8. Procedural Steps for the Assignment of a Lease

Question 1

A client is being granted an underlease for a 10-year term. The headlease and freehold are both registered at Land Registry with absolute title.

What superior title document(s) should the undertenant’s solicitor review?

Answer 1

The headlease and official copies of the headlease title
- official copies reveal who owns headlease and any encumbrances which may affect the underletting

Question 1

Granting an underlease: If a headlease has been registered with ‘absolute title’ why does an undertenant NOT need to see the freehold title?

Answer 1

The headlease has been registered with absolute title, which means the Land Registrar must have seen the freehold title when the headlease was registered. As a result, there is no need to see the freehold title, as any incumbrances on the freehold title will also appear on the headlease title.

Question 2

How does a landlord usually express their consent to an assignment?

Answer 2

Through the granting of a formal license
- finalised at completion

Question 3

Who might the landlord request references from on behalf of the assignor?

Answer 3

1. current landlord
2. bank
3. employer
4. professional person
5. person or company with whom assignee regularly trades

Question 4

Aside from references from individuals, what more may a landlord request from an assignor to verify their financials?

Answer 4

three years’ audited accounts in the case of a company or self-employed person or partnership

Question 5

Failure to obtain landlord’s consent: Consequences under the SCs

Answer 5

Either party may rescind the contract by notice of the consent has not been given three working days before the completion date, or if, by that tie, consent has been given subject to a condition to which the buyer reasonably objects

Question 6

Failure to obtain landlord’s consent to an assignment: consequences under the SCPCs

Answer 6

If the landlord’s consent has not been obtained by the completion date, completion is postponed until 5 working days after the assignor notifies the buyer that consent has been given

• contract cannot be rescinded until 6 months have passed since original completion date, and after this, either party can rescind by serving notice on the other

Question 7

Consequences of entering into an assignment without the consent of the landlord

Answer 7

1. assignor may be in breach of tenant’s alienation covenants i the lease
2. assignor may not be released from liability under tenant’s covenants
3. lease itself could be liable to forfeiture

Question 8

Who must be parties to the license to assign

Answer 8

If assignor and assignee are entering into covenants in the lease - all three (including landlord) are parties to the license (must be in the form of a deed)

Question 9

Key provisions in a license to assign for a lease granted prior to 1 January 1996

Answer 9

a direct covenant by the assignee to the landlord for covenants in the lease

Question 10

Liability of assignee of an old lease

Answer 10

• liable under the doctrine of privity of estate for all covenants which touch and concern the land (but only for as long as the lease is vested in them)
• Landlord will try to get assignee to enter into a direct covenant for the remainder of the lease (creating privity of contract between them) and this DC will be contained in the license to assign

Question 11

Liability of an assignee of a new lease to the landlord

Answer 11

Liable for breaches of covenant committed while the lease is vested in them (all tenant covenants, not just those which touch and concern) but if the lease is then assigned again, the LT(C)A 1996 releases the assignee from the tenant covenants
- Any direct covenants they enter into with the landlord should be limited in duration to the period of the assignment

Question 12

AGA Provision in leases granted on or after 1 January 1996

Answer 12

If the lease is a new lease granted on or after 1 January 1996, the landlord may have inserted the need for an AGA in the lease as a pre- condition to giving consent. In this case, the landlord can always insist on the assignor entering into the AGA whether or not it is reasonable.

Question 13

When can a landlord insist on a tenant entering into an AGA on assignment (where provision for an AGA is not in the lease itself)

Answer 13

It must be reasonable to do so

Question 14

When acting for the assignee of a lease - should title be investigated and how?

Answer 14

1. Superior freehold title checked (potentially) and leasehold title (any covenants or easements on freehold will bind leasehold)
2. Assignor’s solicitor should provide assignee’s solicitor with a copy of the lease and any licence permitting assignment to the current and previous tenants

Question 15

If a lease is registered with absolute title, need the assignee’s solicitor investigate the freehold title?

Answer 15

A lease with absolute title is guaranteed by the land registry, so anything of note will appear there and the freehold title need not be deduced

Question 16

If a lease is registered with good leasehold title, need the assignee’s solicitor investigate the freehold title?

Answer 16

Since there is no guarantee here of the soundness of the freehold title - the solicitor should attempt to insist on deduction of title
- but not entitled to do so under general law so must use open register rules

Question 17

Would the right to deduce freehold title appear in standard assignment contracts?

Answer 17

Only if it is added as a special conditions

Question 18

If the assignor’s lease is unregistered, what documents does the assignee have the right to call for from them?

Answer 18

under the general law the assignee is entitled to call for the lease and all assignments under which that lease has been held during the last 15 years, but not for evidence of the freehold title

Question 19

Necessary Pre-Contract Enquiries and Searches

Answer 19

1. Same enquiries and searches as for freehold property
2. Ask for insurance policy relating to property and receipt for last insurance payment
3. ask for receipt of last payment of annual rent due under lease (to check assignor is not in breach)
4. certain searches can be forgone if the lease is very short

Question 20

General Rule: How is a legal estate in land transferred? How does this impact how assignment is done?

