Alienation

Question 1

what is alienation and what are the 4 types of alienation?

Answer 1

alienation = a disposal of all or part of the tenant’s interest in the lease

1. assignment = tenant selling the remainder of its lease to a third party
2. underletting = tenant granting a lease from its own lease
3. charge = T giving a security over the remaining term of its lease
4. share occupation

Question 2

what is assignment? when is assignment appropriate?

Answer 2

• The existing tenant (assignor) assigns their lease to the new tenant (assignee) who may pay for the leasehold interest. The landlord becomes the landlord of the assignee.
• the tenant may want to assign when: they do not need the premises anymore or they cannot afford it
• tenant may not want to assign where they may need the property again in the future (underletting more appropriate)

Question 3

can the tenant assign without the landlord’s consent?

Answer 3

• if the lease is silent - yes
• if there is an absolute covenant against assignment - no
• if there is a qualified covenant against assignment - no but the LTA implies a fully qualified covenant
• if there is a fully qualified covenant against assignment - with landlord consent not to be unreasonably withheld and landlord must give its decision within a reasonable time

Question 4

if there is a qualified / fully qualified covenant against assignment, what is the implication of this

Answer 4

the tenant can ask the landlord for their consent to assign the lease:

1. the landlord cannot unreasonable withhold his consent and
2. must provide consent within a reasonable time

Question 5

when can the landlord reasonably withhold his consent? And, what is reasonable delay in withholding consent?

Answer 5

It is reasonable to withhold consent because of:

• the assignee’s use of the premises (example: business competes with other business in the premises, or L has a policy on what types of businesses are allowed in a shopping centre)
• landlord has justifiable concerns about assignee’s ability to pay rent (T cannot produce satisfactory references or assignee is newly incorporated and cannot produce an account)
• the ground must be based on the landlord and tenant relationship
• the lease can contain a circumstance under which L can refuse consent and be considered automatically reasonable for doing so

It is not reasonable to withhold consent because of:

• grounds not related to the landlord/tenant relationship (a personal dislike of the assignee or his business, discriminatory grounds)

landlord must give consent within a reasonable time - case law provides that 28 days is a reasonable period

Question 6

what can the landlord and tenant agree on beforehand regarding the landlord giving consent to assign?

Answer 6

statute allows the lease to contain:

1. Circumstances which, if existed, would allow the landlord to refuse consent to an assignment and be considered automatically reasonable (e.g., rent is not up to date, no material breaches of the lease exist)
2. Conditions that may be imposed by the landlord for consenting to the assignment which will be considered automatically reasonable (e.g., requiring the tenant to provide an AGA)

Question 7

what is privity of contract vs privity of estate?

Answer 7

• privity of contract = the ability of the original landlord and original tenant to enforce obligations against each other, even after the contract has been assigned
• privity of estate = the ability of the current landlord and current tenant to enforce the provisions of a lease against each other

Question 8

what are new leases? what are old leases?

Answer 8

• old leases = leases created before 1 January 1996
• new leases = leases created on or after 1 January 1996

Question 9

In old leases, what are the old tenant and new tenant’s obligations on assignment?

Answer 9

• The original tenant remains liable to the landlord to pay rent and perform obligations despite assignment for the entire duration of the term (under privity of contract)
• New tenant is only liable for certain matters (under privity of estate).
• The landlord will therefore require the new tenant to covenant directly with them to observe all tenant obligations
• the old tenant will require an indemnity from the assignee to indemnify it if the landlord pursues it for the assignee’s breaches

Question 10

In new leases, what are the old tenant and new tenant’s obligations on assignment?

Answer 10

• The original tenant is released from all liability after assignment (privity of contract no longer applies) but is still liable for breaches during its period of occupation
• All tenant covenants and obligations are passed to new tenant
• This is why the landlord will require the old tenant to enter an AGA to ensure the new tenant complies with tenant covenants
• L will also usually require a direct covenant with assignee to observe T covenants even if not required

Question 11

if the tenant assigns a lease in breach of the assignment covenant, is it released from liability

Answer 11

no - if original T was not allowed to assign it cannot claim to be released from liability + T is always liable for breaches during its period of occupation even after it assigns

Question 12

What is an AGA and what is its effect? how does this protect the landlord

Answer 12

• outgoing tenant guarantees the obligations of the incoming tenant (assignee)
• can be a standalone document and/or granted in the licence to assign
• BUT: the outgoing tenant only guarantees the next tenant’s obligations and if there is a subsequent assignment, the old tenant’s liability under the AGA ends
• if the old tenant has to pay under the AGA, they can claim an overriding lease and become the direct tenant of the landlord

landlord is protected because they have the option, if the new tenant breaches covenants, to:

• sue old tenant under the AGA
• sue new tenant under the lease (and under the covenants they provided)

Question 13

if lease is silent on requiring an outgoing tenant to enter into an AGA when it assigns, can landlord impose AGA?

