Alienation MCQs Flashcards
You act for an individual landlord who has received an application to underlet one of their units to a sole proprietor. The sole proprietor has a successful business, plenty of capital and excellent tenant references and credit score. However, the landlord knows the sole proprietor from a club that they both belong to, and they have had a falling out. For that reason alone, the landlord does not want to grant the consent.
How do you advise the landlord?
The landlord cannot unreasonably withhold consent, but given that the underlessee might end up being the direct tenant of the landlord, it is reasonable to take their personal relationship into account as it might make their business relationship unworkable.
The landlord is required to act reasonably if withholding consent, and personal feelings are not a reasonable ground for withholding consent. The landlord will likely have to give consent within a reasonable time.
The landlord can unreasonably withhold consent as it is only a qualified covenant.
The landlord cannot unreasonably withhold consent, but it is reasonable to withhold consent to a sole proprietor as their covenant strength is less than a company’s.
The landlord is required to act reasonably if withholding consent, and personal feelings are not a reasonable ground for withholding consent. The landlord may, however, stall for time and hope that the proposed underletting falls through.
The landlord is required to act reasonably if withholding consent, and personal feelings are not a reasonable ground for withholding consent. The landlord will likely have to give consent within a reasonable time.
Correct.
This is a qualified covenant against underletting (the landlord’s consent is required), which is automatically upgraded to a fully qualified covenant (s19(1)(a) Landlord and Tenant Act 1927). Furthermore, the landlord must make a decision within a reasonable time (s1, Landlord and Tenant Act 1988).
As the prospective underlessee has good covenant strength, and the landlord’s only objection is their personal relationship, it is likely that the landlord will have to give consent within a reasonable time.
A 20 year lease is dated 1 July 2010. The tenant when the lease was granted was a clothes shop. The clothes shop lawfully assigned the lease to a bookstore and entered into an authorised guarantee agreement (AGA). The bookstore, two years later, lawfully assigned the lease to a dry cleaners and entered into an AGA. The dry cleaners still occupy the premises under the lease. The dry cleaners are struggling to pay their rent and the landlord wants to know who it can pursue for the rent arrears.
Which one of the following is the most accurate list of those the landlord can pursue for the rent arrears?
The clothes shop, the bookstore and the dry cleaners.
The dry cleaners only.
The clothes shop only.
The clothes shop and the dry cleaners.
The bookstore and the dry cleaners.
The bookstore and the dry cleaners.
Correct.
The dry cleaners are the current tenant and are liable to pay the rent. The bookstore gave an AGA to the landlord in respect of the dry cleaners when they assigned to the dry cleaners. The landlord can therefore claim from the bookstore under the AGA.
The original tenant (the clothes shop) will not have any original tenant liability as this is a new lease. The clothes shop’s AGA only covered the bookstore whilst they were the tenant.
A tenant has a registered lease dated before 1 January 1996. The tenant is assigning the lease to an assignee. The landlord has consented to the assignment and has asked you to draft the relevant documentation.
Which one of the following is the correct list of the documents that will be need to be prepared for execution?
Licence to assign and deed of assignment.
Licence to assign, authorised guarantee agreement and TR1
Licence to assign, authorised guarantee agreement and the lease.
Licence to assign and TR1
Licence to assign and the lease.
Licence to assign and TR1
Correct.
A licence to assign is needed to document the landlord’s consent.
As the lease is registered, the assignment will need to be documented by way of Land Registry’s standard transfer deed TR1.
An assignment is the sale of an existing lease, not the creation of a new lease. There will be no new lease granted to the assignee.
You act for an assignee taking the remaining 3 years of a 10 year term. The assignment is about to complete. The immediate landlord of the current tenant is the freeholder.
Which pre-completion searches should you undertake?
An OS3 search as the assignment is for 3 years and therefore not registrable.
An OS1 search of the landlord’s freehold title (or if the landlord’s title is unregistered a central land charges search against the landlord’s name for the landlord’s period of ownership) and an OS1 search against the tenant’s leasehold title.
An OS1 search of the tenant’s leasehold title.
An OS1 search of the landlord’s freehold title (or if the landlord’s title is unregistered a central land charges search against the landlord’s name for the landlord’s period of ownership), but as there is only 3 years left on the lease, no search against the leasehold.
