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Property Practice > Alienation > Flashcards

Alienation Flashcards

1
Q

What is alienation?

A

Means a disposal of all or part of the tenant’s interest in the lease.

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2
Q

What is assignment?

A

A form of alienation.

Where a leasehold interest is sold or transferred.

May pay sum for leasehold interest, or consideration may be assignee agreeing to pay the rent and perform the other obligations of a tenant under the lease.

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3
Q

What happens after assignment?

A

The landlord become the landlord of the assignee.

New tenant now has exclusive possession of the premises and is obliged to pay the rent and perform the other tenant covenants.

Assignor is no longer entitled to use premises. (may still have liability for tenant covenants).

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4
Q

Why would a tenant want to assign?

A

May want to assign the premises if they no longer need them for the purposes of their business or cannot afford to keep paying rent.

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5
Q

What is a lease is silent on assignment?

A

If the lease is silent, then the tenant is free to assign. In practice, a commercial lease will likely require that before assignment, the tenant apply to the landlord for consent.

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6
Q

What type of covenant is a tenant’s covenant against assignment?

A

May be drafted as absolute, qualified or fully qualified.

Absolute means assignment is not allowed. Commercial leases will usually contain an absolute covenant against assignment of part of the premises. (landlord will not want a letting split into parts)

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7
Q

Qualified covenants against assignment

A

s19(1)(a) of the Landlord and Tenant Act 1927 converts a qualified covenant into a fully qualified covenant, meaning landlord must act reasonably if withholding consent and must give consent within a reasonable time

Usually a commercial lease will contain circumstances that parties agree are reasonable, and conditions that may be imposed on assignment.

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8
Q

What is privity of contract?

A

The ability of the original parties to a contract to enforce the obligations against each other, even after the contract has been assigned.

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9
Q

What is privity of estate?

A

The ability of the landlord and tenant for the time to enforce the provisions of a lease against each other.

Not all obligations are enforceable under privity of estate.

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10
Q

Assignor and assignee liability after assignment: leases before 1 January 1996

A

Under privity of contract, the original tenant remained liable to the landlord to pay the rent and perform other obligations.

Under privity of estate, limited obligations passed to new tenant. New tenant would have to covenant directly with the landlord to observe all the tenant’s covenants in the lease.

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11
Q

Assignor and assignee liability after assignment: leases on or after 1 January 1996

A

When a new lease is assigned, the original tenant is released from liability and all the tenant covenants are passed to the new tenant.

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12
Q

What is an authorised guarantee agreement?

A

An AGA is where the original tenant can agree to guarantee the obligations of the incoming tenant.

Only guarantees the next tenant. If subsequent assignment, outgoing tenant’s liability under the AGA ends. (old leases used to guarantee for whole of lease term).

Common as a condition of assignment in commercial leases. If the lease is silent as to AGAs the landlord can only insist on one if it reasonable to do so.

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13
Q

What are the pre-exchange steps during assignment for the landlord’s solicitor?

A
  • take instructions
  • confirm receipt of application, set out any requirements
  • if client wishes to proceed in principle, draft licence to assign and send to tenant’s solicitor
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14
Q

What are the pre-exchange steps during assignment for the tenant’s solicitor?

A
  • take instructions
  • apply for consent
  • prepare draft contract (if applicable) and deduce title, forward licence to assign to assignee’s solicitor
  • answer pre-contract enquiries
  • once agreed, engross the contact, obtain tenant’s signature and send engrossment to assignee’s solicitor
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15
Q

What are the pre-exchange steps during assignment for the assignee’s solicitor?

A
  • take instructions
    -assist tenant solicitor if anything needed for consent
  • review draft contract (if applicable) and investigate title, review and report on lease, review the licence to assign
  • raise pre-contract enquiries and searches
  • arrange for assignee to sign contract
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16
Q

What is an undertaking for costs?

A

A promise by a solicitor to pay costs. Breach of the undertaking may lead to disciplinary action by the SRA, and is enforceable by the courts.

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17
Q

Assignment - consent application

A

Will apply early on for consent from landlord to assign.

Landlord’s solicitor will want tenant’s solicitor to give an undertaking for costs to cover the landlord’s solicitor and surveyor’s costs in considering the application (will usually be capped).

After undertaking, landlord’s solicitor will draft a licence to assign.

18
Q

assignment - draft contract and lease

A

Important difference between grant of lease and assignment is that a new tenant has opportunity to negotiate lease, whereas assignee generally takes lease as is.

Any changes would require a deed of variation.

19
Q

Assignment - searches and enquiries

A

CPSE1 enquiries

CPSE4 enquiries (specific to assignment)

20
Q

Assignment - pre-completion

A

OS1 search if lease is registered.