Answer 13

yes only if it is reasonable to do so - eg., T’s ability to pay rent is in doubt

Question 14

what 3 documents are involved with assignment and who drafts them?

Answer 14

• licence to assign (a deed) = between landlord, tenant, and assignee (drafted by landlord) - agree over the phone to complete and date
• contract for assignment = between tenant and assignee (drafted by tenant) - completed via Law Society B
• deed of assignment (TR1 if lease is registrable) = between tenant and assignee (drafted by assignee) - agree over the phone to complete and date

Question 15

what is the application for consent for assignment?

Answer 15

• the tenant’s solicitor applies to the landlord’s solicitor during pre-exchange for the landlord’s consent to the assignment
• L’s solicitor will ask T’s solicitor to provide an undertaking for costs (for T to cover L’s costs in considering the application e.g., solicitors and surveyors regardless of whether L consents) = do not provide undertaking unless client account is in funds
• if the covenant is fully qualified / qualified = L must provide their decision within a reasonable time (case law provided this is 28 days)
• L may impose conditions on consent as allowed under the lease or as are reasonable

Question 16

when will a contract for assignment be appropriate?

Answer 16

• it is not necessary
• appropriate where tenant and assignee are anxious to ensure they agree e.g., if landlord is taking long to respond to consent application, then completion can be conditional on the landlord providing consent

Question 17

who deduces title during assignment and how?

Answer 17

tenant’s solicitor deduces title to the assignee’s solicitor (who investigates title) by providing:

• official copy of the tenant’s leasehold title if the lease is registered (> 7y)
• official copy of the landlord’s freehold title if the lease is not registered (7 y or less)
• copy of the lease

Question 18

what pre-exchange and pre-completion enquiries does the assignee’s solicitor send to tenant’s solicitor?

Answer 18

• pre-exchange = CPSE1 and CPSE4 enquiries
• pre-completion = send requisitions on title

Question 19

what searches are carried out by assignee’s solicitor?

Answer 19

• pre-contract searches = same as for freehold
• pre-completion = only if tenant’s leasehold title was registered (>7y) search OS1 if assignment of whole or OS2 if assignment of part

Question 20

what document does the tenant’s solicitor send to the assignee’s solicitor pre-completion?

Answer 20

pre-completion statement

• apportions the principal rent, service charge, and insurance rent remaining in the quarter

Question 21

what is a License to Assign? what terms does it contain? (5)

Answer 21

DEED that documents the consent of the landlord to assign between the landlord, tenant, and assignee - contains:

• Landlord grants consent for a limited time – requires completion of assignment to take place within a specified period (in practice it takes place right after completion of the licence)
• Tenant agrees to pay the Landlord’s costs for dealing with the application (e.g., solicitors, surveyors)
• Assignee covenants directly with landlord to comply with the tenant’s covenants in the tenant’s lease (necessary for old leases, not necessary for new leases but standard)
• tenant provides AGA in new leases (AGA will be annexed to the licence)
• tenant agrees that they are not released from outstanding obligations (not necessary for old leases but necessary for new leases)

Question 22

what are the post-completion steps after assignment?

Answer 22

assignee’s solicitor =

• arranges return for SDLT/LTT + payment if appropriate
• registers assignment if necessary
• sends a formal notice of assignment to the landlord’s solicitor within 1 month after completion

Question 23

what is underletting and why would a tenant want this?

Answer 23

• underletting = tenant grants a lease out of their own lease to the undertenant
• T may want this if they are not using all of the premises, or if they do not need the premises now but may need them in the future, or if they cannot find a willing assignee

Question 24

what are the obligations of a tenant who underlets?

Answer 24

• tenant remains tenant of the landlord = must observe obligations under its own lease
• tenant receives rent under the underlease
• tenant enforces covenants in the underlease against the undertenant to ensure it does not breach its own covenants in its own lease

Question 25

what are the obligations of an undertenant?

Answer 25

• undertenant has obligations under the underlease to observe covenats - liability to the tenant
• undertenant will have to directly covenant with the landlord under the licence to assign in order to observe the tenant’s covenants in the head lease (because there will be no privity of contract or estate between L and UT otherwise)

Question 26

can tenant underlet without landlord’s consent?