An OS2 search of the relevant premises against the landlord’s freehold title.
An OS1 search of the tenant’s leasehold title.
Correct. As the original lease was over 7 years, it would have been registered. It is the tenant’s title that the assignee is interested in.
A tenant, A Ltd, has applied for consent to assign a five year lease to the assignee, B Ltd. The lease is dated after 1 January 1996.
You act for the landlord, who has asked you to advise who would be liable for the obligations of the lease after the assignment. How would you advise?
The outgoing tenant if they entered into an authorised guarantee agreement, and the incoming tenant automatically on taking the assignment.
The incoming tenant if the landlord requires an authorised guarantee agreement; otherwise the outgoing tenant retains liability.
Both the outgoing tenant and the incoming tenant as it is a new lease.
The incoming tenant provided that they give a direct covenant to the landlord to observe the obligations of the lease.
The outgoing tenant unless they enter into an authorised guarantee agreement, and the incoming tenant automatically on taking the assignment.
The outgoing tenant if they entered into an authorised guarantee agreement, and the incoming tenant automatically on taking the assignment.
Correct. This is a new lease, and therefore liability shifts automatically from the assignor to the assignee on assignment. The outgoing tenant will only be liable if they have given an authorised guarantee agreement, but the incoming tenant will become automatically liable on assignment.
Question 1
A solicitor acts for the tenant of a retail unit (the ‘Property’) under a lease granted in 2015.
The lease contains a covenant not assign, underlet, charge, hold on trust, part with or share
possession or occupation of the property in whole or in part, except that the tenant may,
with the landlord’s consent, assign the whole of the property. There are no other provisions
relating to alienation in the lease. The tenant wishes to dispose of the lease and has found
another retailer who is interested in the Property. However, the tenant is concerned that the
landlord may refuse consent to an assignment of the lease because the other retailer is not
as financially strong as the tenant.
Which of the following is the best advice to the tenant about whether the landlord will
be able to refuse consent for the proposed assignment of the lease?
A The landlord cannot prevent the tenant from assigning the whole of the Property as it
wishes.
B Provided the tenant has made a written application for consent, the landlord must give
consent for the assignment unless it is reasonable not to do so.
C Statute allows the landlord to insist on the tenant giving an authorised guarantee
agreement for the assignee as a condition of giving its consent to this proposed
assignment.
D The landlord will be prevented from withholding its consent because statute implies
into this covenant for assignment a proviso that the landlord’s consent will not be
unreasonably withheld.
E If the tenant is unable to obtain the consent of the landlord, the tenant should enter
into a licence with the other retailer instead.
Answer
Option B is correct. The covenant against assignment of whole of the property in the
lease is a qualified covenant and s19(1)(a) Landlord and Tenant Act 1927 implies into any
qualified covenant that it be deemed to be subject to a proviso that such consent is not to
be unreasonably withheld. Where there is a qualified covenant on assignment (whether the
proviso that consent is not to be unreasonably withheld is express or implied by statute)
and the tenant has made a written application for consent, the landlord must within a
reasonable time give consent, except in a case where it is reasonable not to give consent
(s 1 Landlord and Tenant Act 1988).
Option A is not the best advice as it would be reasonable for a landlord not to consent to
an assignment to a proposed assignee who is not financially strong enough to pay the rent
and perform the other covenants in the lease.
Option C is wrong; s 19(1A) Landlord and Tenant Act 1927 allows for the landlord and the
tenant to agree conditions and circumstances in which it would not be unreasonable for
the landlord to refuse consent and such conditions often include that the assignor agrees
to give an authorised guarantee agreement for the assignee, but such conditions and
circumstance must be agreed in advance. The facts indicate that the lease does not contain
any such conditions and circumstances.
Option D correctly states the effect of s 19(1)(a) Landlord and Tenant Act 1927 on a
qualified covenant, but the landlord is still able to withhold consent where it is reasonable
to do so, eg if the proposed assignee is not financially strong enough to pay the rent and
perform the other covenants in the lease.
Option E is not good advice as the lease contains an absolute covenant against sharing
occupation, which would include allowing the other retailer into the property under a
licence.
Question 1
A solicitor is acting for a tenant who is taking a lease of a shop for a term of exactly seven
years. The landlord’s freehold title is unregistered. The lease has now been completed.
