Assignment Flashcards
What does alienation mean?
It simply means the disposal of all or part of the tenant’s interest in the lease.
What is assignment?
Just as a freehold interest may be sold or transferred to a new owner, a leasehold interest can be sold or transferred.
The lease is assigned by the existing tenant (assignor) to the new tenant (assignee).
Following assignment what is the position of the landlord and assignee?
Following assignment, the landlord becomes the landlord of the assignee and the tenant is now entitled to exclusive possession and is obliged to pay the rent and perform other tenant covenants.
Why would a tenant choose to assign?
The tenant no longer needs the premises for the purposes of their business or cannot afford to keep paying rent (perhaps after a rent review).
If the lease is silent as to assignment, what is the position?
Tenant is free to assign. However, in practice, the tenant will normally need to apply to the landlord for consent so they can vet the assignee.
Does a commercial lease normally allow a assignment of part?
Commercial lease will usually contain an absolute covenant against assignment of part. The landlord will not want a letting split into parts, which creates various problems.
Does a qualified covenant against assignment get converted into a fully qualified covenant?
The Landlord and Tenant Act 1927 coverts a qualified covenant against assignment into a fully qualified covenant meaning the landlord must act reasonably if deciding to withhold consent.
What is the additional requirement in relation to fully qualified covenants relating to assignment?
- Landlord and Tenant Act 1988 goes further and states the landlord must give a decision on consent within a reasonable time.
- “reasonable time” is dependent on the circumstances but should be measured in days or weeks instead of months.
What are not reasonable grounds to withhold consent to assignment?
Landlord cannot withhold consent on grounds not related to the landlord/tenant relationship such as personal dislike of the prospective tenant or their business.
Cannot discriminate on grounds of race, sex or disability.
What are reasonable grounds to withhold consent to assignment?
The assignee’s proposed use of the premises may be reasonable to withhold consent.
Likely reasonable to withhold consent if the landlord has justifiable concerns about the assignee’s ability to pay rent, for example, they cannot produce satisfactory references.
Assignee is newly incorporated and cannot produce accounts.
What happens if the landlord does not act reasonably in withholding or delaying consent?
The tenant may be able to claim damages (including agents and solicitors costs).
How are a landlord’s concerns relating to assignment circumvented in commercial leases?
A commercial lease will often contain:
Circumstances = that the parties agree will be reasonable grounds for withholding consent; and
Conditions = that may be imposed on assignment.
If valid, they provide the landlord with specific grounds on which consent may be reasonably withheld.
What was the old position in relation to the assignor and assignees liabilities after assignment?
Under an old lease (pre 1 January 1996), the original tenant remains liable following assignment, and the new tenant is only liable for certain matters (and will therefore have to covenant directly with the landlord)
What is the new position in relation to the assignor and assignees liabilities after assignment?
Under a new lease (1 January 1996 onwards), the original tenant is released from liability following assignment, and the new tenant is liable for all matters under the lease.
What is an authorised guarantee agreement (AGA)?
Landlords of old leases were used to relying on privity of contract to treat the original tenant as the effective guarantor. This stopped with new leases. However, statute provides for the original tenant to guarantee the obligations of the incoming tenant (AGA).
Many commercial leases will make it a condition the outgoing tenant enters into an AGA.
