrictive covenant must be released or indemnity insurance obtained. The lease should be conditional on obtaining the necessary permissions and consents.

Worked Example 1.2

The landlord’s title is subject to a mortgage, and the Land Registry entry includes a restriction requiring lender consent for any lease.

Question: What must the landlord’s solicitor do before granting the lease?

Answer:
The solicitor must obtain the lender’s written consent to the lease and provide evidence of this to the tenant’s solicitor before completion.

Worked Example 1.3

A landlord proposes to grant a new five-year lease of a non‑domestic unit with an EPC rating of F. No exemption is currently registered.

Question: Can the lease be granted now, and what are the options?

Answer:
Granting the lease of a sub‑standard property (below E) is generally unlawful unless a valid MEES exemption is registered. The landlord must either carry out cost‑effective improvements to raise the rating to at least E, or register an applicable exemption (for example, seven‑year payback or third‑party consent exemption with evidence). The lease should not complete until compliance or exemption is in place.

Worked Example 1.4

Searches reveal the access road serving the premises is not adopted. There is a grass verge between the site boundary and the metalled road with uncertain ownership.

Question: What further steps and protections should be taken?

Answer:
Commission a highways search to confirm adopted highway limits, investigate title to the verge, and verify express rights of way over any intervening land. If a gap exists, options include obtaining an easement from the owner, securing indemnity insurance (where criteria permit), or negotiating for the landlord to remedy the issue. Confirm maintenance obligations and consider the risk of future adoption contributions.

Consequences of Inadequate Enquiries and Searches

Failure to conduct proper pre-contract enquiries and searches can result in:

• The tenant being unable to use the property as intended, or facing planning/building control enforcement
• Civil penalties and reputational impact for MEES breaches
• Liability for breaches of covenants or trespass over third‑party land
• Unexpected costs (for example, road/adoption contributions, environmental remediation, boundary rectification)
• Forfeiture exposure where the underletting or use breaches the headlease or statutory controls
• Professional negligence claims against the solicitor, and lender refusal to proceed or to treat the lease as good security

Exam Warning

If a lease is granted without verifying the landlord’s authority or without identifying restrictive covenants, the tenant may have no remedy if they are later prevented from using the property as planned. Always check for lender consents and all legal encumbrances. Do not confuse a local land charges search (LLC1) with a Land Charges search (K15/K16) for unregistered land, and do not confuse pre‑contract searches with the pre‑completion OS1/OS2 priority search.

Revision Tip

Always review the results of all searches and enquiries together. A single issue may have multiple legal implications for the lease. Consider whether issues can be managed by conditions precedent, consents, indemnity insurance, variations, or price/rent adjustments.

Key Point Checklist

This article has covered the following key knowledge points:

• Pre-contract enquiries and searches are essential before granting a lease or underlease.
• Verification of the landlord’s title and authority is required, including checking charges, restrictions and any necessary consents.
• On underlettings, confirm that the headlease permits underletting and obtain a licence to underlet where required.
• Planning permissions, use classes, Article 4 Directions, and building regulations must be checked; consider enforcement time limits (note England/Wales differences) and heritage controls.
• Energy performance must be assessed; it is generally unlawful to grant a letting of a sub‑standard property (below E) unless an exemption applies and is registered.
• Legal encumbrances such as covenants, easements, wayleaves and overriding interests must be identified and assessed against the proposed use and works.
• Local authority searches (LLC1/CON29/CON29O), Land Registry official copies, environmental searches and drainage/water searches are core; add flood, highways, mining, commons and other location‑specific searches as indicated.
• For unregistered land, use Land Charges (K15) and, where relevant, bankruptcy‑only (K16) and an index map search (SIM); ensure a sound epitome of title and discharge of historic mortgages.
• Distinguish pre‑contract searches from pre‑completion searches; use OS1/OS2 to protect registration priority at the appropriate time.
• Search and enquiry results may require further investigation, negotiation, lease conditions, consents, indemnity insurance, remedial works or financial adjustments.
• Failure to conduct adequate enquiries and searches can result in serious legal, financial and regulatory risks.

Key Terms and Concepts

• pre-contract enquiries
• CPSE
• verification of title
• company search
• planning permission
• restrictive covenant
• local authority search
• environmental search
• drainage and water search
• flood search
• highways search
• mining search
• commons registration search
• index map search
• land charges search
• chancel repair liability search
• official search with priority
• licence to underlet
• company search (insolvency)