Grant of lease or underlease // Assignment

Question 1

When may a landlord reject a tenant (and thus when would it be reasonable for a landlord to reject an undertenant/assignment)?

Answer 1

• Bad references from a previous landlord;
• Inability to meet rent deposit;
• no proof of financial security;
• competing with landlord’s business;
• proposed user goes against contract

Question 2

How long should an underlease be for at a maximum?

Answer 2

One day less than the headlease.

Question 3

Who drafts the lease?

Answer 3

The landlord’s solicitor.

Question 4

Who drafts the underlease?

Answer 4

The tenants solicitor.

Question 5

What’s the purpose for an agreement for lease?

Answer 5

If there is something that needs to be completed before the lease is finalised, e.g. a roof needs fixing or the landlord requires lender consent.

Question 6

What would a landlord’s solicitor do before drafting a lease?

Answer 6

They would investigate title to ensure the landlord is entitled to grant the lease. E.g. if there is a mortgage restriction, the landlord may have to contact the mortgagee before they can lease the property.

Question 7

When is it important for the tenant to deduce title to the freehold interest?

Answer 7

• Where a premium is to be paid;
• where the property is offered as security for a loan; or
• the tenant is paying a significant rent.

Question 8

What is the implication of an absence of freehold title for the tenant?

Answer 8

Prevents the tenant from receiving absolute leasehold title on the registration of the lease.

Question 9

When is a tenant entitled to call for the landlord to deduce title?

Answer 9

When the leasehold interest is for more than 7 years.

Question 10

When is there no need for the undertenant to deduce the landlords title?

Answer 10

When the headlease is registered with absolute leasehold title.

Question 11

What does the undertenant do when the freehold is unregistered?

Answer 11

They are entitled to call for the headlease and all subsequent assignments for 15 years;

can only deduce the freehold if grant of lease is for more than 7 years.

Question 12

What documents should the landlord’s solicitor give to the tenant’s solicitor?

Answer 12

draft agreement;
draft lease;
evidence of freehold/headlease title;
copies of relevant planning consent;
evidence of lender’s consent to lease.

Question 13

What is a licence to underlet?

Answer 13

Head-landlord gives consent to the head tenant to underlet to the undertenant.

If the landlord doesn’t consent, the head tenant is likely to be in breach of lease.

Question 14

What is the usual condition in a licence to underlet?

Answer 14

That the undertenant is to enter into a direct covenant with the head-landlord to perform the covenants in the lease and underlease.

Question 15

Who pays costs in the underletting procedure?

Answer 15

The tenant pays the landlord’s costs for the licence to underlet.

The undertenant pays the head tenants costs for the drafting of the lease.

Question 16

Can terms of a lease be negotiated on assignment?

Answer 16

Unlikely. The assignee is effectively filling in for the assignor - unlikely a landlord is willing to change the terms of the lease.

Question 17

Are purchase prices on assignment normal?

Answer 17

No. Where a tenant is paying market rent, the lease is unlikely to have a capital value so no true price is payable.

Question 18

How does an assignor get the landlords consent to assign the property?

Answer 18

Through a licence to assign.

Question 19

What are standard provisions in the licence to assign?

Answer 19

(a) landlord grants consent to assignment (could be time-limited);

(b) if it is a new lease, AGA would be given;

(c) if it is an old lease, direct covenant by the assignee to the landlord would be given;

(d) assignor agrees to pay the landlord’s legal and professional costs.

Question 20

What undertaking is an assignor/their solicitors likely to provide on an assignment?

Answer 20

An undertaking to pay all of the landlord’s legal and professional costs in considering the assignment/licence to assign.

Question 21

What happens in the SCs when the landlord hasn’t given their consent by the time of assignment?

Answer 21

Either party may rescind if assignment hasn’t been given 3 days before completion.

An exchange of contracts for assignment should therefore be held off until the landlord’s consent is obtained.

Question 22

What happens in the SCPCs when the landlord hasn’t given their consent by the time of assignment?

Answer 22

Completion is postponed until five working days after the assignor notifies the assignee that consent ahs been given.

Cannot be rescinded until 6 months after the original completion date.

Question 23

What should the assignor’s solicitor always provide on an assignment?

Answer 23

A copy of the lease and any licence permitting assignment to current and previous tenants.

Question 24

How is the lease transferred?

Answer 24

Via a TR1 prepared by the assignor’s solicitor.

Question 25

What are the provisions for deducing freehold/leasehold title on assignment?

Answer 25

(A) If the assignor’s lease is registered with absolute leasehold title, there is no need for the assignee to investigate the freehold;

(B) If the assignor’s lease is registered with good leasehold title, there is no guarantee, so the assignee should try to deduce the freehold;

(C) If the assignor’s lease is unregistered, the assignee is entitled to call for the lease and all assignments for the last 15 years - not entitled evidence of freehold, though. Unless freehold is registered with absolute title, the assignee should call for it to be deduced.

If the assignee requires to deduce the freehold title, this should be provided for in the special conditions of the contract.

Question 26

When is SDLT/LTT payable on assignment?

Answer 26

It will only be payable if any purchase price was charged.