8. Procedural Steps for the Assignment of a Lease Flashcards
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?
The headlease and official copies of the headlease title
- official copies reveal who owns headlease and any encumbrances which may affect the underletting
Granting an underlease: If a headlease has been registered with ‘absolute title’ why does an undertenant NOT need to see the freehold title?
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.
How does a landlord usually express their consent to an assignment?
Through the granting of a formal license
- finalised at completion
Who might the landlord request references from on behalf of the assignor?
- current landlord
- bank
- employer
- professional person
- person or company with whom assignee regularly trades
Aside from references from individuals, what more may a landlord request from an assignor to verify their financials?
three years’ audited accounts in the case of a company or self-employed person or partnership
Failure to obtain landlord’s consent: Consequences under the SCs
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
Failure to obtain landlord’s consent to an assignment: consequences under the SCPCs
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- contract cannot be rescinded until 6 months have passed since original completion date, and after this, either party can rescind by serving notice on the other
Consequences of entering into an assignment without the consent of the landlord
- assignor may be in breach of tenant’s alienation covenants i the lease
- assignor may not be released from liability under tenant’s covenants
- lease itself could be liable to forfeiture
Who must be parties to the license to assign
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)
Key provisions in a license to assign for a lease granted prior to 1 January 1996
a direct covenant by the assignee to the landlord for covenants in the lease
Liability of assignee of an old lease
- 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
Liability of an assignee of a new lease to the landlord
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
AGA Provision in leases granted on or after 1 January 1996
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.
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)
It must be reasonable to do so
When acting for the assignee of a lease - should title be investigated and how?
- Superior freehold title checked (potentially) and leasehold title (any covenants or easements on freehold will bind leasehold)
- 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
If a lease is registered with absolute title, need the assignee’s solicitor investigate the freehold title?
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
If a lease is registered with good leasehold title, need the assignee’s solicitor investigate the freehold title?
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
Would the right to deduce freehold title appear in standard assignment contracts?
Only if it is added as a special conditions
If the assignor’s lease is unregistered, what documents does the assignee have the right to call for from them?
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
Necessary Pre-Contract Enquiries and Searches
- Same enquiries and searches as for freehold property
- Ask for insurance policy relating to property and receipt for last insurance payment
- ask for receipt of last payment of annual rent due under lease (to check assignor is not in breach)
- certain searches can be forgone if the lease is very short
General Rule: How is a legal estate in land transferred? How does this impact how assignment is done?
- Generally, a deed is required
- For assignment, a deed is assignment is prepared
Who prepares the ‘deed of assignment’
The assignee’s solicitor
What form is used to transfer the lease (on assignment) if lease is registered?
TR1
What form is used to transfer the lease (on assignment) if lease is unregistered?
- if lease is 7+ years, compulsory first registration and TR1 used
- if lease is 7 or less years, the deed of assignment is used and will not trigger first registration
When will a deed of assignment imply indemnity covenants
- 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
Why is an indemnity not required in the deed of assignment for new leases?
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
Pre-Completion Searches for the assignment of a registered lease
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
Pre-Completion Searches for the assignment of an unregistered lease
- 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
- to ensure that the priority period of 15 working days covers completion of the assignment
What happens on ‘completion’ of an assignment
- 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
- Assignor hands over any relevant documents
- assignee hands over relevant documents
Relevant documents the assignor hands over on completion:
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
Relevant documents the assignee would hand over on completion
- money due in accordance with the completion statement
- duly executed counterpart licence to assign
- a release of deposit (only likely where the assignee is paying a premium).
When the assignor provides the assignee with the receipt for the last rent due under the lease - what can the assignee assume
That the rent has indeed been paid and covenants have been performed
- receipt should be inspected by assignee’s solicitor
Some Post-Completion Steps
- Paying SDLT/LTT
- Registering lease (if applicable)
- Providing the landlord with a notice of assignment
What is SDLT/LTT charged on wrt an assigned lease?
- the purchase price charged by the assignor (same procedure for sale of freehold land)
- No SDLT/LTT charged on rent, as this will have been paid WHEN THE LEASE WAS GRANTED
Post-Completion registration for a registered lease
- assignee must make application for registration of the transfer with LR within priority period conferred by OS1 search
Once a lease is registered at the Land Registry, how long does it remain there?
- once registered, lease will be registered until it expires
Registration requirements for an unregistered lease with over 7 years of the term unexpired
Must be registered at the land registry within 2 months of the assignment or will be VOID
When can an assignee attempting to register an unregistered lease apply for registration with absolute title
Where they can produce satisfactory evidence relating to the superior title (in all other cases, only good leasehold title can be obtained)
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?
- If freehold title is registered, the lease will be noted against the freehold title
- If freehold is unregisterd, assignee may lodge a caution against first registration against the freehold title to protect their interests
Which leases are incapable of registration with separate title?
Those (unregistered) with 7 years or less to run
What is notice of assignment - when must it be provided
- 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
When is ‘good leasehold title’ granted?
Granted when the leasehold cannot provide evidence of the landlord’s title to the land.
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?
- Either 5 working days after seller gives written notice to buyer than consent has been obtained
- Court declares consent has been unreasonably withheld
SCs and assignment of a lease: At which point (if at all) can a party rescind the assignment contract prior to completion?
- Landlord’s consent has not been given 3 working days before completion date
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?
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
