The Friends Provident rule, what triggers a surrender and re-grant
A lease variation constitutes a surrender and re-grant where the variation cannot be effected without a new lease, principally: (a) extension of the contractual term; (b) enlargement of the demised premises; or (c) reduction of the demised premises. The leading case is Friends Provident Life Office v British Railways Board [1996] 1 All ER 336. Changes to rent, rent review, repair, user, and alienation clauses are generally safe deed-of-variation territory and do not trigger a surrender and re-grant.
SDLT consequences
The new lease created by the surrender and re-grant is a fresh chargeable transaction. SDLT is payable on the NPV of rent over the full new term plus any premium. For commercial leases, SDLT applies at 1% on NPV above the £150,000 nil rate band. Overlap relief (FA 2003 s.61) may reduce the charge where the old lease was SDLT-paid. An SDLT return (Form SDLT1) must be filed within 14 days of the effective date.
- SDLT on new lease: NPV of rent over the full new term at 1% above £150,000 nil rate band
- Overlap relief (FA 2003 s.61): reduces SDLT on the new lease for any period that overlapped with the SDLT-paid old lease
- SDLT1 return within 14 days of the effective date of the new lease, automatic penalties for late filing
- No SDLT on surrender itself, SDLT applies only on the grant of the new lease
LTA 1954 consequences, the contracted-out status trap
The most serious risk for landlords: where the old lease was contracted out of LTA 1954, the new lease is protected by LTA 1954 unless the s.38A warning notice procedure is followed BEFORE entering into the new lease. A landlord who agrees to extend a tenant's term by deed without taking legal advice may inadvertently create a protected tenancy where none existed before. The LTCA 1995 privity regime applies to the new lease (the original tenant loses perpetual liability that applied under the old pre-1996 privity regime). Break clauses in the old lease do not carry over, they must be expressly included in the new lease documentation.
- Contracted-out trap: old lease contracted out + surrender and re-grant without new s.38A notice = new protected tenancy; the tenant acquires renewal rights for the first time
- s.38A warning notice must be served and statutory declaration made BEFORE entering into the new lease, cannot be done retrospectively
- LTCA 1995 privity reset: old pre-1996 original tenant perpetual liability is lost on the new lease; guarantors also lose their perpetual obligations
- Break clauses: must be expressly included in the new lease, they do not survive from the old lease automatically