Concurrent Lease UK — Landlords, Reversionary Leases, and Intermediate Landlord Structures

What Is a Concurrent Lease and How Does It Differ from Subletting?

A concurrent lease must be distinguished from an underlease (subletting): (a) An underlease is granted by a tenant (lessee) out of their own leasehold interest — the tenant becomes an intermediate landlord as between the superior landlord and the subtenant; the head lease remains in place as before; the tenant's own possession ends and the subtenant occupies; (b) A concurrent lease is granted by a landlord out of their own interest (their freehold or superior leasehold) while the existing tenant continues in occupation — the concurrent lessee steps into the position of the existing tenant's immediate landlord. In a concurrent lease: the existing tenant continues to occupy under their existing lease on exactly the same terms; the existing tenant's landlord is now the concurrent lessee (not the freeholder); the existing tenant pays rent to the concurrent lessee; the concurrent lessee pays rent to the grantor (freeholder) under the concurrent lease; the concurrent lessee is sandwiched between the freeholder and the existing tenant. The term of the concurrent lease: a concurrent lease granted by a freeholder can be for any term; by convention, a concurrent lease is often granted for a term equal to the unexpired term of the existing lease (so that the concurrent lease expires at the same time as or after the existing lease). Registration: if the concurrent lease is for more than 7 years, it must be registered at Land Registry as a new registered title (LRA 2002 s.4); if for 7 years or less, it may be noted on the register; the existing tenant does not need to consent to the grant of a concurrent lease but must be notified of the change of landlord (s.3 LTA 1985; s.48 LTA 1987). The concurrent lessee must serve a s.48 LTA 1987 notice on the existing tenant providing an address in England and Wales for service of notices — until a valid s.48 notice is served, the existing tenant's rent is not due.

• Concurrent lease vs underlease: in a concurrent lease the landlord grants a lease out of their own reversion while the existing tenant remains; in an underlease the tenant grants a sub-lease out of their own leasehold interest — the distinction is critical for understanding the rights and obligations of each party
• Existing tenant unaffected: the existing tenant's occupation continues unchanged; only the identity of their immediate landlord changes (from the freeholder to the concurrent lessee); the existing lease terms are unaltered by the concurrent lease grant
• Registration (LRA 2002 s.4): concurrent leases of more than 7 years must be registered at Land Registry; the concurrent lease creates a new registered title (or a noted interest); title guarantee warranties given in the concurrent lease apply to the concurrent lessee's interest
• Section 48 LTA 1987 notice: the concurrent lessee must serve a valid s.48 notice on the existing tenant providing an England and Wales address for service; until this is done, the tenant's rent is not lawfully due — a significant trap for concurrent lessees who fail to serve the notice promptly
• Term: a concurrent lease can be for any term up to (but not exceeding) the grantor's own interest; practically, it is often co-terminus with or slightly longer than the existing lease, so the concurrent lessee's interest expires when the existing tenancy ends

Commercial Uses — Sale and Leaseback, Mezzanine Finance, and Investment Structures

Concurrent leases arise in a range of commercial contexts: (a) Sale and leaseback with a concurrent lease: a property owner sells the concurrent lease (reversionary interest) to an investor; the existing tenancy (a rack-rent commercial letting) continues; the investor becomes the concurrent lessee — the immediate landlord of the sitting commercial tenant; the investor receives the rack rent from the sitting tenant; the investor pays a reduced head rent to the freeholder; the investor's return is the difference between the two (the 'profit rent'); this structure allows the freeholder to raise capital from the investment value of the sitting tenancy without selling the freehold; the investor's security is the rental income from the sitting tenant; (b) Mezzanine finance: a lender may take a concurrent lease as security for a mezzanine loan to the freeholder; if the freeholder defaults, the lender (as concurrent lessee) can enforce the concurrent lease — becoming the immediate landlord and collecting the existing tenant's rent; the lender does not need to appoint a Law of Property Act (LPA) receiver or take possession proceedings against the freeholder; this is a powerful security mechanism for mezzanine lenders; (c) Leasehold enfranchisement workaround: where a freeholder wants to retain control of a building while complying with leaseholder enfranchisement obligations, they may grant concurrent leases to associated companies; however, HMRC and the First-Tier Tribunal closely scrutinise concurrent lease structures used to frustrate collective enfranchisement rights (LRHUDA 1993); the Leasehold and Freehold Reform Act 2024 reforms tighten the rules further; (d) Profit rent investment: commercial property investors often acquire concurrent leases where the existing lease provides a reliable income stream with a substantial profit rent — for example, where the head rent payable to the freeholder is fixed and the existing tenant is paying an above-market rack rent.