Does the lease have to be registered with its own title at the Land Registry?
A Yes, because the landlord’s freehold title is unregistered.
B Yes, because the lease is for a term of over three years.
C Yes, because the lease is for a term of seven years.
D No, because it is not possible to register a lease unless the freehold is already
registered.
E No, because it is not possible to register a lease unless the term exceeds seven years.
Answer
Option E is correct. This is a lease for a term of exactly seven years. A legal lease for seven
years or less is not capable of being registered with its own title at the Land Registry, so
options A, B and C are wrong. Option D is not the best answer as leases of over seven
years must be registered with their own title at the Land Registry irrespective of whether the
freehold title is registered.
Question 2
Yesterday a landlord granted a lease of office premises in England to a tenant for a term
of 10 years. The consideration for the lease is the payment of a commercial, open- market
rent with a premium of £100,000. The landlord opted to tax the property for VAT purposes
before the lease was granted.
Which of the following statements best describes the position on taxation for this
transaction?
A The tenant may need to pay stamp duty land tax (‘SDLT’) on the VAT- inclusive amount
of the rent.
B The tenant may need to pay SDLT on the VAT- inclusive amount of the premium.
C The tenant may need to pay SDLT on the rent, exclusive of VAT.
D The tenant may only have to pay SDLT on the VAT- inclusive amount of the premium.
E The tenant may need to pay SDLT on the VAT- inclusive amounts of the rent and the
premium.
Answer
Option A is correct. On the grant of a lease, SDLT is potentially payable both on any
premium charged by the landlord and the rent reserved by the lease. Where VAT is
chargeable (because the landlord has opted to tax the property before the grant of
the lease), SDLT is charged on the VAT- inclusive amounts. This means that option C is
incorrect on VAT. However, SDLT will not be charged on the premium in this instance as
the applicable rate for consideration not exceeding £150,000 is 0%. Here the VAT- inclusive
amount of the premium is £120,000. So options B, D and E are wrong as they all refer to the
payment of SDLT on the premium.
Question 3
A solicitor is acting for a proposed undertenant who is taking an underlease of a
commercial property for a term of five years. The proposed landlord is the tenant under
a lease of the property granted last year for a term of 10 years. The lease was registered
with absolute leasehold title. The superior landlord is the freehold owner of the property
and the superior landlord’s title to the property is unregistered. The undertenant wants the
solicitor to investigate the superior landlord’s freehold title.
Which of the following statements is the best advice as to what the proposed landlord
should be expected to deduce by way of title to the freehold?
A The proposed landlord will not have to deduce title to the freehold because it is
unregistered.
B The proposed landlord will have to deduce title to the freehold as the proposed
undertenant is legally entitled to call for it.
C As the proposed landlord’s title is registered with absolute leasehold title, there will be
no need for it to deduce the freehold title.
D The proposed landlord may not be able to deduce title to the freehold as it was not
entitled to call for it when its lease was granted.
E The proposed landlord should not have to deduce title to the freehold as the
undertenant will be able to obtain this information under the open register rules.
Answer
Option C is correct. The proposed landlord will have registered its lease within two months of
grant because leases of over seven years must be registered with their own title at the Land
Registry irrespective of whether the freehold title is registered. As the proposed landlord’s
lease is registered with absolute leasehold title, the best class of title available, then there is
no need to see the freehold title.
Option A is oversimplified as there are circumstances in which a tenant would be expected
to deduce title to the freehold to a prospective undertenant. Option B is misleading on two
counts; the general law allows an undertenant to call for the freehold title only when the
headlease is unregistered, and then only where the underlease is for a term of more than
seven years; here the headlease is registered and this underlease is for a term of five years.
Option D is misleading as the proposed landlord was entitled to call for the freehold interest
last year as its lease was granted for ten years, ie a term of more than seven years. Option
E is wrong as the open register rules allow third parties to inspect registered titles and in this
case, the freehold is unregistered.
Question 2
A solicitor acts for an assignee of a lease granted in 1998. The assignor has applied to
the landlord for consent to assign the lease and the landlord’s solicitor has provided a
draft licence to assign. The draft licence contains a requirement for the assignor to enter
into an authorised guarantee agreement with the landlord and for the assignee to give the landlord a direct covenant to observe and perform the covenants in the lease for the
remainder of the term.
