UUÂãÁÄÖ±²¥

Preserving positive covenants

‘Enlargement’ (conversion) of a long lease into a freehold can be used to preserve positive covenants as, following enlargement, the freehold is subject to the same positive covenants as affected the lease. This is a potential option for a developer who intends to walk away once the final phase is built and sold. The developer could grant enlargeable leases, with the rent for all units dropping to zero after the sale of the final unit. Each unit owner can then unilaterally execute a deed of enlargement, enlarging its lease into a freehold. The result is a freehold scheme in which positive covenants can be enforced.

In practice this is rarely done. The method has not been tested in court and the grant of a 999-year lease or an estate rentcharge scheme is a simpler way of achieving the same result and one which is more likely to be understood by lenders. Nonetheless, practitioners should be aware of this option, if only to be able to identify it if it crops up in a due diligence