Alienation

Question 1

What is assignment?

Answer 1

Sale or transfer of the leasehold interest, assigned by the current tenant (“Assignor”) to the new tenant (“assignee”).

Assignee may pay for the leasehold interest at a premium or may agree to pay the rent and perform covenants under the lease.

Question 2

What are the formalities for an assignment?

Answer 2

1. License to assign (deed)
   * Clear on its face as a deed
   * signed + witnessed
   * Dated
2. AGA
   * May be in License to Assign or standalone deed
3. Amend proprietorship register
   * if property is registered
   * No short lease exception applies.

Question 3

In what circumstances can a tenant assign the lease?

Answer 3

It depends on the terms of the lease, there may be an absolute, qualified or fully qualified covenant against assignment (see land law).

Usually, commercial leases contain an absolute covenant against assignment of part.

Question 4

What are the consequences for the assignor (outgoing tenant) of assignment?

Answer 4

Old Lease
* Remains liable for covenants breached by incoming tenant (assignee);
* Should ensure assignee directly covenants with landlord.

New Lease
* outgoing tenant automatically released from liability (EXCEPT if assignation is in breach of alienation covenant or breach occurred before assignation)
* May be conditional consent, may have given an AGA.

Question 5

What is the procedure for a tenant’s solicitor before exchanging contracts for an assignment?

Answer 5

Apply for consent to assign if required, prepare a draft lease agreement, forward the license to assign to the assignee’s solicitor, and answer pre-contract enquiries.

Question 6

What must the assignee’s solicitor do before exchanging contracts for an assignment?

Answer 6

Supply necessary documents for consent, review the draft lease agreement, investigate the title, review and report on the lease and license to assign, and raise pre-contract enquiries and searches.

Question 7

What are the steps for a landlord’s solicitor before exchanging contracts for an assignment?

Answer 7

Confirm receipt of the application for consent to assign, set out any requirements (i.e undertaking for costs), draft the license to assign, and send it to the tenant’s solicitor.

Question 8

What is required in a consent application for an assignment?

Answer 8

It should be done early in the transaction, usually not required for long leases, and include an undertaking for costs from the tenant’s solicitor to cover the landlord’s solicitors and surveyors’ costs.

Question 9

What does deducing title involve in the assignment process?

Answer 9

1. If the lease is registered, look at the official copies.
2. If the lease is unregistered, look at the landlord’s title.
3. Answer CPSE 1 and CPSE 4

Question 10

What is the procedure for completion of assignation from the tenant’s solicitor’s perspective?

Answer 10

1. Tenant executes license to assign
2. Tenant’s solicitor prepares and sends completion statement
3. Solicitor responds to requisitions on title
4. Solicitor approves deed of assignment and tenant executes
5. Agree with assignee solicitor date to complete.

Question 11

What is the procedure for completion on assignation from the perspective of the assignee’s solicitor?

Answer 11

1. Assignee executes license to assign
2. Obtain funds from assignee
3. Raise requisitions on title
4. Raise pre-completion searches (OS1, OS2, OS3)
5. Draft deed of assignment
6. Send completion monies
7. Arrange to submit SDLT or LTT return and pay this
8. Register assignment if lease registered
9. Send formal notice of assignment to landlord

Question 12

What is the procedure for completion on assignment from the landlord’s solicitor’s perspective?

Answer 12

Engross the license to assign (3 copies) and execute.

Question 13

What is underletting?

Answer 13

A tenant grants a lease out of its existing leasehold (the head lease) to the subtenant.

• Must be for a shorter term than the headlease.

Question 14

What are the formalities for underletting?

Answer 14

1. Deed of Underletting
2. Short lease exception applies
3. May need to be registered in proprietorship register
4. License to underlet

Question 15

What are the restrictons on underletting typically imposed in commercial leases?

Answer 15

• Qualified alienation covenant (automatically upgraded to fully qualified)
• Absolute covenant against underletting of part
• Prevents underletting together with property not belonging to landlord, on payment of lump sum or rent free period longer than market standard.

Requires that underlease is at rent no lower than tenant’s rent and contains same covenants or more onerous ones.

Question 16

How is liability after underletting managed?

Answer 16

Privity of contract and estate exist only between tenant and undertenant, tenant is liable for undertenant’s breaches and no AGA.

Landlord should directly covenant with undertenant (i.e in License to Underlet). For new leases, can enforce restrictive covenants against any occupier of land (LTCA 1995, s 3(5)).

Question 17

What is the procedure for underletting pre-exchange?

Answer 17

Tenant’s Solicitor
* Applies for consent to underlet
* Draft lease + agreement to underlease (if required)
* Deduce tenant’s title and respond to enquiries
* Engross agreement, obtain tenant’s signature and send to undertenant.

Undertenant’s Solicitor
* Review draft lease and agreement for lease and amend
* Review draft License to underlet
* Investigate title and raise enquiries
* Pre-contract enquiries and searches
* Sign underlease

Landlord’s Solicitor
* Consider app to underlet
* Request undertaking for costs
* Issue License to Underlet

Question 18

How can the landlord protect itself in an assignment or underletting situation?

Answer 18

Enter direct covenants with the assignee or subtenant to comply with the covenants or, in the case of an assigned new lease, provide an AGA.

Question 19

What must an outgoing tenant or undertenant do after completing an assignment or underletting?

Answer 19

Give the landlord formal notice of the transaction within one month of completion and pay the landlord’s solicitor’s fee for receipting notice.

Question 20

What does the RICS Code for Leasing Business Premises recommend regarding alienation covenants?

Answer 20

Leases should allow tenants to assign or underlet the whole, share with group companies without consent, and charge the lease to reputable lending institutions without consent.