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#10258 - Leasehold Management Alienation - Property Law and Practice

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There are 5 different types of Alienation:

1. Assignment

P.349

T disposes of residue of the term of the lease and retains no interest in the property or lease. It must be by deed (s.52(1) LPA) and registered at Land Registry. If unregistered, a lease of 7 years or more will trigger compulsory first registration (use Form TR1).

Assignment pre-01/01/96

There is an Implied indemnity covenant from assignee to assignor except in unregistered land where the value is not given by assignee (s.77 LPA). Instead, an express indemnity covenant is used (SCPC 6.6.4)

Assignment on or after 01/01/96

Assignor automatically released of future liability, so no need for indemnity. But, if there’s an AGA an express indemnity from assignee to assignor must be included because it’s not implied (SCPC 6.6.4)
2. Sub-Letting T creates new leasehold interest between him and the subtenant of part or the whole of the premises which were let under the original lease (known as the “Head-Lease”). The sublease can be either for part of the original term or for almost the whole of the original term but with a nominal revision. The T retains an interest in the property even if it is just for one day. During the term of the sublease the T is the landlord of the sub-T
3. Parting with Possession

This includes assignment and sub-letting.

T allows someone else into occupation or so that T is excluded from occupation themselves.

[NB: s.42 LTA ’54 “two bodies corporate shall be taken to be members of a group where one is the subsidiary of the other or both are subsidiaries of a third body”]
4. Shared Occupation Several different people/companies occupy the same premises at the same time with the T
5. Charging Grant a mortgage/other security or other debenture over the freehold or leasehold interest held by T as a security for borrowings
Landlord’s Concerns Assignee’s Concerns Assignor’s Concerns

  • Who is the T

  • Will they meet its rent/other obligations

  • Provide suitable guarantors

  • Who will pay legal costs for checking deed of assignment and Form TR1

  • Can’t negotiate lease beyond agreeing a deed of variation

  • Must take it or leave it

  • What incumbrances and potential problems are there

  • Ensure LL’s consent is obtained in good time

  • LL will want an AGA, therefore make sure assignee can perform its obligations

Obtaining Landlord’s Consent to Assign: [see next couple of pages for Covenants Question Structure]

General

  • Assignment of a commercial lease will require consent

  • Embodied in a ‘licence to assign’ document

  • If it contains covenants, must be executed by a deed
Undertaking

  • Assignor’s solicitor will undertake to cover his legal costs (see notes):

  • Must limit these to “reasonable costs”

  • Cap them to X (whatever the solicitor estimated them at)

  • Get client’s express written consent to enter into undertaking
References

  • LL wants references of prospective assignee

  • LL wants to ensure that the assignee is solvent and trustworthy

  • Most common references are from: banks; current LL; employer; solicitor; frequent trading company; three years of audited accounts if a company
Surety/Guarantors

  • LL may require assignee to provide a guarantor to the lease

  • LL will probably require assignor to enter into an AGA (see SCPC)

  • LL cannot ask Assignor’s guarantor to guarantee the assignee, but can ask Assignor’s guarantor to guarantee the AGA

SCPC 10.3

Deals with Consent

P.348

  • 10.3.5: if LL consent not obtained by completion date, then completion is postponed until 5 working days after consent or 4 months from original completion date, allowing for rescission

  • 10.3.3: requires the assignor (seller) to enter into an AGA

  • 10.3.2(b): buyer must comply with obligations, including to give references

  • 10.3.8: a party in breach of its obligations cannot rescind the contract

Conditions for Consent are imposed by s.19(1A) LTA ’27

-only applies to Assignment of commercial leases

- only applies to qualified covenants

- only applies to leases after 1 January 1996

  • Regarding a qualified assignment covenant, s. 19(1A) enables the LL and T to agree in advance specified circumstances in which the LL may withhold consent to assignment and specified conditions to which consent to assign may be given.

  • Conditions mean LL can impose on T

  • Circumstances mean they must be in place pre-assignment

  • Mustn’t be unreasonable if LL exercised his discretion to condition (s.19(1D) LTA ’27)

  • Only applies to commercial leases granted on/after 01/01/96

  • Abolishes privity of contract, therefore LL only can sue current T/guarantor or the immediately preceding Tenant if AGA was given by them to the LL

  • If unreasonable, it would detrimentally affect rent review

Absolute Covenants

P.346

  • Prohibited from / must do an action: there is no leeway

  • “T shall not assign or part with possession”

  • Breach of an absolute covenant will permit forfeiture

  • T may ask LL to vary to absolute covenant

  • LL not obliged to remove absolute covenants (LL need not have a reason to refuse)

Qualified Covenants (QC) P.346

1. A QC permits T to assign if:

(a) T serves notice to LL asking for consent,

(b) LL gives his consent,

(c) LL cannot withhold consent unreasonably

2. LL must serve notice to T with response of request to assign

3. if LL unreasonably withholds consent or does not reply = TORT = damages in favour of T

  • This covenant permits assignment but must get permission

  • S.19(1)(a) LTA ’27: any qualified covenant regarding alienation automatically becomes fully qualified (i.e. consent must not be unreasonably withheld) (T&F this section applies to Assignments, Sub-lettings and Parting with Possession)

  • S.19(2) LTA ’27: any qualified covenant regarding alterations automatically becomes fully qualified for improvements (i.e. consent mustn’t be unreasonably withheld)

  • S.19(3) LTA ’27: if there is a qualified user covenant, LL cannot require a premium or increase rent as a condition for giving consent for the change in use.

  • S.1 LTA ’88: LL must respond within a reasonable time to a request to assign or sub-let. If refused, reasons must be given or reasonable conditions imposed
Fully Qualified Covenants

  • Permission should not be unreasonably withheld
If consent is Granted

  • What documents are needed (e.g. licence to assign/variation of lease)

  • Other consent needed (e.g. building regulations/planning permission)

  • LL will supply the engrossment of the licence

Completion

P.351

Assignor hands over:

  1. The lease / sub-lease

  2. Deed of assignment / TR1

  3. LL’s engrossment licence to assign [+ deed of variation?]

  4. [Evidence of superior titles (if unregistered)]

  5. [Evidence of discharge of assignor’s mortgage]

  6. [Copies of duplicate notices served by assignor/predecessors on LL regarding any dispositions of land]

  7. [Insurance policy & receipt for last premium due*]

  8. [Receipts for rent and other outgoings]

  9. [Share certificate/stock transfer form if management company]

Assignee hands over

  1. Money due to assignor for rent already paid from completion date to next rent due date

  2. Executed counterpart licence to assign

  3. A release of deposit

* s.45(2) LPA ’25: Upon production of a receipt of last rent due, presume that the rent is paid and the covenants performed. Also assume that the correct person gave the receipt (SCPC 8.3.5)

Post-completion

P.351

SDLT

Is potentially payable both on the premium and the rent on grant. If it is assigned, then it is payable only if a purchase price was charged.

Notice of Assignment

Given in duplicate to LL with appropriate fee as per the lease provisions. LL signs one copy and returns it to the sender who should keep it.

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