Procedural Steps for the Assignment of a Lease

Question 1

Is the landlord’s consent to assignment usually contained within a lease?

Answer 1

No. It is usually contained within a separate document called a licence to assign.

Question 2

List the references which may be required (on the part of the assignee) for a lease to be assigned.

Answer 2

• current landlord;
• assignee’s bank;
• assignee’s employer;
• professional person (eg accountant or a solicitor);
• person or company with whom the assignee commonly trades;
• three years audited accounts in the case of a company or self employed person or partnership.

Question 2

Is an undertaking required on the assignment of a lease?

Answer 2

An undertaking is usually required by the landlord from the assignor’s solicitors to undertake to pay the legal fees and other professional costs involved in considering the assignment proposal and the licence to assign.

Question 3

Does the landlord have a right to require a premium to be paid by the assignor prior to the assignment of a lease?

Answer 3

This is usually not required unless the lease affords the landlord this power (which would be very unlikely).

Question 4

How does the contract deal with the landlord’s consent to assign where the SCPC are used?

Answer 4

SCPCs provide if landlord consent isn’t given by the completion date, completion is postponed for 5 working days after the assignor notifies the buyer landlord consent has been obtained.

contract may not be rescinded until 6 months have passed since original completion date.

Either party can then rescind by serving notice on the other.

If timing is important, it is safest not to exchange until the landlord’s consent has been obtained.

Question 4

How does the contract deal with the landlord’s consent to assign where the SCs are used?

Answer 4

Under the SCs either party may rescind the contract by notice if the consent to assignment has not been given at least three working days before the completion date (or if the consent has been given subject to a condition which the buyer objects).

This allows contracts to be exchanged prior to landlord consent being given, but does mean there is uncertainty as to whether the transaction will complete.

If time is of the essence, exchange should not take place prior to the consent of the landlord being obtained.

Question 5

Who prepares the draft licence to assign?

Answer 5

It will be produced by the landlord’s solicitor and then sent to the assignors solicitor (who speaks to the assignee’s solicitor to amend or agree a draft).

Question 6

Who are parties to the licence to assign?

Answer 6

Usually the landlord, assignor and assignee are all parties to the licence to assign (if the assignor and assignee are to enter into covenants).

Question 7

Does the contract (ie licence to assign) need to be created by deed?

Answer 7

Yes.

Question 8

List the typical provisions contained within a licence to assign.

Answer 8

1) Landlord consent to the assignor assigning the lease to the assignee. This consent is often time limited as the landlord will likely have no control over when the assignment takes place (and the financial position of the assignee can change within a short space of time).

2) If lease was granted on or after 1st Jan 1996, assignor will usually give authorised guarantee agreement to the landlord.

3) If lease was granted prior to 1st Jan 1996, there will be a direct covenant by assignee to the landlord to observe and perform covenants in the lease for the remainder of the term.

4) Assignor generally agrees to pay landlord’s legal and professional costs (also protected by an undertaking by assignors solicitor).

Question 9

What is an old lease for the purposes of assignment?

Answer 9

Any lease granted prior to 1st jan 1996.

Question 10

What is a new lease for the purposes of an assignment?

Answer 10

Any lease granted after 1st Jan 1996.

Question 11

Explain the contractual liability of an assignee under an old lease.

Answer 11

Assignee of old lease is liable under doctrine of privity of estate for all covenants contained within the lease which touch ad concern the land (but only for as long as the lease is vested in them).

Landlord will seek to extend liability of assignee requiring it (as a condition of the landlords consent) to enter into a direct covenant to observe the covenants in the lease for the remainder of the term of the lease.

This creates privity of contract between the landlord and the assignee, which is a direct covenant usually contained within the license to assign.

Question 12

Explain the contractual liability of an assignee under a new lease.

Answer 12

Assignee of a new lease is also liable for breaches of covenants committed whilst the lead is vested in them. They are also liable for all of the tenant covenants in the lease, not just those which touch and concern the land.

