Procedural steps for the assignment of a lease Flashcards
Main differences
Need for landlord’s consent to the assignment
Landlord’s consent - Who’s responsibility is it to obtain the consent?
It is the assignor’s responsibility to obtain the consent but both parties to the assignment will need to be involved
Landlord’s consent - What will the landlord require?
The landlord will probably want to take up references on the prospective assignee to ensure that they are solvent and financially strong enough to pay the annual rent. References they are likely to obtain:
- A current landlord
- The assignee’s bank
- The assignee’s employer
- A professional person such as an accountant/solicitor
The landlord may also want an authorised guarantee agreement
Landlord’s undertaking
Landlord’s solicitor will require an undertaking from the assignor’s solicitors for the payment of the legal and other professional costs
Landlord’s consent - When must consent be given?
The landlord’s consent must be given by or on completion of the assignment.
Who drafts the licence to assign?
Landlord’s solicitor
The licence to assign - What will it typically contain?
1) The landlord grants consent to the assignor to assign the lease to the assignee.
2) It the lease was granted on or after 1st jan 1996 the assignor will typically give an authorised guarantee agreement to the landlord
3) If the lease was granted before 1st Jan 1996 a direct covenant by the assignee to the landlord to observe and perform the covenants in the lease for the remainder of the term
4) The assignor agrees to pay the landlord’s legal and professional costs
Relationship between the landlord and the assignee - What does it depend on?
It will depend on whether the lease is an old lease granted before 1st Jan 1996 or a new lease granted on or after that date
Relationship between the landlord and the assignee - Who is liable in an old lease?
An assignee of an old lease is liable under the doctrine of privity of estate for all the covenants in the lease which touch and concern the land but only for as long as the lease remains vested in the assignee. The landlord will therefore seek to extend the liability of the assignee by requiring it as a condition of the landlord’s consent to enter into a direct covenant to observe the covenants in the lease for the remainder of the term of the lease thereby creating privity of contract between the landlord and the assignee
Relationship between the landlord and the assignee - Who is liable in a new lease?
An assignee of a new lease is also liable for breaches of covenant committed while the lease is vested in them. However on a future assignment of the lease the Landlord and tenant act automatically releases the assignee. Statute allows the landlord to require that the assignor enters into an authorised guarantee agreement instead. The AGA should provide that the assignor’s liability does not extend beyond that of the assignee so that on the assignee being released from liability on a further assignment of the lease so is the assignor
What will an AGA typically include?
An AGA will typically contain covenants by the assignor:
- Guaranteeing that the assignee will perform the tenant’s covenants in the lease including the covenant to pay rent
- Promising to perform such covenants if the assignee does not
- Indemnifying the landlord for the assignee’s failure to pay rent or to observe the other covenants
- Promising to take a new lease if the liability of the assignee is disclaimed on insolvency
Deduction and investigation of title
The assignor’s solicitor should investigate title in the same way as for the purchase of a freehold property. The assignor’s solicitor should always provide the assignee’s solicitor with a copy of the lease and any licence permitting assignment to the current and previous tenants.
Pre-contract enquiries and searches
Should be the same as for the purchase on a freehold property. Additionally the assignee’s solicitor should ask to see the insurance policy relating to the property.
New tenant and rent
The tenant will make an interim (apportioned) payment on the lease commencement date to take it through to the first rent day after the lease commenced then a full quarterly rent payment will become due on the first rent day after the lease commenced
SDLT and VAT on the grant of a lease
On the grant of a lease SDLT is potentially payable both on any premium charged by the landlord and the rent reserved by the lease. Where VAT is chargeable, SDLT is charged on the VAT inclusive amounts
