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Property Law and Practice (V) > Alienation > Flashcards

Alienation Flashcards

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1
Q

What is alienation?

A

A disposal of all or part of the tenant’s interest in the lease

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2
Q

What interest does the grant of a lease create?

A

A leasehold interest

Can be sold/transferred to a new owner just like a freehold can

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3
Q

What is assignment? Will this be paid for?

A

Essentially selling (transferring) leasehold - assignee may pay for leasehold interest or simply agree to pay rent and perform other obligations of tenant under lease

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4
Q

What happens in the process of assignment?

To 1) the landlord 2) assignee 3) assignor

A
  1. Landlord becomes the landlord of the assignee
  2. New tenant entitled to exclusive possession and obliged to pay rent/perform other tenant covenants
  3. Assignor is no longer entitled to use premises and (generally) need not pay rent/perform other tenant covenants
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5
Q

Why would an assignment happen?

A

Tenant may no longer need premise for purposes of business or cannot afford to keep paying rent

Assignee may be happy to take the lease!

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6
Q

What is the rule on assignment if a lease is silent?

A

The tenant is free to assign

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7
Q

In practice, what needs to be obtained before the tenant can assign?

In a commercial lease

A

Consent of the landlord

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8
Q

How might the covenant against assignment be drafted?

A

Absolute, qualified or fully qualified

Will usually have an absolute covenant re assignment of part - landlord will not want a letting split into parts (creates various problems)

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9
Q

Does an absolute covenant against alienation mean the tenant cannot ask for consent?

A

No, the tenant can ask for consent, but the landlord is not obliged to consider it

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10
Q

What happens to qualified covenants against assignment?

And all types of alienation!!

A

They are converted by statute into a fully qualified covenant

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11
Q

By law, when must a landlord give decision on consent to assign by?

A

Within a reasonable time (usually 28 days)

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12
Q

When might it be reasonable to withhold consent?

A
  • Justifiable concerns about the assignee’s ability to pay the rent
  • Proposed use* of premises (e.g. policy on mixing different types of shop)

  • Use here meaning what it will be used for not in the legal sense. If use class was different the tenant would need to submit application for change of use as well as permission to assign
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13
Q

Can the landlord withhold consent on grounds such as a personal dislike or discriminate?

A

No - grounds must be related to the landlord/tenant relationship

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14
Q

If the landlord does not act reaosonably in withholding/delaying consent, what may the tenant be entitled to?

A

Damages (including costs for agents and solicitors)

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15
Q

What will the landlord and tenant agree to contractually that will be automatically reasonable?

A
  • Circumstances that will be reasonable grounds for withholding consent (e.g. behind on rent)
  • Conditions that may be imposed on assignment
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16
Q

What is the difference between privity of contract and privity of estate?

A
  • Privity of contract = ability of original parties to contract to enforce obligations against each other
  • Privity of estate = ability of landlord and tenant to enforce provisions of a lease against each other
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17
Q

What is the rule on assignor and assignee’s liabilities after assignment for old leases?

Leases granted before 1 Jan 1996

A
  • The original tenant remained liable to landlord (rent and obligations) under privity of contract.
  • Limited obligations passed to new tenant under privity of estate - new tenant would have to covenant with landlord directly

Old tenant is effectively a guarantor

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18
Q

What is the rule on assignor and assignee’s liabilities after assignment for new leases?

On or after 1 Jan 1996

A

Original tenant is released from liability and all of the tenant covenants pass to the new tenant

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19
Q

How can original tenant agree to guarantee the obligations of an incoming tenant?

A

An Authorised Guarantee Agreement (AGA)

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20
Q

When/why will a tenant enter into an AGA?

A
  • When it is a condition of assignment
  • If lease silent = when reasonable to do so
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21
Q

What is the effect of an AGA?

How long does it last?

A

The outgoing tenant guarantees the next tenant only

Subsequent assignment (byassignee) ends outgoing tenant’s AGA liability

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22
Q

What are the stages of an assignment procedure?

VERY SIMILAR TO FREEHOLD TRANSACTION

A
  1. Pre-exchange
  2. Exchange (if applicable)
  3. Pre-completion
  4. Post-completion

Similar to freehold transaction

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23
Q

What does the landlord’s solicitor do at pre-exchange?

A

Confirms receipt of application, sets out requirements, and draft licence to assign

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24
Q

What does the tenant’s solicitor do at pre-exchange?

A
  • Apply for consent
  • Prepare draft contract (for exchange if applicable)
  • Deduce title
  • Forward licence to assign to assignee’s solicitor
  • Answer pre-contract enquiries
  • Engross contract, obtain tenant’s signature and send engrossment to assignee’s solicitor (once agreed)
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25
Q

What does an assignee’s solicitor do at pre-exchange?

