Alienation Flashcards
What is alienation
Where the tenant disclaims his interest in a lease by, for instance, underletting it or assigning it
What is privity of contract?
Contractual link that exists between the parties who have signed a contract containing rights and obligations
What is privity of estate?
Link that exists between the parties who both hold an interest in the same piece of land.
Where privity of estate exists one party can sue the other for non-observance of any covenants that relate to the land.
What is Assignment?
Where the tenant (“the assignor” transfers their remaining interest in a lease to another person (“the assignee”). The assignee will become the immediate tenant under the landlord.
After an assignment has occurred, privity of estate will exist between the landlord and the assignee. However, privity of contract in relation to that same lease remains between the landlord and the assignor. No new lease has been created and its not possible to change the terms of that lease unless the landlord consents to the change.
What is the procedure for assigning a lease?
- Investigation of title (Assignee)
- Landlord’s consent and license to assign
- Lenders consent
- Documentation and Registration
- Assignment of a registered lease
- Assignment of an unregistered lease
- SDLT
Investigation of Title (Assignee) (assignment)
This is the first step in the procedure for assigning a lease.
The assignee will investigate the landlord’s freehold title and any relevant docs relating to the lease that they are to take on by way of assignment.
Landlord’s consent and license to assign ((assignment)
Ensure that there is a license to assign - this is a document where the landlord grants permission to the current tenant to assign the lease.
The parties to a license to assign are the current tenant (the assignor), the assignee and the landlord. This ensures that privity of contract exists between the assignee and the landlord
The assignee will make the following covenants to the landlord:
- to observe and perform the covenants in the lease (i.e. original lease between the assignor and the landlord)
- to notify the landlord once the lease has finished
The tenant will make the following covenants to the landlord
- to ensure the assignee does not take posession prior to the assignment being completed. If the assignee takes possession before having signed their covenants, the assignee could be protected by security of tenure (since occupation is one of the requirements of security of tenure)
- to pay the landlords costs in relation to the giving of consent
Lender’s Consent (assignment)
If the landlord’s title and/or the current tenant’s title are subject to a mortgage, consent of the lender may be required before the lease can be assigned
Documentation and Registration (Assignment of a registered lease) (assignment)
An assignment constitutes the sale of an interest in land and must therefore be effected by deed per s.52 of the LPA (if the original lease was registered, form TR1 should be used to record the assignment).
ASSIGNMENT OF A REGISTERED LEASE
An assignment of a registered lease must always be registered at the land registry through using AP1 form. The following documents are required:
- the deed of assignment (TR1)
- A copy of the lease
- if the assignee is mortgaging the lease, the mortgage deed or the debenture and the companies house registration certificate if the tenant is a company
- SDLT5 certificate
- consent from any relevant lender or evidence that any mortgage has been discharged
Documentation and Registration (Assignment of an unregistered lease) (assignment)
An assignment of an unregistered lease most only be registered if the lease has more than 7 years left. This is done using form FR1 if the landlord’s title is also unregistered or Form AP if the landlord’s title is registered.
The following documents are required for the registration of an unregistered lease:
- the deed of assignment (TR1)
- A copy of the lease
- if the assignee is mortgaging the lease, the mortgage deed or the debenture and the companies house registration certificate if the tenant is a company
- SDLT5 certificate
- consent from any relevant lender or evidence that any mortgage has been discharged
SDLT(assignment)
SDLT will only be paid by the buyer if any premium is paid by the assignee to the assignor (unusual for commercial assignments)
What is original tenant liability (assignment)
For leases granted before 1 January 1996 the original (first) tenant that assigned the lease remains liable for the lease. Thus the original tenant can be liable to the landlord for any breach by the assignee.
What is an authorised guarantee agreement?(assignment)
Common condition attached to landlord’s consent of an assignment.
The outgoing tenant enters into an AGA promising to perform the incoming assignees obligations unde\er the new lease if it defaults.
**Note that an AGA is a guarantee by the outgoing tenant of the immediate assignee’s obligations ONY.
What is the new position for leases granted after 1 January 1996 (without original tenant liability) (assignment)
As a result of the changes brought about by the LTA (Covenant) Act 1995, a tenant will be automatically released from all covenants in the lease following the assignment.
What is an underlease/sublease?
Where a tenant grants a lease out if its own lease?
- Tenants can transfer the property to a new tenant for only part of the duration for which the lease is due to run
- they can transfer an interest in only part of the property as opposed to whole thing
- term of an underlease must always be less than a headlease, otherwise it takes effect as an assignment (Milmo v Carreras)
What is the procedure for underletting a lease? (underletting/sublease)
- Investigation of title
- Landlords consent and license to underlet
- Lenders consent
- Documentation and registration
- Investigation of title (underletting/sublease)
The undertenant will investigate the landlord’s freehold title and any other relevant documents.
- Landlord’s consent and license to underlet
Consent to underlet is typically contained in a license to underlet.
A license to underlet is a document containing the landlord’s permission to the current tenant to underlet.
The undertenant will make the gollowing covenants to the landlord:
- to observe and perform the covenants in the underlease (the lease signed between the tenant and the undertenant)
What is a license to underlet?
The document in which the landlord grants permission to the current tenant to underlet. There are 3 parties to a license to undetlet: the landlord, the tenant and the undertenant so as to give the landlord the benefit of privity of contract between the undertenant and the landlord.
What case says that the term of an underlease must always be less than the headlease?
Milmo v Carreras