Answer 26

• if lease is silent = yes
• if absolute covenant = no
• if qualified covenant, LTA implied fully qualified covenant so landlord cannot unreasonably withhold consent and must respond within a reasonable time
• fully qualified covenant
• commercial leases often contain = fully qualified covenants against underletting the whole or of the Permitted Part (e.g., floor of office building), and an absolute covenant against underletting of a part (except the Permitted Part)

Question 27

aside from landlord consent, what restrictions may a tenant have when granting an underlease? (5)

Answer 27

the tenant’s lease may contain, or landlord may later impose, restrictions:

• T cannot underlet the premises together with property that do not belong to the landlord
• T cannot underlet on payment of lump sum from UT (as this may mean that UT is not paying full market rent)
• T cannot underlet with a rent-free period beyond what is normal in that market
• Underlease is at a rent no lower than in tenant’s lease (but this makes it difficult for tenant to underlet in a falling market)
• Underlease contains covenants no less onerous than in the tenant’s lease
• underlease is for a term less than the remainder of the tenant’s term (even if by one day)

Question 28

what documents are involved in underletting? (3)

Answer 28

1. licence to underlet = deed between L, T, UT documenting L’s consent, drafted by L
2. agreement for underlease = drafted by T, entered into by T and UT

• not necessary but may be desirable if L is taking long to give consent so completion of underlease is conditional on L’s consent (or can set completion date instead)
• completed via Law Society B

3. underlease = drafted by T, entered into by T and UT

• can either be a full form lease or incorporate provisions from T’s lease by reference e.g., defines Tenant Covenants as those in T’s lease and requires UT to observe Tenant Covenants

Question 29

what is the application to the landlord for underletting?

Answer 29

• the tenant’s solicitor sends a formal application to the landlord’s solicitor during pre-exchange for the landlord’s consent to the underletting
• contents of application = details of the proposed undertenant and proposed terms of the underlease
• L’s solicitor will ask T’s solicitor to provide an undertaking for costs (for T to cover L’s costs in considering the application e.g., solicitors and surveyors regardless of whether L consents) = so not provide undertaking unless client account is in funds
• L’s solicitor will also want to see the proposed underlease terms and will eventually want to approve the final version of the underlease to make sure it is consistent with the tenant’s lease

Question 30

how does tenant deduce title for undertenant?

Answer 30

• Lease over 7 years (registered) = T only needs to provide an official copy of its registered leasehold title
• Leases 7 years or under (not registered) = T must provide an official copy of landlord’s freehold title + copy of its lease

Question 31

what pre-exchange enquiries does the undertenant solicitor send to tenant solicitor?

Answer 31

CPSE 1 and CPSE 3 (grant of lease)

Question 32

what pre-completion searches are conducted by undertenant’s solicitor?

Answer 32

• undertenant of whole = OS1 search against tenant’s registered leasehold title (gives priority of 30 working days)
• undertenant of part of tenant’s interest = OS2 search carrued out against the part of the tenant’s registered leasehold title (gives priority of 30 working days)
• underlease is not registerable = OS3 search carried out against tenant’s interest (no priority given)
• NO SEARCHES AGAINST LANDLORD’S FREEHOLD INTEREST

Question 33

what document does the tenant’s solicitor send to the undertenant’s solicitor pre-completion?

Answer 33

pre-completion statement

• apportions the principal rent, service charge, and insurance rent remaining in the quarter which the undertenant must pay on completion

Question 34

what are the post-completion steps after underletting?

Answer 34

• Tenant solicitor = Sends notice of underlease to landlord’s solicitor within 1 month of completion of underlease (usually must pay a fee to landlord solicitors for this)
• Undertenant solicitor = submits return + pays SDLT/LTT, and registers underlease if necessary (>7y)

Question 35

what is the licence to unerlet? what are the provisions it contains? (5)

Answer 35

DEED that documents the consent of the landlord to assign between the landlord, tenant, and undertenant - contains:

• Landlord grants consent for a limited time – requires completion of underletting to take place within a specified period (in practice it takes place right after completion of the licence)
• Tenant agrees to pay the Landlord’s costs for dealing with the application (e.g., solicitors, surveyors)
• Undertenant covenants directly with the landlord to observe the tenant’s covenants under the headlease other than the payment of rent
• Tenant agrees that they are not released from outstanding obligations (but not necessary)
• Draft underlease is annexed to the licence