A
  • Assist tenant’s solicitor with consent (if needed)
  • Review draft contract
  • Investigate title
  • Review and report on lease
  • Review licence to assign
  • Raise pre-contract enquiries and searches
  • Arrange for assignee to sign contract
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26
Q

What will tenant’s solicitor typically do first?

A

Apply to landlord for consent

Transaction hinges on this

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27
Q

What will the landlord’s solicitor ask the tenant’s solicitor to give?

A

An undertaking for costs

Cover landlord’s solicitor’s and surveyor’s costs

Will be capped

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28
Q

Who drafts and amends the licence to assign?

A

Landlord’s solicitor drafts it, all three parties will want to amend it and agree on final form

The Landlord will draft the Licence to assign

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29
Q

How does the tenant’s solicitor deduce title?

A

Provides official copies for leasehold title (or landlord’s title if it is not a registered lease (7 years or less and not registered!))

Copy of lease provided in any event

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30
Q

Who will be a party to the draft contract of assignment?

NB draft contract only if intend to exchange (e.g. parties anxious to bind themselves to the assignment subject to landlord’s consent)

A

Assignor and assignee

Not the landlord

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31
Q

Will a tenant have the opportunity to negotiate the lease?

A

Not usually - will often take the lease as it is

Only in rare instances might landlord agree through deed of variation

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32
Q

How will the assignee’s solicitor investigate title once solicitor has deduced if lease is a) registered b) unregistered?

A

a) Can rely on leasehold official copies
b) Will investigate landlord’s title

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33
Q

What pre-contract enquiries are raised by an assignee’s solicitor?

A
  • CSPE 1 (as in a commercial freehold transaction)
  • CSPE 4 (specific to assignment of lease)

Will ideally exercise same care as if they were buying freehold

CSPE 4 = CSPE A = Assignment

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34
Q

Will assignee’s solicitors always carry out full investigations?

A

May agree with assignee that not justified for a very short lease with limited obligations

Here - should be advised of risks!

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35
Q

What happens on exchange of contracts? What will it specify?

If there is exchange

A
  • Exchange like a freehold (Law Society B)
  • No deposit usually payable for assignment (10% for long residential)
  • Contract may set a fixed completion date or set condition
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36
Q

What will the landlord’s solicitor do at pre-completion?

A
  • Engross licence to assign in triplicate (3 copies) - arrange for landlord to execute one copy
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37
Q

What will the tenant’s solicitor do at pre-completion?

A
  • Arrange for tenant to execute one copy of licence to assign
  • Prepare and send completion statement detailing money due on completion (apportioned annual rent, service charge, insurance rent)
  • Respond to requisitions on title
  • Approve deed of assignment and arrange for tenant to execute
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38
Q

What does the assignee’s solicitor do at pre-completion?

A
  • Arrange for assignee to execute one copy of licence to assign
  • Obtain funds from assignee needed to complete as per completion statement
  • Raise requisitions on title
  • Raise pre-completion searches
  • Draft deed of assignment
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39
Q

Who drafts the completion statement and what will it contain?

A
  • Drafted by tenant’s solicitor
  • Will calculate proportion of rents due under lease (attributable to tenant and assignee)

E.g. lease assigned halfway through current quarter and has paid full quarter in advance - completion statement requires assignee to pay half of quarter to tenant

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40
Q

What pre-completion search is carried out?

If lease is registered

A

OS1 search for whole of tenant’s leasehold title

41
Q

Why does it not matter if the lease is part or whole (of landlord’s freehold title)?

A

Is not the landlord’s title being searched

42
Q

Why does the landlord prepare the licence to assign in triplicate?

A

All 3 parties will want a signed copy on completion

43
Q

What form will the assignee draft the deed of assignment in?

A

TR1 (as for a registered freehold)

44
Q

Who drafts the deed of assignment? Who is not involved?

A

Assignee drafts and sends to tenant solicitor to execute

Landlord not involved

45
Q

What 3 things happen on completion?

A
  1. Assignee’s solicitor sends tenant’s solicitor the completion monies
  2. The landlord’s solicitor, tenant’s solicitor and assignee’s solicitor agree over telephone to complete/date licence to assign
  3. The tenant’s solicitor and assignee’s solicitor agree over the telephone to complete/date deed of assignment
46
Q

What happes at post-completion?

A

Assignee’s solicitor:

  • Arranges to submit SDLT/LTT return and pay
  • Registers assignment if necessary
  • Sends formal notice of assignment to landlord’s solicitor
47
Q

How does underletting differ from assignment?

Subletting, sublease, subtenant = underletting, underlease, undertenant

Landlord, tenant, undertenant = headlandlord, landlord, tenant

A

Tenant does not pass leasehold interest on entirely but grants an underlease to an undertenant for a period shorter than the lease itself

Could be only a day shorter

48
Q

Following an underletting, who pays rent to the landlord and ensures obligations are performed?

