Assignment

Question 1

Can a leasehold interest capable of being sold or transferred?

Answer 1

Yes

Question 2

What is alienation?

Answer 2

Disposal of all or part of the tenant’s interest in the lease

Question 3

If the lease is silent, what is the tenant’s position in relation to assignment?

Answer 3

They are free to assign

Question 4

How may tenant’s covenant against assignment be drafted?

Answer 4

Absolute, qualifies or fully qualified

Question 5

When will a commercial lease likely include an absolute covenant?

Answer 5

Likely to have one against assignment of part of the premises

Question 6

What would a qualified covenant against assignment mean?

Answer 6

Any qualified covenant against assignment will be converted into a fully qualified covenant meaning the landlord must act reasonably if deciding to withhold consent and they must give decision on consent within a reasonable time

Question 7

What is a reasonable time for a landlord giving consent under a fully qualified covenant?

Answer 7

Depend on circumstances but should be measured in days or weeks not months

Question 8

When is reasonable for the landlord to withhold consent?

Answer 8

• when it relates to the landlord/tenant relationship
• they have a mix tenant policy and that tenant’s use would go against it eg by being same use as another tenant in the shopping centre
• the landlord has justifiable concerns about the assignee’s ability to pay rent

Question 9

What remedy does the tenant have if the landlord does not act reasonably in withholding or delaying consent?

Answer 9

Tenant may claim damages (including costs for agents and solicitors)

Question 10

What are circumstances and conditions in leases in relation to assignment?

Answer 10

Circumstances that the parties agree will be reasonable grounds for withholding consent

Conditions that may be imposed on assignment

Both are valid

Question 11

What is privity of estate?

Answer 11

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

Question 12

What is the position for leases granted before 1 January 1996 (old leases) in relation to assignment and privity of contract and privity of estate?

Answer 12

Original tenant remained liable to the landlord to pay the rent and perform the other obligations under privity of contract.

Only some obligations automatically passed to the new tenant under privity of estate. New tenant would have to covenant directly with the landlord to observe all the tenant’s covenants in the lease

Question 13

What is the position for leases granted on or after 1 January 1996 (new leases) in relation to assignment and privity of contract and privity of estate?

Answer 13

Original tenant is released from liability and all the tenant covenants are automatically passed to the new tenant

Question 14

What can be done so the original tenant guarantees the obligations of the incoming tenant?

Answer 14

Original tenant enters an authorised guarantee agreement

Question 15

When will landlord’s be able to insist the outgoing tenant enters into an authorised guarantee agreement?

Answer 15

• if it is a condition of assignment in the lease itself
• if lease is silent, if it reasonable to insist they do so

Question 16

How long does the original tenant’s liability last for under an authorised guarantee agreement and how does this differ for the situation under the old law for old leases?

Answer 16

• AGA - tenant’s liability lasts only whilst the next tenant is in place
• old law - tenant was liable for the whole lease term

Question 17

What steps will the landlord’s solicitor take on pre-exchange for assignment?

Answer 17

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

Question 18

What steps will the tenant’s solicitor take on pre-exchange for assignment?

Answer 18

• 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 contract, obtain tenant’s signature and send engrossment to assignee’s solicitor

Question 19

What steps will the assingee’s solicitor take on pre-exchange for assignment?

Answer 19

• take instructions
• assist tenant’s 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

Question 20

Who would give an undertaking of costs and to whom in a transaction to assign a lease?

Answer 20

The tenant’s solicitor will give an undertaking for costs to the landlord’s solicitor

Undertaking for costs will cover landlord’s solicitor cost’s and Surveyor’s costs

Question 21

How will the tenant’s solicitor deduce title?

Answer 21

• if registered, by providing official copies of the leasehold title
• if not registered, then by the landlord’s title
• providing copy of lease in either event

Question 22

Can assignee ever negotiate the lease?

Answer 22

Generally never an opportunity to do this.

Possible if landlord agrees to vary lease by deed of variation

Question 23

How will the assignee’s solicitor investigate title?

Answer 23

• raising CPSE1 enquiries
• CPSE4 enquiries (specific to assignment)
• same searches as if buying freehold
• searches should either be against lease if registered or landlord’s title if not

Question 24

What happens on exchange of contract for assignment?

Answer 24

• tenant’s solicitor and assignee’s solicitor exchange (law society formula B)
• no deposit is usually payable for assignment of rack rental lease (for an assignment of a long residential lease, a 10% deposit would be usual, just like a freehold)
• the contract may set a fixed completion date, or may specify that completion is conditional on landlord’s consent

Question 25

What will a landlord’s solicitor do on pre-completion?

Answer 25

• engross licence to assign in triplicate (3 copies)
• arrange for landlord to execute to one copy

Question 26

What will a tenant’s solicitor do on pre-completion?

Answer 26

• arrange for tenant to execute one copy of the licence to assign
• prepare and send a completion statement detailing the money due on completion (eg any apportioned annual rent, service charge and insurance rent)
• respond to requisitions on title
• approve deed of assignment and arrange for tenant to execute

Question 27

What will a assignee’s solicitor do on pre-completion?

Answer 27

• arrange for assignee to execute one copy of the licence to assign
• obtain funs from assignee needed to complete as per completion statement
• raise requisitions on title
• raise pre-completion searches
• draft deed of assignment

Question 28

What pre-completion search should the assignee’s solicitor carry out?

Answer 28

OS1 search for the whole of the tenant’s leasehold title

Question 29

What will happen on completion of the assignment?

Answer 29

• the assignee’s solicitor sends the tenant’s solicitor the completion monies
• the landlord’s solicitor, tenant’s solicitor and assignee’s solicitor agree over the telephone to complete and date the licence to assign
• the tenant’s solicitor and assignee’s solicitor agree over the telephone to complete and date the deed of assignment

Question 30

What will happen post-completion?

Answer 30

Assignee’s solicitor will:

• arrange to submit SDLT or LTT return and pay appropriate SDLT or LTT if necessary
• Register assignment if necessary
• Send formal notice of assignment to landlord’s solicitor