Licence to underlet drafting

Question 1

What do you need to be able to address

Answer 1

The issue of privity of contract and how each licence deals with this, as well as the key provisions of each licence.

Question 2

Structure

Answer 2

1) Heading
2) Parties
3) Definitions
4) Recitals/Background
5) Consent to Underlet
6) Undertenant’s covenants
7) Tenant’s covenants
8) The Right of Re-entry in the lease
9) Indemnity
10) Third Party Rights
11) Law and Jurisdiction
12) Execution

Question 3

Heading

Answer 3

THIS DEED IS DATED [DATE]

HM Land Registry

Landlord’s title number

Tenant’s title number

Question 4

Parties

Answer 4

(1) Landlord
(2) Tenant
(3) Undertenant

Question 5

Recitals/Background

Answer 5

(a) This Licence is supplemental and collateral to the Lease and Underlease.
(b) The Landlord is entitled to the immediate reversion to the Lease.
(c) The residue of the term granted by the Lease is vested in the Tenant.
(d) The Tenant intends to grant the Underlease to the Undertenant and, under the terms of the Lease, requires the consent of the Landlord to that underletting.

Question 6

Consent to Underlet

Answer 6

In consideration of the obligations entered into by the Tenant and the Undertenant in this Licence, the Landlord consents to the Tenant granting the Underlease to the Undertenant.

This consent is subject to and upon the terms of this Licence.

This consent is valid for [three months] from (and including) the date of this Licence. If this consent ceases to be valid before the Underlease is completed, all the terms of this Licence (except this consent) shall remain in force.

Nothing in this Licence shall operate to waive or be deemed to waive any subsisting breach of any of the Tenant Covenants of the Lease.

The Underlease shall be in the form of the draft annexed to this Licence.

Question 7

Undertenant’s Covenants - First point - Not to occupy or take possession

Answer 7

The Undertenant covenants with the Landlord:

1. Not to occupy or take possession of the whole of the Property or any part of them before the Underletting Date.

Question 8

Undertenant’s Covenants - Second point - AGA

Answer 8

2. At all times while bound by the Tenant Covenants of the Underlease and while bound by an authorised guarantee agreement:

(a) to pay the rent reserved by the Underlease and observe and perform the Tenant Covenants contained in the Underlease;
(b) to observe and perform the Tenant Covenants contained in the Lease except the covenant to pay the rent reserved by the Lease; and
(c) on or before any assignment of the Underlease, to procure that the assignee enters into a direct covenant with the Landlord on the same terms as this clause.

Question 9

Why do you need an AGA/Direct covenant

Answer 9

As there is no privity of estate between the head landlord and the undertenant, the head landlord would not otherwise be able to enforce the covenants in the underlease and the undertenant would not be liable for the rent reserved by or under the covenants contained in the headlease. Check the headlease as it will normally expressly require a direct covenant from any undertenant (and its subsequent assignees).

Question 10

Undertenant’s Covenants - Third point - Give to the landlord

Answer 10

3. Within [number] days after the grant of the Underlease, to give the Landlord:

(a) written notice of the date on which the grant of the Underlease was completed;
(b) a certified copy of the Underlease; and
(c) the registration fee [specified in clause [number] of the Lease].

Question 11

Tenant’s Covenants - First part - Occupation

Answer 11

The Tenant covenants with the Landlord:

1. Not to allow the Undertenant to enter into occupation or possession of the whole or any part of the Property before the Underletting Date.

Question 12

Tenant’s Covenants - Second part - Enforcing tenant’s covenants

Answer 12

To enforce the Tenant Covenants of the Underlease and not release any of them nor waive any breach of them.

Question 13

Tenant’s Covenants - Third part - Varying terms of underlease

Answer 13

Not to vary the terms of the Underlease or accept a surrender of the Underlease without the consent of the Landlord (such consent not to be unreasonably withheld).

Question 14

Tenant’s Covenants - Fourth part - Paying landlord’s costs

Answer 14

On completion of this Licence to pay the [reasonable] costs and disbursements of the Landlord’s solicitors and its managing agents in connection with this Licence. This obligation extends to costs and disbursements assessed on a full indemnity basis and to any value added tax in respect of those costs and disbursements except to the extent that the Landlord is able to recover that value added tax

Question 15

The Right of Re-Entry in the Lease

Answer 15

The right of re-entry in the Lease shall be exercisable if any covenant or condition of this Licence is breached as well as if any of the events stated in the provision for re-entry in the Lease occurs.

Question 16

Indemnity

Answer 16

The Tenant and the Undertenant shall indemnify the Landlord against all liabilities, costs, expenses, damages and losses suffered or incurred by the Landlord arising out of or in connection with any breach of their respective obligations in this Licence.

Question 17

Third Party Rights

Answer 17

This Licence does not give rise to any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Licence.

Question 18

Law and Jurisdiction

Answer 18

The parties agree that this Licence shall be exclusively governed by and interpreted in accordance with the laws of England and Wales and to submit to the exclusive jurisdiction of the English Courts.

Question 19

Execution

Answer 19

Signed/Executed as a Deed