A

The original tenant - receives rent from undertenant (used to pay rent under own lease) and can enforce undertenant’s covenants (to ensure they do not fall foul of their own)

49
Q

Why would a tenant want to underlet their premises?

A
  • Not using all of premises (can underlet part)
  • Do not need premises atm but will in future
  • They cannot find a willing assignee but can find willing undertenant
50
Q

Can the tenant underlet if the lease is silent?

A

Yes

Commercial lease will impose requirement of consent + want to vet prospective tenants

51
Q

Is an underletting of part permitted?

Presuming lease is silent

A

If practical to separate the premises

52
Q

Are qualified covenants against underletting also automatically converted to a fully qualified covenant? Must decisions also be made within a reasonable time?

As with assignment

A

Yes!

Considerations re withholding consent reasonably also the same

Commercial lease may contain:
* Absolute covenant against underlettings of part, except for permitted part
* Fully qualified covenant against underlettings of whole or permitted part

53
Q

Will lease covenants regulating underletting also specify conditions and circumstances on which consent may be reasonably withheld?

A

No - transaction less risky for landlord as tenant remains primarily liable

But landlord will normally still restrict underletting in commercial lease - concerned with what would happen if undertenant became direct tenant

54
Q

In what ways will the lease typically prevent the tenant from underletting?

A

Cannot underlet:

  • Together with property that does not belong to landlord
  • On payment of a lump sum (likely means tenant not paying market rent)
  • With a rent free period beyond what is normal in that market
55
Q

What will the lease likely require re rent and covenants of the underletting?

A
  • Rent is no lower than in tenant’s lease
  • Contains covenants no less onerous than in tenant’s lease
56
Q

What are the implications for privity of contract and privity of estate in an underletting?

A

Both types of privity exist between landlord/tenant and tenant/undertenant

57
Q

As they cannot enforce covenants against undertenant, how will a landlord protect themselves?

A

Will covenant directly with undertenant (usually in licence to underlet)

58
Q

Is there an AGA equivalent in underletting?

A

No - the tenants remain liable to the landlord in any case

59
Q

Is the process of underletting a grant of lease transaction?

A

Yes

NB EXCHANGE FOR AGREEMENT FOR UNDERLEASE MAY BE SKIPPED AND PRE-EXCHANGE AND PRE-COMPLETION WOULD BE MERGED

60
Q

What does the landlord’s solicitor do at pre-exchange?

A
  • Consider application to underlet
  • Request undertaking for costs and issue draft licence to underlet to tenant’s solicitor
61
Q

What does the tenant’s solicitor do at pre-exchange?

A
  • Apply for consent to underlet
  • Prepare draft underlease (and agreement for underlease if there is to be an exchange)
  • Review draft licence to underlet and send copy to undertenant
  • Deduce title and response to queries on title
  • Answer pre-contract enquiries
  • Once agreed, engross agreement for underlease, obtain tenant’s signature and send counterpart to undertenant’s solicitor
62
Q

What does the undertenant’s solicitor do at pre-exchange?

A
  • Review draft underlease (and agreement for underlease) and amend as required
  • Review draft licence to underlet
  • Investigate title and raise queries on title
  • Raise pre-contract enquiries and searches
  • Arrange for undertenant to sign counterpart lease
63
Q

What will the landlord’s solicitor do after they give consent and secure an undertaking for costs from tenant’s solicitor?

A

Draft the licence to underlet and want to see draft underlease

64
Q

Why will a landord want to see the draft underlease?

A

To ensure it will comply with tenant’s obligations under lease

65
Q

Who drafts the underlease?

A

The tenant’s solicitor

66
Q

Can the tenant granting the underlease be broad in the provisions they can offer?

A

No - very limited as will usually require the underlease to contain obligations no less onerous than the tenant’s

E.g. full repairing covenant in lease = same in underlease

67
Q

How long must the term granted by the underlease be?

A

Less than the remaining term of the tenant’s lease

68
Q

What 2 forms may the underlease take?

A
  1. Full form lease (similar to tenant’s own lease)
  2. Lease by reference (incorporates sections of the tenant’s lease by reference)
69
Q

If there is an agreement for lease, what will this set?

A

Completion date or conditions

70
Q

What is the difference between granting a lease and granting an underlease in deducing title?

A

The tenant needs to deduce its leasehold title (rather than landlord deducing freehold title)

71
Q

What does the tenant need to provide if the lease is
1. Over 7 years
2. 7 years or under

A
  1. Official copy of registered leasehold title
  2. Official copy of landlord’s freehold title together with copy of lease

Rmb - only registrable if over 7 years!! There would be no official copies of leasehold if under so would have to show freehold title

72
Q

What happens on exchange of an underlease?