Should prepare a completion statement (proportion of rent due).

Landlord will prepare licence in triplicate

Assignee will draft deed of assignment (form TR1), landlord not involved in this.

21
Q

Assignment: completion

A

Payment of completion monies and dating of the licence to assign and the deed of assignment.

22
Q

Assignment: Post-completion

A

Payment of SDLT and registering the lease. Assignee’s solicitor will send notice of assignment to the landlord’s solicitor.

23
Q

What is underletting?

A

A form of alienation.

Unlike assignment does not pass its leasehold interest on entirely, but instead grants an underlease to an undertenant.

Tenant remains the tenant of the landlord, and must pay rent and ensure obligations are performed.

The tenant, however, receives rent from the undertenant. Tenant can also enforce the undertenant’s covenants to ensure the tenant does not fall foul of its own covenants.

24
Q

Are there time constraints for underletting?

A

The lease must be for a shorter term than the lease itself, even if only a day shorter.

25
Q

When are underlettings permitted?

A

If the lease is silent, the the tenant is free to underlet.

Usually a commercial lease will impose a requirement of consent and will want to vet prospective undertenants.

Underlettings of part may be permitted if practical.

26
Q

Qualified covenants against underletting

A

A qualified covenant against underletting is automatically converted to a fully qualified covenant and the decision must be made within a reasonable time.

26
Q

Restricting underletting

A

Landlord will often restrict underletting e.g. at a rent no lower than in the tenant’s lease

27
Q

Undertenant’s liabilities to landlord

A

Neither privity of contract nor privity of estate between the landlord and the undertenant.

Landlord unable to enforce covenants against the undertenant.

A direct covenant can be given by the undertenant in the licence to underlet.

27
Q

Drafting underlease

A

Tenant’s solicitor drafts the underlease.

Term must be less than remaining term of the tenant’s lease.

May be a full form lease or lease by reference (referring to tenant’s lease).

28
Q

Agreement for underlease

A

If wants to ‘exchange’ (which is not always necessary), tenant’s solicitor will draft an agreement for underlease.

29
Q

Underletting - searches and enquiries

A

Generally carry out same searches and enquires as in a grant of lease.

Must deduce leasehold title as follows:

  • if lease is over 7 years; then tenant will need only provide an official copy of its registered leasehold title
  • if 7 years or less, tenant will need to provide an official copy of the landlord’s freehold title together with a copy of the lease.
30
Q

Pre-completion (underletting) searches:

A

Underletting whole of property: OS1

Underletting part of the property: OS2

If not registrable - OS3

carried out against tenant’s interest.

31
Q

Who drafts what on an underletting of an FRI lease?

A

The landlord’s solicitor drafts the licence to underlet and the tenant’s solicitor drafts the underlease.

32
Q

How do landlord’s give consent for assignment or underletting?

A

Usually require consent is given by deed.

Deeds:

  • licence for assignment
  • licence for underletting
33
Q

What are licences (alienation)?

A

Deeds by which landlords consent to assignment and underletting.

34
Q

When must a notice of dealing be served?

A

Assignee (assignment) and Tenant (underletting) are required to give the landlord formal notice within a month that the transaction has been completed.

35
Q

What is charging a lease?

A

Where a tenant creates a charge over their lease (like a freehold owner charges interest to mortgage lender).

36
Q

What is sharing occupation?

A

Where a tenant wants to share occupation with a third party without creating an underlease.

Usually a commercial lease will allow sharing with group companies.

37
Q

Important requirements from 2020 Code for Leasing Business Premises

A
  • Lease should allow tenants to assign or underlet the whole of the premises with the landlord’s consent not to be unreasonably withheld or delayed.
  • Leases should allow tenants to share with group companies without consent.
  • Leases should allow tenants to charge the lease to a bank or reputable lending institution without consent.
38
Q

What happens if the landlord’s consent has not been obtained by the completion date in the contract?

A

Under the SCs, either party may rescind the contract by notice if the landlord’s consent has not been given three working days before completion date, but the contract does not terminate automatically and the parties may chose not to rescind if they both still want the assignment to go ahead and believe that the landlord’s consent will be forthcoming after an acceptable delay.

The assignor and the assignee can agree to defer completion to a later date when the landlord’s consent has been obtained.

39
Q

Can a landlord insist on an authorised guarantee agreement?

A

Whether a landlord is entitles to insist on an AGA from the assignor depends on the terms of the lease.

If the need for an AGA is in the lease as a pre-condition for giving consent to assignment the landlord can insist whether or not it is reasonable.

If not a provision in the lease the landlord can only insist on an AGA if it reasonable.

40
Q

Residential conveyancers do not often deal with licences to assign. Why not?

A

Because most long leases do not require landlord’s consent to an assignment.

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