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prop > 10. alienation > Flashcards

10. alienation Flashcards

1
Q

why are property lawyers required if company is doing badly?

A

Company will want to dispose of its obligations (e.g. rent, esp. if RR coming up)

Break clause?
Assignment?
Underlet?

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2
Q

what does ‘ALIENATION’ mean?

A

A method for T disposing of the whole or part of their interest in leasehold property

OR

granting a further interest out of that leasehold interest to a 3P

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3
Q

TYPES of alienation

A

Assignment or Underlet (our focus)

  • Surrender
  • Charge/Mortgage
  • Sharing
  • Subletting
  • License to occupy (not exclusive possession) – i.e. parting with possession
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4
Q

privity of contract

A

exists between original parties to the contract

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5
Q

privity of estate

A

exists between parties who share immediate interest in the same land

e.g. L+T
BUT NOT L + UT

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6
Q

privity of contract + privity of estate upon assignment

A

Privity of estate

  • LL + T = no more
  • LL + A = yes

privity of contract
- LL + T = yes
= BUT NB. new leases = no (LT(C)A 1995)

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7
Q

OLD VS NEW LEASE (relevant date)

A

old: granted before 1 Jan 1996 (or pursuant to agreement before date)
new: granted on or after 1 Jan 1996 (and not pursuant to agreement before that date)

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8
Q

old leases - details

A

ONE - governed by PRIVITY OF CONTRACT (LL + T always liable to each other - regardless of assignment)

  • So, important to obtain A/UT’s direct covenant with LL to comply with T’s covenants
  • gives LL direction action in contract
  • LL more relaxed about assignment to someone with weaker covenant strength (LL can pursue original T)

TWO - PRE-CONDITIONS to be satisfied before assignment
- valid if genuine (and not attempt to state what would be reasonable refusal of consent and ousting court jurisdiction) - Homebase v Allied Dunbar

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9
Q

new lease - details

A

ONE - LCTA 1995 ABOLISHED PRIVITY OF CONTRACT once T lawfully ASSIGNS new lease (T no longer liable as original T) - s.17

  • T automatically released from all covenants
  • new A auto bound (s.5)
  • must be lawful assignment (i.e. conditions lawfully imposed by LL are complied with)
  • LL can no longer rely on covenant strength of original T (original T no longer liable throughout remainder of term)

OPTION: USE AGA (not as good but alternative)

TWO - pre-conditions for ASSIGNMENT replaced with S.19(1)A AGREEMENTS
- allows lease to specify circumstances and conditions where auto reasonable for LL to withhold consent

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10
Q

LLLL exam structure

A

LEASE - what type of covenant

LAW - s.19(1)a, s.19(1A), s.1 LTA 1927, s.144 LPA 1925

L TITLE - RCs preventing alienation? lender’s consent required?

Local auth - PP issues? e.g. if change of use

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11
Q

s.19(1)a LTA 1927

A

ALL types of leases
ANY Alienation
QUALIFIED COVENANTS

QC into FQC

Can recover reasonable sum for legal/other expenses (usual for LL to request undertaking from T to do this at outset)

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12
Q

Moss Bros Group v CSC Prop

A

s.19(1)a LTA

REASONABLENESS
if L has T mix policy and A’s occupation breaches it, refusal = reasonable

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13
Q

S.144 LPA 1925

A

FOR ALIENATION of any lease

  • cannot charge fine or premium as a condition unless lease allows L to do so (which T wouldn’t usually approve)
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14
Q

s.19(1A) LTA 1927

A
  • new commercial leases
  • assignments only

effect:
- L&T can list circumstances and conditions which will not be subject to reasonableness test (auto reasonable) - s.19(1A)b

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15
Q

s.19(1C)

A

if circumstances/conditions determined by ref to LL

LL must act reasonably OR T might have a right to refer to independent 3P

  • e.g. circumstance for refusal is “in the [reasonable] opinion of LL, the assignee is of adequate financial standing”
  • must say “to be determined by LL”
  • if clause is vague and doesn’t say who determiner of whether breach or not, need more info, e.g. suggest T hire surveyor)
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16
Q

s.1 LTA 1988

A

any types of lease
any alienation
fully qualified covenants (INCL. those upgraded by s.19(1)a LTA)

effect:

