Leasehold transactions: Licence to assign / underlet Flashcards
What is the first step for assigning a lease?
Check the lease terms to establish whether the landlord’s consent is required. This provision may be contained in a long residential lease but is unlikely to be acceptable to a lender.
Why is consent required from a landlord for assignment?
Purpose of consent:
In a commercial lease, the landlord will often reserve the right to give their consent to the assignment. The purpose of this is to enable the landlord to make checks (for example, obtain bank references) to ensure that the incoming tenant can meet the rent payments.
A landlord is not entitled to insist on a licence to assign and approval of the incoming tenant (assignee) unless the lease includes this requirement.
What is the licence to assign?
Consent document: Licence to assign
Licence to assign - document by which the landlord will give their consent to assignment. The existing tenant applies to the landlord for the licence to assign. They will pay the landlord’s solicitor’s legal fees for production of the licence to assign.
What are the key provisions in the licence to assign?
Provisions in the licence to assign
1) Parties – landlord, tenant and incoming tenant (assignee);
2) Details of the lease;
3) Any conditions to the landlord’s consent; for example, that all rent is paid up to date, and;
4) The timeframes within which the assignment must be completed (typically 3 – 6 months from completion of the licence).
Who drafts the licence to assign?
Landlord’s solicitor - requires undertaking for legal fees in dealing with licence to assign
Explain the costs undertaking for the licence to assign
Undertakings for costs - conduct point
Prior to drafting the licence to assign, the landlord will usually require confirmation that their legal fees for dealing with the licence to assign will be met on completion of the licence to assign.
The outgoing tenant will be expected to meet these fees and will pay the proposed fee to their solicitor at the beginning of the transaction, to enable their solicitor to give an undertaking for costs to the landlord’s solicitor.
Remember that a solicitor must be in receipt of cleared funds from the client before giving an undertaking to pay another party’s legal costs.
What is the significance of the licence to assign?
The licence to assign is important because the landlord and the assignee are parties to the document. This creates privity of contract between the landlord and the assignee, meaning that the landlord has a direct contractual relationship with the assignee who agrees to observe the obligations contained in the lease.
What is the licence to underlet?
The headlease may contain a provision that the tenant must obtain the landlord’s consent to underletting – which will be contained in a document called a licence to underlet.
Who prepares the licence to underlet?
Landlord’s solicitor - requires undertaking for legal fees in dealing with licence to underlet
Explain the costs undertaking for the licence to underlet
Undertakings of costs - conduct point
Prior to drafting the licence to underlet, the landlord will usually require confirmation that the landlord’s legal fees for dealing with this will be met on completion of the licence to underlet. The tenant will meet these fees and will pay the proposed fee to their solicitor at the beginning of the transaction, to enable their solicitor to give an undertaking for costs to the landlord’s solicitor.
Remember that a solicitor must be in receipt of cleared funds from the client before giving an undertaking to pay another party’s legal costs.
What is the significance of the licence to underlet?
The licence to underlet is signed by the tenant, landlord and sub-tenant to create privity of contract between the parties. The sub-tenant must register the underlease at HMLR if it is more than 7 years in length.
