The handshake has historically been used to establish mutual trust and commitment to seal long-term deals and agreements between parties. The justification for doing so is often because a formal, written contract is seen as a costly, unnecessary step.
Many landowners, however, are not aware of the full extent of the risks involved when relying on a handshake, and the negative impact this could have on their property or business. This article will explain the importance of a written, legally binding contract by focusing on the hypothetical scenario of leasing a barn for farming practices.
By failing to document agreements properly and relying on a verbal promise alone, there is no certainty of the terms upon which a tenant occupies a property. This means that there could be a genuine misunderstanding or difference of opinion in terms of what was agreed between the parties from the outset in relation to the occupation. For example, in the case of the occupation of the barn, the following terms may be left unclear:
- How much rent is due to the landlord
- What the insurance rent will be
- Whether or not any service charge will be payable
- When these payments need to be made
- The tenant’s repair obligations
- Whether or not the rent will be subject to review and, if so, how the reviewed rent will be calculated
- Whether the tenant will benefit from security of tenure or the lease will be excluded from the protection of the Landlord and Tenant Act 1954
- When the landlord will be allowed to re-enter the barn and forfeit the lease.
The lack of a written, signed and dated lease to refer to when issues arise will potentially cause disagreement and may lead to professional dispute resolution being required. The litigation process is often lengthy and costly; far more than the cost of appointing a lawyer to draft, negotiate and complete a lease.
Given the complexity of leasing and occupying land, it is of paramount importance that the terms are specific and clear for all parties. Ideally, when instructing a lawyer to prepare a lease or approve a lease, detailed Heads of Terms should have been agreed between the parties to ensure that these can be incorporated into the lease.
In summary, a formal, written lease is highly recommended. If necessary, a Deed of Variation can be completed between the parties during the lifetime of the lease should a revision of terms be agreed.
If you require assistance with preparing and completing an appropriate lease as the landlord of a property, or need advice as a tenant hoping to enter into a lease with a landlord, a member of the Whitehead Monckton team would be happy to help.
For more like this, sign up for the FREE South East Farmer e-newsletter here and receive all the latest farming news, reviews and insight straight to your inbox.