On future assignment of the lease, Landlord and Tenants (Covenants) Act 1995 automatically releases the assignee from all tenant covenants of the tenancy. If the landlord requires a direct covenant from the assignee, this covenant should be limited to the period the assignee is actually the tenant (ie not for the remainder of the entire term).

To compensate the landlord for this loss of privity of contract, statute allows the landlord to require the assignor to enter into an authorised guarantee agreement instead (in effect this will always be required by the landlord for new leases provided then landlord reserved the right to do so in the lease).

Question 12

What is an authorised guarantee agreement (AGA) and when can it be insisted upon by a landlord?

Answer 12

This will apply to new leases (those granted after 1st jan 1996).

In the lease the landlord may have inserted the need for an AGA in the lease as a pre-condition to giving consent. In this case landlord will always insist the assignor enters into an AGA whether or not it is reasonable.

If the lease does not provide the landlord with the right to request assignor to enter into an AGA, landlord may only insist on an AGA if it is reasonable to do so.

Question 13

Give the typical covenants given by the assignor in an AGA.

Answer 13

1) Guaranteeing that the assignee will perform tenant’s covenants in the lease (including the covenant to pay rent); and

2) Promising to perform such covenants If the assignee does not; and

3) Indemnifying the landlord for the assignees failure to pay rent or observe the other covenants; and

4) Promising to take a new else if the liability of the assignee is disclaimed on insolvency.

Question 13

What key provision should an AGA include in relation to the assignor’s liability?

Answer 13

AGA should provide the assignor’s liability does not extend beyond that of the assignee.

This ensures that the assignor’s liability ends if/when the assignee is released form liability on a further assignment of the lease.

Question 14

Should the assignee carry out investigation of title if the assignor’s lease is registered with absolute title?

Answer 14

No - it will not be necessary.

This is because the assignor will be able to provide the assignee’s solicitor with the official copies from the LR. As the title to the lease is guaranteed at the LR there would be no need to deduce title.

Question 15

Should the assignee carry out investigation of title if the head lease is registered with good leasehold title?

Answer 15

Assignee may need to conduct investigation of title as registration with good leasehold title is not always sufficient as to guarantee the sounds of the freehold title.

Without deduction of freehold title, lease may be unacceptable to the assignee or any lenders.

If the freehold title is registered a simple LR search would be sufficient, however if unregistered the normal procedure for deducing unregistered title would be recommended.

Note that where the lease is registered with good leasehold title, it is not a legal requirement to carry out investigation of title (but it is recommended).

Question 16

Should the assignee carry out investigation of title if the assignors lease is not registered?

Answer 16

Yes. an assignee is entitled to call for the lease and all previous assignments under which that lease has been held during the prior 15 years.

Without deduction of freehold title in such situations, the assignee would only obtain a good leasehold title when the lease is registered at the LR on completion. Registration of good leasehold title would likely be insufficient for the assignee or their lender.

If the freehold title is registered, parties can search the LR and if it is unregistered the normal process for deducing freehold title on unregistered land will apply.

Question 17

What pre-contract enquires and searches should the assignee’s solicitor carry out prior to assignment of the lease?

Answer 17

The same enquiries and searches that would be undertaken on the purchase of a freehold property should be conducted.

Question 18

What infuriation should the assignee’s solicitor obtain in relation to insurance?

Answer 18

Insurance policy relating to the property and the receipt of the last insurance premium date.

Assignee should also ask for a copy of the last payment of the annual rent due to check the assignor is not in breach of the lease.

Question 19

Who prepares the draft deed of assignment?

Answer 19

The assignee’s solicitor.

Question 20

If an unregistered lease is being assigned, when is it compulsory to register that new lease on assignment?

Answer 20

When the lease term is for more than 7 years.

Question 21

Which amendment to the covenants of title is typically required and made by the assignee?

Answer 21

A modification to the repair covenants. effectively the covenants relating to repair will be expressly excluded in the contract to avoid the assignee receiving the burden of the assignor’s previous breach of repair covenants.