• Sale and leaseback via concurrent lease: the freeholder grants a concurrent lease to an investor who becomes the immediate landlord of the sitting tenant; the investor receives the rack rent and pays a lower head rent to the freeholder; the 'profit rent' is the investor's return — a common commercial property investment structure
• Mezzanine finance security: a mezzanine lender takes a concurrent lease as security; on default, the lender enforces the concurrent lease — becoming the immediate landlord and collecting rent directly from the sitting tenant; a powerful alternative to LPA receivership for commercial lenders
• Profit rent risk: the concurrent lessee's return depends on the continuing covenant strength of the existing tenant; if the existing tenant becomes insolvent, the concurrent lessee receives no rent but must still pay the head rent to the freeholder; due diligence on the existing tenant's covenant is critical before acquiring a concurrent lease
• SDLT on concurrent lease acquisition: the acquisition of a concurrent lease triggers SDLT at the standard SDLT rates (on the premium paid for the concurrent lease plus any rent payable under the concurrent lease); the buyer takes advice on SDLT calculation in the context of any existing tenancy income flows
• Leasehold enfranchisement risk: concurrent lease structures used to frustrate leaseholder enfranchisement rights are closely scrutinised by tribunals; the Leasehold and Freehold Reform Act 2024 reforms impose stricter requirements on landlord structures in residential enfranchisement scenarios

LTA 1954 Security of Tenure — The Concurrent Lessee as 'Landlord'

Where the existing tenancy is a commercial tenancy protected by the Landlord and Tenant Act 1954 (LTA 1954), the concurrent lessee becomes the 'competent landlord' for LTA 1954 purposes (LTA 1954 s.44): (a) The concurrent lessee must deal with all LTA 1954 statutory notices: where the existing commercial tenant serves a s.26 request (for a new tenancy), the concurrent lessee must respond; where the concurrent lessee wants to oppose renewal (to recover vacant possession at the end of the term), the concurrent lessee must serve a valid s.25 notice opposing renewal on one of the LTA 1954 s.30(1) grounds (a–g); the concurrent lessee must serve the s.25 notice in their own name, identifying themselves as the competent landlord; (b) Grounds of opposition: the concurrent lessee can oppose renewal on all seven LTA 1954 s.30 grounds — but some grounds (Ground (f) — redevelopment; Ground (g) — own occupation) can only be relied on if the concurrent lessee themselves intends to redevelop or occupy; a concurrent lessee who is a property investment vehicle (not an occupier) cannot rely on Ground (g); (c) Interim rent during renewal: where the existing commercial tenant holds over at the end of the contractual term pending renewal, the concurrent lessee (as competent landlord) is entitled to apply for an interim rent under LTA 1954 s.24A; (d) Concurrent lease expires before new tenancy commences: if the concurrent lease expires or is forfeited before the s.25/s.26 process is completed, the freeholder re-emerges as the direct landlord of the existing tenant; the freeholder inherits the LTA 1954 renewal process at the point the concurrent lease ends; careful timing of concurrent lease terms and LTA 1954 notices is essential to avoid gaps in the landlord's position.

