Grant and assignment of commercial leases

Question 1

What is a lease (as opposed to an underlease)?

Answer 1

A lease is a lease granted by the freeholder (landlord) to the tenant

Question 2

What is an underlease?

Answer 2

A lease granted by a leaseholder to an undertenant (shorter lease granted out an existing lease). If it was a longer term it would take effect as an assignment

Question 3

Can a property be leased if it has a charge over it?

Answer 3

The terms of the charge will typically require the lender’s consent to the proposed lease and its terms. In registered land this will usually supported by a restriction in the proprietorship register in favour of the lender prohibiting any disposition or dealing without consent

Question 4

When does the landlord need to deduce title when granting a lease?

Answer 4

If the landlord’s title is unregistered and the lease is to be granted for a term of more than 7 years and therefore will be substantively registerable - H M Land registry unable to register the lease with absolute leasehold title unless title has been deduced

Question 5

In the case of an underlease, what needs to be deduced?

Answer 5

Title to the headlease

Question 6

What do the standard conditions provide where a new lease is substantively registerable?

Answer 6

Title should be deduced so that the lease may be registered with absolute leasehold title

Question 7

What is normally required in the case of the grant of an underlease?

Answer 7

A licence to underlet

Question 8

What is the purpose of a licence to underlet?

Answer 8

Is to provide the superior landlord’s approval to the proposed underlease and to provide privity of contract between the head landlord and undertenant, that would otherwise not exist

Question 9

On the grant of a lease, who usually drafts the lease?

Answer 9

The landlord’s solicitor who then submits it to the tenant’s solicitor for approval

Question 10

What are the main concerns for the landlord and tenant with a lease?

Answer 10

Landlord - suitable control & institutionally acceptable
Tenant - enable it to occupy on reasonable terms without unduly onerous liabilities and restrictions

Question 11

When may an agreement for lease by useful?

Answer 11

• where there is to be some delay in completion but parties wish to be formally committed to the transaction
• where both parties need to carry out works before the lease is formally granted
• where a third-party consent is required to grant the lease
• where another tenant is already in occupation and the surrender of their interest needs to coincide with the grant of a new lease

Question 12

Is there always a need for an agreement for lease?

Answer 12

No, most commercial leases proceed straight to completion

Question 13

Once the lease has been agreed, what needs to be prepared?

Answer 13

The landlord’s solicitor will prepare engrossments of the lease/underlease and counterpart lease/underlease for execution by the landlord and tenant as well as any other parties

Question 14

How must the lease be executed?

Answer 14

As a deed unless it is for 3 years or less

Question 15

What needs to be completed before completion of any underlease?

Answer 15

The licence to underlet and the tenant’s solicitor should also insist on seeing a copy of any lender’s consent

Question 16

What are the main post-completion matters?

Answer 16

• SDLT/LTT
• H M Land registry formalities
• underlease - service of notice on the superior landlord

Question 17

When must SDLT/LTT be paid?

Answer 17

SDLT - within 14 days of completion
LTT - within 30 days of completion

Question 18

When will a lease or underlease need to be registered with H M Land Registry?

Answer 18

If it is for longer than 7 years:
- if landlord’s title is registered an application to change the register (AP1) must be submitted and H M Land registry will note the lease against the superior title
- if landlord’s title is unregistered tenant’s application for first registration of the lease (FR1) and must be within 2 months of completion

Question 19

What are the H M Land registry formalities if the lease is 7 years or less?

Answer 19

• in registered land they will be an overriding interest
• in unregistered land, legal leases bind any owner of the land and will be an overriding interest on first registration of the superior title - tenant may consider lodging a caution against first registration

Question 20

What is the assignment of a commercial lease?

Answer 20

The transfer of the unexpired residue of the term of an existing subsisting lease by the existing tenant to a new tenant

Question 21

What is needed to assign the whole of the tenant’s interest?

Answer 21

The landlord’s written consent, under a qualified or fully qualified covenant

Question 22

What is a key element to assigning a commercial lease?

Answer 22

A formal licence to assign

Question 23

What is the purpose of a licence to assign?

Answer 23

The purpose of a licence to assign is to give the landlord’s formal written consent to the proposed assignment

Question 24

What may be required from the assignor?

Answer 24

An authorised guarantee agreement

Question 25

What would happen if a lease was assigned without consent when it was required?

Answer 25

It would be a breach of the lease and would also mean that the assignment was unlawful

Question 26

What form is needed for the assignment of a registered lease?

Answer 26

TR1

Question 27

What provision should always be added in an assignment of leasehold land?

Answer 27

The covenants set out in s4 LP(MP)Act 1994 will not extend to any breach of the tenant’s covenants in the lease relating to the physical state of the property