  • burden on LL to show refusal is reasonable
  • LL must provide written reason
  • if consent, must give written consent within reasonable time if T applies for consent
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17
Q

what is ‘reasonable time’ in s.1 LTA 1988

A

WILL NOT generally expire before LL given sufficient info (but LL must ask for info if it requires it - otherwise there is delay)

depends on FACTS but usually measured in days/weeks rather than months

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18
Q

failure to comply with s.1 LTA 1988

A

LL breaches statutory duty - LL may be liable for tortious damages

T could recover losses for fees incurred (e.g. agent/lawyer fees)

T could get exemplary damages against LL if LL particularly unreasonable

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19
Q

Dong Bang v Davina

A

s.1 LTA 1988

reasonable time = 28 days from receipt of application if LL given Heads of Terms (this is usually sufficient info)

THIS IS NOT IN STATUTE/HARD AND FAST RULE - what is reasonable depends on circumstances

reasonable time usually starts from receipt of appropriate references and application for consent

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20
Q

Mount Edna v Folia

A

LL under obligation to reply to application within reasonable time even if pre-conditions or s.19(1A) conditions are not met

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21
Q

LL’s title - freehold issues?

A

RC preventing alienation?
Lender’s consent required?

Consent of LL’s mortagee

  • T may need to ensure this is obtained if:
    1. specifically required to do this in lease), or
  1. assignment triggers the need to register a previously unregistered lease (reg cannot be affected until lender’s consent obtained due to RESTRICTION in Proprietorship Register in LL’s title)
  2. if LL’s title is unregistered, because lender has to be approached as it has custody of title docs needed for first reg
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22
Q

form of LL’s consent for alienation

A

should do it in a legal document so:

  • it can outline conditions
  • (IF OLD LEASE) to obtain A/UT’s direct covenant with LL that it will comply with T’s covenants in the lease to be assigned/granted to it (gives LL direct action in contract if covenant ever breached, otherwise no privity of contract) - this is auto in s.3 LCTA for new leases
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23
Q

Aubergine Enterprises Ltd v Lakewood International Ltd

A

LL’s solicitors wrote to T’s solicitors that LL had agreed to the disposal ‘in principle’ subject to license

  • this was construed as LL’s full written consent even before formal license was granted
  • so NOT SAFE to give consent ‘in principle’
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24
Q

underletting & pre-conditions

A

s. 19(1A) doesn’t apply
- but pre-conditions to be complied with is very common (gives superior LL control over terms of underlease)
- Homebase decision applies (valid if genuine)
- Crestford v Tesco Stores
- presume pre-conditions to underletting are valid (BUT they may be challenged as unreasonable and subject to International Drilling test, not auto reasonable because s.19(1A) doesn’t apply)

25
Q

Crestfort v Tesco Stores

A

Covenant against underletting without obtaining LL’s consent imposed conditions that must be satisfied –> Treated as imposing mandatory pre-conditions

Purpose of conditions = limit circumstances T could properly apply for consent

LL not under an obligation to consider T’s application for consent if T didn’t meet conditions (LL got an injunction to have underlease surrendered)

26
Q

AGA

A

s.16 LTCA 1995 created AGA

Outgoing T gives it for LL
effect: T promises to perform incoming immediate A’s obligations under lease if it defaults

LL only ever has current T and T immediately prior ‘on the hook’ - AGA only lasts till next lawful assignment

(usually clause in lease for this - as a condition attached to consent which is valid under s.19(1A) and a clause keeping it fair, i.e. LL must make demand for fixed payment within 6 months or they lose the right)

27
Q

when give AGA

A

Can do it before assignment (just make it conditional on assignment)

procedure:

  1. license to assign
  2. AGA
  3. deed of assignment
28
Q

other solution for L concerned about A’s covenant strength (other than AGA)