Is the draft licence in acceptable form?
A No, because the direct covenant should come from the assignor rather than the
assignee.
B No, because the direct covenant should either be deleted or limited to the period
during which the assignee is the tenant under the lease.
C No, because the assignor should not be required to enter into an authorised guarantee
agreement for a lease granted in 1998.
D Yes, because the landlord needs to create privity of contract with both the assignor and
the assignee.
E Yes, because the landlord is entitled to require that the assignor enters into an
authorised guarantee agreement for a lease granted in 1998.
Answer
Option B is correct. The lease was granted in 1998, so it is a new lease for the purposes of
the Landlord and Tenant (Covenants) Act 1995 (the ‘Act’). The Act will automatically release
the assignee from all the tenant covenants of the tenancy on assignment of the lease, so
if the landlord requires a direct covenant from the assignee, the covenant should be limited
to the period the assignee is actually the tenant, not the remainder of the entire term. It is
arguable that a direct covenant is not necessary at all as it gives the landlord nothing more
than they enjoy under privity of estate, but landlords quite commonly require one, albeit in the
restricted form.
Option A is not the best answer because the assignor will be guaranteeing performance of
the tenant’s covenants by the assignee in the AGA but will be automatically released from all
the tenant covenants of the tenancy once the assignment takes place, so a direct covenant
from the assignor serves no purpose. Option C is not the best answer because the Act, which
created AGAs, does apply to leases granted on or after 1 January 1996.
Options D and E are not the best answers because they imply acceptance of an assignee’s
direct covenant in an inappropriate form. In addition, option D is misconceived as the Act
will not allow the landlord to have continuing privity of contract with the assignor after the
assignment and privity of contract with the assignee is not needed as there will be privity
of estate. Option E overstates the position; whether the landlord is entitled to insist on an
AGA from the assignor depends on the terms of the lease. The landlord may have inserted
the need for an AGA in the lease as a pre- condition to its giving consent, in which case
the landlord can always insist on the assignor entering into the AGA whether or not it is
reasonable. In the absence of the provision in the lease, the landlord can insist on the AGA
only if it is reasonable to do so.
Question 3
A solicitor acts for the assignee of a lease of commercial property granted three years
ago for a term of 10 years. Contracts have been exchanged incorporating the Standard
Commercial Property Conditions. The assignor obtained the landlord’s consent to the
assignment prior to exchange of contracts. The solicitor has drafted the transfer deed using
Land Registry form TR1.
Which of the following statements best describes the way in which the transfer deed
should be drafted?
A The TR1 should contain an indemnity from the assignee to the assignor to observe and
perform the covenants in the lease because this is a leasehold transaction.
B The TR1 does not need to contain an indemnity from the assignee to the assignor to
observe and perform the covenants in the lease as such an indemnity is implied by the
general law.
C The TR1 does not need to contain an indemnity from the assignee to the assignor to
observe and perform the covenants in the lease as the assignor will automatically be
released from future liability on the assignment.
D The TR1 can only incorporate an indemnity from the assignee to the assignor to
observe and perform the covenants in the lease if this was covered by a special
condition in the contract.
E The TR1 should contain an indemnity from the assignee to the assignor to observe and
perform the covenants in the lease if the assignor is giving an authorised guarantee
agreement to the landlord.
Answer
Option E is correct. An indemnity from the assignee to the assignor will only serve a purpose
if the assignor will continue to be liable to the landlord if there is a breach of the tenant’s
covenants in the lease after the assignment has taken place. Option A is overstated as an
indemnity will not be appropriate for every leasehold transaction. Option B is not the best
answer as the law only implies such an indemnity covenant in leases granted before 1
January 1996.
The lease was granted three years ago, so it is a new lease for the purposes of the Landlord
and Tenant (Covenants) Act 1995 (the ‘Act’). The Act will automatically release the assignor
from all the tenant covenants of the tenancy on completion of the assignment, but the assignor
may become liable under the terms of an authorised guarantee agreement instead. Option C
ignores this possibility so is not the best answer.
Option D is not the best answer as both sets of standard conditions provide for an indemnity
to be given in the transfer if the assignor will continue to be liable after the assignment so a
special condition is not required.