• Concurrent lessee as LTA 1954 competent landlord (s.44): the concurrent lessee must deal with all LTA 1954 s.25 notices and s.26 requests in their own name; the freeholder ceases to be the competent landlord for LTA 1954 purposes once the concurrent lease is registered
• Grounds of opposition: the concurrent lessee can oppose renewal on any s.30(1) ground, but Ground (g) (own occupation) is only available if the concurrent lessee itself genuinely intends to occupy — an investment concurrent lessee cannot use Ground (g)
• Interim rent (LTA 1954 s.24A): the concurrent lessee is entitled to apply for interim rent during the LTA 1954 renewal period; interim rent is typically set at open market rent, not the contractual rent, and can be significantly higher or lower than the existing rent
• Concurrent lease expiry during LTA 1954 process: if the concurrent lease expires while the LTA 1954 renewal proceedings are pending, the freeholder steps back in as competent landlord; careful structuring of concurrent lease terms relative to the existing tenancy is essential to avoid this outcome
• Direct application by existing tenant to freeholder: if the concurrent lessee fails to comply with LTA 1954 obligations (fails to serve s.25 notice; fails to respond to s.26 request), the existing tenant can apply directly to the court against the freeholder as the ultimate landlord

Forfeiture Risk and Practical Protections for the Concurrent Lessee

The concurrent lessee's interest is at risk in several scenarios: (a) Forfeiture of the concurrent lease by the freeholder: if the concurrent lessee breaches their obligations under the concurrent lease (fails to pay the head rent; breaches covenants), the freeholder can forfeit the concurrent lease; forfeiture of the concurrent lease brings the concurrent lessee's interest to an end — the freeholder re-emerges as the direct landlord of the existing tenant; the concurrent lessee can apply for relief from forfeiture under LPA 1925 s.146 (and s.147 for internal decorative repairs); courts regularly grant relief from forfeiture to concurrent lessees who remedy the breach; (b) Forfeiture of the existing tenancy: if the existing tenant breaches the head lease (the lease under which they occupy), the freeholder could potentially forfeit the head lease — but only if the concurrent lease is also a lease that is subject to forfeiture for the existing tenant's breach; in practice, forfeiture of the existing tenancy (by the concurrent lessee as immediate landlord) by re-entry or court order is dealt with by the concurrent lessee — the concurrent lessee has the right to forfeit the existing tenancy in the same way as any landlord; (c) Existing tenant insolvency: if the existing tenant becomes insolvent, the concurrent lessee receives no rent from the existing tenant but must still pay the head rent to the freeholder (unless the concurrent lease contains a corresponding rent suspension provision); this is a major credit risk for concurrent lessees who acquire profit rent investments; due diligence on the existing tenant's covenant strength (and appropriate rental guarantees or rent deposits) is critical; (d) Practical protections: the concurrent lessee should (i) take a rent deposit or guarantee from the existing tenant; (ii) ensure the concurrent lease contains a full rent suspension or abatement clause if the existing tenant's rent becomes uncollectable; (iii) ensure the concurrent lease head rent can be deferred if the existing tenant fails to pay; (iv) take title insurance against defects in the concurrent lease structure.

• Forfeiture of concurrent lease by freeholder: if the concurrent lessee breaches the concurrent lease, the freeholder can forfeit it — ending the concurrent lessee's interest and making the freeholder the direct landlord of the existing tenant; relief from forfeiture under LPA 1925 s.146 is available to the concurrent lessee on application to the court
• Existing tenant insolvency risk: the concurrent lessee's primary risk is the existing tenant's insolvency — the concurrent lessee must continue paying head rent to the freeholder regardless of whether the existing tenant pays; rent deposit from the existing tenant; appropriate rent suspension in the concurrent lease; and credit due diligence are critical protections
• Forfeiture of existing tenancy: the concurrent lessee (as immediate landlord) has the right to forfeit the existing tenancy on breach — by re-entry (in vacant commercial premises) or by court order; the existing tenant can apply for relief from forfeiture under s.146
• Title insurance: title insurance is available for concurrent lease structures to cover defects in title, overriding interests, and risks associated with the interaction between the concurrent lease and the existing tenancy; recommended where the structure is complex
• SDLT and VAT: the acquisition of a concurrent lease triggers SDLT on the premium and on any profit rent; if the freeholder has opted to tax for VAT, the concurrent lease acquisition may be subject to VAT on the premium and on the head rent — specialist SDLT and VAT advice is required

Frequently asked questions