A
  • Exchange in similar manner to freehold contract (Law Society B)
  • No deposit usually payable
  • Draft of agreed underlease usually annexed
73
Q

What does the landlord’s solicitor do at pre-completion?

A

Engross agreed form of licence to underlet and circulate for execution and obtain landlord’s execution for licence to underlet

74
Q

What does the tenant’s solicitor do at pre-completion?

A
  • Prepare original and counterpart underlease, obtain tenant’s signature for original and send counterpart to undertenant
  • Prepare and send a completion statement detailing money due
  • Obtain tenant’s execution to licence to underlet
75
Q

What does the undertenant’s solicitor do at pre-completion?

A
  • Arrange for undertenant to sign counterpart lease
  • Obtain funds from client needed to complete as per completion statement
  • Raise pre-completion searches
  • Obtain undertenant’s execution to licence to underlet
76
Q

Does the completion statement set out the rent under the tenant’s lease?

A

No - it sets out the underlease rent that is payable. Will likely require appropriate sum for service charge and insurance rent also

77
Q

When is an OS1 search against the tenant’s registered leasehold title used for an underlease?

A

When underletting the whole of the tenant’s lease

78
Q

When is an OS2 search carried out against the appropriate part of the tenant’s registered leasehold title?

A

When underletting part of tenant’s interest

79
Q

When may an OS3 search be carried out against the tenant’s interest? What does it check?

A

Where underlease is not registrable (under 7 years) to check whether any adverse entries have been made since date of last copy of tenant’s title register

Any underlease under 7 years will be an OS3

80
Q

What do all the parties do on completion of the underlease?

A

Agree to date and complete the licence to underlet

81
Q

What do the tenant’s solicitor and undertenant’s solicitor do on completion?

With the underleases!

A
  • Agree over the telephone to complete and date the executed underleases they are holding
  • Send the completed original and counterpart underleases to each other
82
Q

What does the undertenant’s solicitor send to the tenant’s solicitor?

A

The completion monies

83
Q

What does the tenant’s solicitor do at post-completion?

A

Send notice of the underlease to the landlord’s solicitor

84
Q

What does the undertenant’s solicitor do at post-completion?

A

Arrange to submit and pay SDLT/LTT if necessary and register underlease if necessary - lease and licence to underlet will also often provide that landlord notified when underlease completes

85
Q

Reminders

A

Assignment procedure is similar to a freehold transaction

  • Licence to assign (a deed drafted by landlord and signed by landlord, assignor, assignee)
  • Deed of assignment (drafted by assignee and signed by assignee and assignor)

Underletting procedure is similar to grant of a lease transaction

  • Licence for underletting (a deed drafted by landlord and signed by landlord, tenant and undertenant)
  • Underlease (+ counterpart drafted by tenant and signed by tenant and subtenant)
86
Q

What deeds give consent for assignment or underletting and who signs them?

A

Licence for assignment or licence for underletting. All 3 parties sign them

87
Q

Why is the use of a deed safer from the landlord’s point of view?

A

Lowers the risk that the landlord inadvertently consents to something it doesn’t mean to

88
Q

What will the licence contain to relieve landlord’s concern of an indefinite process?

A

A time limit

89
Q

When will the licence be completed in practice?

A

Just before completion of transaction itself

90
Q

Does a licence to assign/underlet contain as many obligations as a licence for alterations?

A

No - contains much fewer obligations

91
Q

What will the licence for the assignment of an old lease or an underletting contain?

A

A direct covenant by the assignee or undertenant to comply with the tenant covenants in the tenant’s lease

92
Q

Will a direct covenant be necessary in the licence for assignment of a new lease?

A

No but landlord may want it anyway

93
Q

What does the outgoing tenant give that can also be contained in the licence to assign or be a standalone deed?

A

Authorised guarantee agreement

94
Q

What must the assignee (following assignment) or tenant (following underletting) give the landlord within a month?

A

Formal notice that the transaction has been completed (will usually be a fee for landlord’s solicitors receipting this notice)

95
Q

For a long residential lease, what does an assignment or short tenancy underlease not require?

A

The landlord’s consent - but notice of dealing remains

96
Q

A charge is another type of alienation. When would this be done by 1. a commercial tenant and 2. a residential leaseholder?

A
  1. As part of a floating charge over their business generally (bank wants benefit of lease if business insolvent)
  2. When taking a mortgage
97
Q

Share occupation is another type of alienation. Will a commercial lease allow this?

A

Usually if sharing with group companies (landlord can regard the tenant and group companies as a single entity and enforce covenants against the tenant)

98
Q

What are the Code’s requirements on alienation?

Re group companies, and charging

A
  • Lease should allow tenants to assign/underlet whole of premises with 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

Property Law and Practice (V) (11 decks)

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