A

Ask A to give guarantee (parent company?) or rent deposit deed

29
Q

protection for former tenants (old lease privity, or new lease AGA)

A

S.17
- LL must serve notice on former T within 6 months of payment becoming due to recover payment

s. 19
- former T who made s.17 payment may require LL to grant overriding lease

30
Q

overriing lease

A

A lease where former T becomes immediate LL of defaulting T and the immediate T of the LL serving the s.17 notice

  • provides former T with some control
  • T can regain possession of premises from defaulting assignee to prevent default continuing
  • T can ensure covenants are performed
  • To obtain overriding lease: T must demand it in writing within 12 months of making any s.17 payment
31
Q

recommendation 5

A

covers assignment and underletting

  • leases should contain FQC for assignment of whole
  • only have specific limited circumstances for refusal
  • AGA should not be required as condition for assignment unless proposed A is of lower financial standing (LL can still get rent deposit/guarantee)
  • if underletting, underlease rent should be MV at time of underletting (might be shortfall to T)
32
Q

assignment - what is it

A

“Sale” by T of remainder of their lease to another party (“assignee”)

  • A becomes immediate T of LL
  • change of proprietor (T) shown in Proprietorship Register of leasehold title (if reg lease)
  • no new lease created
33
Q

assignment - procedure

A

SIMILAR TO FREEHOLD PROPERTY

T contacts LL (head and immediate) and asks for consent to assign

LL gets surveyor to assess covenant strength of proposed A (T pays for the fee usually) - surveyor gathers financial info (credit history, ref from bank + former landlord, accounts)

  1. investigation of title (by assignee)
  2. requirement for consent (LL, LL’s mortgagee) (LICENSE TO ASSIGN)
  3. documentation (deed of assignment/TR1) + maybe AGA (+ LL might require rent deposit deed or guarantee from A)
  4. NOTIFY LL about completion (written notice)
  5. Registration if required (s.27(1) LRA)
  6. Pay SDLT
34
Q

INVESTIGATION OF TITLE BY ASSIGNEE

A

A is buying leasehold interest so it would inspect documents to investigate title

  • title deeds (of lease + docs relating to the lease)
  • official copies of lease (if reg)
  • LL’s title (epitome or off cop)
  • freehold title (probs same as LL’s title above)

docs relating to lease:

  • deeds of variation
  • rent review memoranda
  • licenses to assign, underlet, or alter
35
Q

requirement for consent - assignment

A

LL’s consent (before ass)

  • usually a covenant in lease
  • consent usually formally recorded in License to Assign
  • parties: L, T, A
  • creates privity of contract between L+A

Mortagee’s Consent

  • LL may need to get consent of its lender before it gives consent to T
  • LL’s solicitor should check terms of LL’s mortgage to see if consent is needed
  • usually not required for long term residential leases
36
Q

documentation for assignment

A

assignment of a lease must be made by deed

Purchase deed:

  • if unreg = deed of assignment
  • if reg = TR1

on completion:
- existing lease and any associated title documentation handed to assignee

37
Q

notify LL - assignment

A

after completion
- alienation provision of a lease usually require LL to be given written notice of completed assignment

  • confirms to LL assignment it consented to has occured
  • gives LL practical information (e.g. where to send rent demands)
38
Q

registration - assignment

A

unreg lease with more than 7 years left to run –> must register at LR (FR1)

reg lease –> application to LR to change details of T (owner) on Proprietorship REG (AP1)

39
Q

SDLT - assignment

A

payable if premium paid and premium above sDLT threshold

40
Q

underletting - what is it

A

T grants a lease out of its own lease –> new lease called ‘underlease’/’sublease’ and lease out of which it is granted is called ‘headlease’/’superior lease’

  • No natural privity of estate or contract between L and UT
  • License to underlet would give privity of contract if L, UT, T sign it
41
Q

underletting procedure

A

very similar to grant of lease out of freehold (new underlease agreement drafted and entered)

42
Q

terms of underlease

A

terms of headlease tends to require underlease must at least match the headlease (can be more onerous though) except for:

  • rent payable
  • length of term (BUT must be less than terms of headlease otherwise it takes effect as an assignment - Milmo v Carrera, normal for underlease to be granted for remaining term)
43
Q

procedure underletting

A
  1. investigation of title by UT of immediate LL’s title (T) and superior LL’s freehold title
  2. requirement for consent
  3. notify LL after completion
  4. register underlease (if over 7 years and privities not affected by underletting)
44
Q

requirement for consent - underletting

A

LL’s consent (before underletting)

  • usually req. by headlease
  • formally recorded in License to Underlet
  • parties: L, T, A
  • creates privity of contract between L and UT

other consents:

  • Lenders possibly
  • Superior LL + freeholde
45
Q

investigation of title underletting

A

Investigate immediate LL title and superior LL freehold title:

  • title deeds (the lease + docs relating to it)
  • official copies relating to lease (if reg)
  • L’s title (epitome or official cops)
  • docs affecting lease = deed of variation, RR memoranda, licenses to assign, underlet, or alter
46
Q

docs for grant of underlease

A

license to underlet

  • consent
  • L + UT privity of contract
  • all 3 parties parties to it
  • form of lease usually agreed and attached
  • incl. direct cov from UT to comply with terms of lease

new lease (completion doc)

  • underlease = completion doc
  • T and UT/ST are parties
SDLT 1 (to HMRC)
AP1 (or FR1 if LL title unreg) to LR
47
Q

DOCS for assignment of lease

A

license to assign (to record consent)
- all 3 parties parties

completion doc

  • deed of ass (generic term for the doc that vests legal title in assignee)
  • TR1 form to effect transfer if lease is reg
  • T and A sign it

AGA (from outgoing T to LL)
AP1 to LR
Notice of assignment
Rent deposit deed if req.

48
Q

LL’s fees

A

T usually pays it - addressed in:

  • lease (general cost clause)
  • undertaking (from T’s solicitor to be responsible for LL fees)
  • in license to assign
49
Q

completion doc for sale of freehold

A

TR1

50
Q

completion doc for grant of leaes

A

lease

51
Q

completion doc for assignment of lease

A

TR1 or deed of assignment

52
Q

completion doc for grant of underlease

A

underlease

53
Q

reversionary interest

A

LL’s interest = LL’s reversion

  • freehold reversion if LL is freeholder
  • leasehold reversion if LL is only superior leaeholder

LL can sell reversionary interest (i.e. right to recieve rent and have prop returned to them)

sometimes referred to as assignment (no new lease + privity of estate between T and L2)

54
Q

REVERSIONARY leases

A

granted now but doesn’t start till future date

  • used if LL and T want to increase length of term of existing lease
  • more tax efficicient than deed of variation (SDLT)
  • void if takes efect more than 21 years after made (s.149(3) LPA 1925)
55
Q

surrender and merger of leases

A

surrender - LL and T can end lease before end of its contractual term

merger - T agrees to buy LL’s superior interest to merge the two interests

leasehold merges with superior title in both (unless mortgage outstanding)

if leases reg - app to LR to close leasehold title

if mortgage outstanding - interests seperate until mortgage discharged

(usually need lender’s consent to surrender)

56
Q

charge leasehold interest?

A

POSSIBLE for T to obtain a mortgage using its leasehold interest as security

Very rare in practice (unless long lease)

  • Commercial FRI lease = considered liability with no inherent value rather than an asset which funders would be happy to advance funds against
  • LL usually seek to prohibit charging of leasehold interest created by the lease – this makes it more difficult for LL to enforce remedies for breach of lease terms (e.g. forfeiture) as they have to consider rights of mortgagee when taking action to remedy breach
57
Q

ASHWORTH FRAZER v Gloucester CC

A

If LL believes A will breach user covenant, LL’s refusal for consent = reasonable

anticipatory breach = reasonable

58
Q

international drilling v louisville investments

A

REASONABLENESS (s.19(1)a)

Must be to do with LL + T relationship (i.e. commercial relationship)

prop (12 decks)

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