A freeholder granted a 15 year commercial lease of a property in 2012 to a newsagent.
The newsagent subsequently assigned the lease to a clothing retailer.
The clothing retailer assigned the lease to a chemist.
The chemist assigned the lease to a bookstore.
All the assignments were made with the landlord’s consent.
For the assignment to the clothing retailer, the freeholder required an authorised guarantee agreement from the newsagent.
Similarly, the freeholder required an authorised guarantee agreement from the chemist when the lease was assigned to the bookstore.
The bookstore has failed to pay the latest quarter’s rent.
Apart from the bookstore, from whom can the freeholder recover the outstanding rent?
A. The chemist, the clothing retailer and the newsagent.
B. The chemist only.
C. The clothing retailer only.
D. The newsagent only.
E. The chemist and the newsagent only.
B - The chemist only.
A freeholder (‘the Landlord’) granted a ten year headlease to a tenant.
After a year, the tenant, with the Landlord’s consent, granted a sublease for a term of five years to a subtenant.
Two years later, the tenant surrendered its headlease to the Landlord.
Which of the following statements best describes the position of the subtenant?
A. The subtenant’s sublease is extinguished.
B. The subtenant becomes the immediate tenant of the Landlord on the terms of the headlease.
C. The subtenant becomes the immediate tenant of the Landlord on the terms of the sublease.
D. The subtenant becomes the immediate tenant of the Landlord on the terms of an overriding lease.
E. The subtenant’s sublease is forfeited.
C - The subtenant becomes the immediate tenant of the Landlord on the terms of the sublease.
A freeholder (‘the Landlord’) has granted a commercial lease of a property to a tenant.
The lease provides that the property may not be used other than for retail purposes.
The tenant is a bookstore and requests Landlord’s consent to assign the lease to a supermarket. The bookstore is an independent trader that is finding it difficult to pay the rent. The supermarket is operated by a highly profitable national chain.
The Landlord wishes to withhold consent to the assignment because it operates another supermarket opposite the property and is concerned that the assignee will take trade away from its own business.
The relevant wording of the alienation covenant in the lease is as follows:
“The Tenant shall not assign underlet or charge the Property without the prior written consent of the Landlord.”
Can the Landlord lawfully withhold consent to the assignment on the basis of the assignee’s business?
A. Yes, because a supermarket does not qualify as a retail purpose.
B. Yes, because the Landlord does not have to act reasonably in withholding consent.
C. Yes, because competition by the assignee with the Landlord’s business is a ground for reasonably withholding consent.
D. No, because competition by the assignee with the Landlord’s business is not a ground for reasonably withholding consent.
E. No, because the supermarket is in a better financial position than the bookstore and consent cannot be withheld if the assignee provides a stronger covenant.
C - Yes, because competition by the assignee with the Landlord’s business is a ground for reasonably withholding consent.
A business lease dated 15 July 1989 was granted to a company (‘the Tenant’). It commenced on 24 June 1989 for a term of 50 years.
The Tenant is in the process of assigning the residue of the term of the lease to another company (‘the Assignee’).
The lease provides that assignment of the lease can only occur with the landlord’s consent (not to be unreasonably delayed). The Tenant has applied to the current landlord (‘the Landlord’) for consent to assign the lease and the Landlord has indicated its consent in principle subject to the completion of a licence to assign.
The Landlord’s solicitor is drafting the licence to assign. She is drafting the covenant to govern future liability under any tenant covenants in the lease.
Which one of the following possible covenants should the Landlord’s solicitor include in the draft licence to assign?
A. The Tenant covenants with the Landlord to provide the Landlord with an authorised guarantee agreement (in an agreed form) on the assignment.
B. The Tenant covenants with the Landlord that the Assignee will perform the covenants in the lease during the remainder of the term of the lease.
C. The Tenant covenants with the Landlord that the Assignee will perform the covenants in the lease until the next valid assignment of the lease made with the Landlord’s consent.
D. The Assignee covenants with the Landlord to perform the covenants in the lease during the remainder of the term of the lease.
E. The Assignee covenants with the Landlord to perform the covenants in the lease until the next valid assignment of the lease made with the Landlord’s consent.
D - The Assignee covenants with the Landlord to perform the covenants in the lease during the remainder of the term of the lease.