Answer 20

1. Generally, a deed is required
2. For assignment, a deed is assignment is prepared

Question 21

Who prepares the ‘deed of assignment’

Answer 21

The assignee’s solicitor

Question 22

What form is used to transfer the lease (on assignment) if lease is registered?

Answer 22

TR1

Question 23

What form is used to transfer the lease (on assignment) if lease is unregistered?

Answer 23

1. if lease is 7+ years, compulsory first registration and TR1 used
2. if lease is 7 or less years, the deed of assignment is used and will not trigger first registration

Question 24

When will a deed of assignment imply indemnity covenants

Answer 24

1. Old leases (before January 1996) indemnity covenant from assignee to assignor implied EXCEPT (for unregistered leases) value is not given by the assignee for transaction

Question 25

Why is an indemnity not required in the deed of assignment for new leases?

Answer 25

The assignor is automatically released from future liability of the assignment so they do not need one - only way to ensure their liability after assignment is by requiring them to enter into an AGA

Question 26

Pre-Completion Searches for the assignment of a registered lease

Answer 26

An official search of the registers of the leasehold title (OS1) should be carried out to check for any new entries and to gain a priority period within which to register the transfer

Question 27

Pre-Completion Searches for the assignment of an unregistered lease

Answer 27

1. Another land charges search should be made against the name of the assignor to check that no adverse entries have been made since the pre- exchange land charges search on all the previous estate owners was made and 2. to ensure that the priority period of 15 working days covers completion of the assignment

Question 28

What happens on 'completion' of an assignment

Answer 28

1. the assignee pays the assignor the balance of the ‘purchase price’ (if one is to be paid) and any other sums due, including an apportionment 2. Assignor hands over any relevant documents 3. assignee hands over relevant documents

Question 29

Relevant documents the assignor hands over on completion:

Answer 29

the lease - transfer deed - license to assign executed by landlord - evidence of freehold title in accordance with contract - evidence of discharge of the assignee's mortgage - copies of duplicate notices served by the assignor and its predecessors on the landlord in accordance with a covenant in the lease requiring the landlord to be notified of any dispositions - Insurance policy and receipt relating to the last premium due - receipt for rent

Question 30

Relevant documents the assignee would hand over on completion

Answer 30

1. money due in accordance with the completion statement 2. duly executed counterpart licence to assign 3. a release of deposit (only likely where the assignee is paying a premium).

Question 31

When the assignor provides the assignee with the receipt for the last rent due under the lease - what can the assignee assume

Answer 31

That the rent has indeed been paid and covenants have been performed - receipt should be inspected by assignee's solicitor

Question 32

Some Post-Completion Steps

Answer 32

1. Paying SDLT/LTT 2. Registering lease (if applicable) 3. Providing the landlord with a notice of assignment

Question 33

What is SDLT/LTT charged on wrt an assigned lease?

Answer 33

1. the purchase price charged by the assignor (same procedure for sale of freehold land) 2. No SDLT/LTT charged on rent, as this will have been paid WHEN THE LEASE WAS GRANTED

Question 34

Post-Completion registration for a registered lease

Answer 34

- assignee must make application for registration of the transfer with LR within priority period conferred by OS1 search

Question 35

Once a lease is registered at the Land Registry, how long does it remain there?

Answer 35

- once registered, lease will be registered until it expires

Question 36

Registration requirements for an unregistered lease with over 7 years of the term unexpired

Answer 36

Must be registered at the land registry within 2 months of the assignment or will be VOID

Question 37

When can an assignee attempting to register an unregistered lease apply for registration with absolute title

Answer 37

Where they can produce satisfactory evidence relating to the superior title (in all other cases, only good leasehold title can be obtained)

Question 38

If the freehold of a property subject to a lease is registered, and an unregistered lease of the property is assigned - where will this be registered? What is the freehold title is UNregistered?

Answer 38

1. If freehold title is registered, the lease will be noted against the freehold title 2. If freehold is unregisterd, assignee may lodge a caution against first registration against the freehold title to protect their interests

Question 39

Which leases are incapable of registration with separate title?

Answer 39

Those (unregistered) with 7 years or less to run

Question 40

What is notice of assignment - when must it be provided

Answer 40

1. Generally standard provision in lease contract that notice of assignment must be provided - Notice should be given in duplicate accompanied by fee set out in lease - landlord should be asked to sign a copy of notice and return to sender to be kept with title deeds

Question 41

When is 'good leasehold title' granted?

Answer 41

Granted when the leasehold cannot provide evidence of the landlord’s title to the land.

Question 42

Assignment of a lease using the SCs: if. the landlord has not consented to assignment, when will the buyer be required the complete the assignment?

Answer 42

1. Either 5 working days after seller gives written notice to buyer than consent has been obtained 2. Court declares consent has been unreasonably withheld

Question 43

SCs and assignment of a lease: At which point (if at all) can a party rescind the assignment contract prior to completion?

Answer 43

1. Landlord's consent has not been given 3 working days before completion date

Question 44

SCs: In an assignment of a lease contract, if a landlord's consent is not obtained by the completion date is the contract automatically rescinded?

Answer 44

No, possible to do so but this is not automatic - may choose to continue if they believe the consent will come within a reasonable time