Question 22

Explain whether there is an indemnity covenant implied (from the assignee to the assignor) into the assignment of old leases.

Answer 22

An indemnity covenant from the assignee to the assignor is implied except where (in relation to unregistered leases) value is not given by the assignee for the transaction.

In these situations an express indemnity covenant will be added into the transfer deed if required by the contract.

Question 23

Explain whether there is an indemnity covenant (from assignee to assignor) implied into the assignment of new leases.

Answer 23

There is no implied indemnity covenant and therefore the assignor will be released from future liability on the assignment and therefore will not require an indemnity from the assignee.

However, an AGA will often be in place. This will mean an express indemnity covenant will be contained within the transfer deed, and will be insisted upon by the assignor.

Question 24

Explain the pre-completion searches which will be undertaken in relation to a registered lease.

Answer 24

Official search of the registers of the leasehold title (OS1) to check for new entries and gain a priority period.

Transfer should be registered within the priority period to benefit from its protection.

Question 25

Explain the pre-completion searches which will be undertaken in relation to an unregistered lease.

Answer 25

Land charges search should be made against the name of the assignor (to check no adverse entries have been made since exchange). this will confer a priority period of 15 working days to cover completion of the assignment.

Question 26

who supplies the completion statement on completion of a licence to assign and what should this include?

Answer 26

The assignor will supply the completion statement.

This will show the amounts due (mainly rental payments) and explains how they are calculated. Copies of the receipts or demands on which apportionments of rent are based should also be supplied with the completion statement. The assignee can then check the sums.

Question 27

What should the assignee hand over to the assignor on completion?

Answer 27

(a) money due in accordance with the completion statement
(b) duly executed counterpart licence to assign
(c) a release of deposit (only likely where the assignee is paying a premium).

Question 28

What should the assignor hand over to the assignee on completion?

Answer 28

(a) the lease
(b) the transfer deed (TR1 or deed of assignment, as appropriate)
(c) the licence to assign executed by the landlord
(d) evidence of the freehold title in accordance with the contract (lease not registered or not registered with absolute title)
(e) evidence of discharge of the assignee’s mortgage
(f) copies of duplicate notices served by the assignor and its predecessors on the landlord in accordance with a covenant in the lease requiring the landlord to be notified of any dispositions
(g) insurance policy (or copy if insurance is effected by the landlord) and receipt (or copy) relating to the last premium due
(h) receipt for rent (and other outgoings for which the assignor wishes to claim
reimbursement).

Question 29

Explain the provision of s45(2) LPA 1925.

Answer 29

It provides that on production of the last rental receipt (due under the lease) an assignee must and is entitled to assume the rent has been paid and the covenant performed (unless there is evidence to the contrary).

Question 30

Is SDLT/ LTT payable on completion of the assingment of a lease?

Answer 30

It is payable only on any purchase price charged by the assignor (and apply at the same rates as for the sale of freehold land).

No SDLT/LTT is payable on the rent as this will have been paid when the lease was originally granted.

Question 31

Explain the registration process (post completion of assignment) for an already registered lease.

Answer 31

Application for registration of the transfer to the assignee should be made within the priority period conferred by the OS1 search which was done pre-completion.

Question 32

Explain the registration process (post completion of assignment) for a lease which is unregistered.

Answer 32

If at the date of assignment the else still has over 7 years of the term left, it needs to be registered at the LR within 2 months of completion of the assignment. If it is not it will be void in respect of the legal estate.

If the freehold is already registered, the lease will be noted against the freehold title.

If the lease has less than 7 years of the term remaining, it is incapable of being registered with separate title.

Question 33

When registering an unregistered lease post assignment, can this be done with absolute title?

Answer 33

Yes provided the assignee can produce satisfactory evidence relating to the superior title. If not, only good leasehold title can be obtained.

Question 34

What is a notice of assignment?

Answer 34

Often the lease will provide notice must be given to the landlord once assignment has taken place. This should be done formally, sending two copies of the notice to the landlord.

Landlord must sign this notice and return it to the sender.