Assignments Flashcards
What is a lease assignment in commercial property?
A lease assignment is the legal transfer of a tenant’s leasehold interest to a third party, who then assumes the rights and obligations under the lease.
What is the key difference between assigning a lease and subletting?
In a lease assignment, the outgoing tenant transfers their entire interest in the lease to the assignee. In subletting, the original tenant remains responsible for the lease and creates a new tenancy with the subtenant.
What document is typically required to formalize a lease assignment?
A Deed of Assignment is required to legally transfer the leasehold interest.
What is the role of landlord consent in a lease assignment?
Most commercial leases include a clause requiring the landlord’s prior written consent before an assignment can proceed. The landlord must not unreasonably withhold consent.
What statute governs the reasonableness of a landlord withholding consent to a lease assignment?
The Landlord and Tenant Act 1988 governs this, requiring landlords to act reasonably and within a reasonable timeframe when considering a tenant’s request for consent
What due diligence should a surveyor carry out before advising on a lease assignment?
Reviewing the lease for assignment provisions and restrictions.
Ensuring compliance with alienation clauses.
Verifying whether guarantees or Authorised Guarantee Agreements (AGAs) are required.
Assessing the financial standing of the prospective assignee.
What is an alienation clause in a commercial lease?
An alienation clause sets out the conditions under which a tenant may assign, sublet, or otherwise dispose of their interest in the lease.
What is an Authorised Guarantee Agreement (AGA)?
An AGA is a legal agreement where the outgoing tenant guarantees the performance of the incoming tenant (assignee) under the lease.
When is an AGA typically required?
An AGA is usually required if the lease was granted after 1996 under the Landlord and Tenant (Covenants) Act 1995 and the landlord demands it as a condition of assignment.
What financial considerations should be assessed in a lease assignment?
A10: Considerations include
The assignee’s ability to meet rent and service charge obligations.
Any arrears owed by the outgoing tenant.
Potential assignment premiums or fees payable to the landlord.
Can a landlord impose conditions on a lease assignment?
Yes, but conditions must be reasonable and consistent with the lease terms. Common conditions include:
The assignee passing a financial covenant test.
Requiring an AGA.
Payment of the landlord’s legal and surveyor fees.
What steps must a tenant take to request landlord consent for an assignment?
Provide a formal written request for consent.
Submit details of the proposed assignee, including financial references.
Pay any required fees as specified in the lease.
What can a tenant do if a landlord unreasonably withholds consent for an assignment?
Apply to the court for a declaration that the landlord’s refusal is unreasonable under the Landlord and Tenant Act 1988.
Seek damages for any losses incurred as a result of the unreasonable refusal.
What is the key case law related to a landlord’s reasonableness in withholding consent?
International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986]
The court held that a landlord cannot refuse consent on grounds unrelated to the lease or property. Reasonable refusal must focus on factors that could affect the landlord’s interest in the property or the lease terms.
There were 7 principles set which were developed in Iqbal v Thakrar (2004) to 8
Ashworth Frazer Ltd v Gloucester City Council [2001] UKHL 59
The House of Lords ruled that it is reasonable for a landlord to refuse consent if there is a reasonable belief that the assignee is likely to breach lease obligations.
Houlder Brothers & Co Ltd v Gibbs [1925] Ch 575
Consent should not be unreasonably delayed by the landlord.’
What is the difference between an absolute covenant and qualified covenant
an absolute covenant can prevent all forms of alienation however more often landlord consent is required and this is a qualified covenant.
Iqbal v Thakrar (2004)
The Court of Appeal applied eight principles, seven of which were set down in an
earlier case (International Drilling Fluids Ltd v Louisville Investments (Uxbridge)
Ltd (1985)), concerning a qualified covenant against assignment. These principles
were also held appropriate to apply to the consent to alterations issue in Iqbal v
Thakrar
What are the 8 principles of landlord consent
- The purpose of the covenant is to protect the landlord against alterations that would harm the property interests of the landlord.
- The landlord is not entitled to refuse consent on grounds that do not relate to his property interests.
- The tenant has to show the landlord has unreasonably refused consent.
- The landlord does not have to prove refusal was justified, if they were reasonable conclusions to draw in the particular circumstances.
- It may be reasonable for a landlord to refuse consent to an alteration if associated with a change of use – but will depend on specific circumstances.
- There may be cases where it would be disproportionate for a landlord to refuse consent, given the respective effects on himself and the tenant.
- Consent cannot be refused on grounds of pecuniary (ie monetary) loss alone.
- In all the particular circumstances of each case, has the landlord acted reasonably in refusing consent.
