Procedural Steps for the Assignment of a Lease Flashcards
Give an overview of the conveyancing process for the assignment of a lease
No scope to negotiate the terms of the lease, but assignee’s solicitor will need to check the terms
LL may agree to vary them, at their absolute discretion
LL must consent to assignment
Unlikely to be a premium paid by assignee on assignment
Procedure is the same as for sale/purchase of freehold land with some differences
1) Pre-contract stage
- Assignor will provide evidence of leasehold title, maybe LL’s reversionary title and the lease
- Assignor will apply for LL’s consent to assignment and provide an undertaking for LL’s costs
- Assignee will investigate the leasehold title, reversionary title and consider lease
2) Pre-completion stage
- Assignee will prepare the transfer or deed or assignment
- Assignee may add searches of LL’s reversionary title to their pre-completion searches
- Both parties will agree for of Licence to Assign with LL and complete this on or before completion
3) Post-completion stage
- Assignee will need to register assignment with LL
Why is it important to get the landlord’s consent to the assignment? Who must obtain this? What might the landlord do or require before granting consent?
1) Usually need LL’s consent under lease’s alienation covenant
- Assignor needs to obtain consent, and it is set out in a formal ‘licence to assign’
2) Licence to assign formalised by or on completion, but assignor needs to ask LL sooner
3) LL may want to get references to check assignee’s financial strength
- Might ask current LL, bank, employer, company with which they regularly trade etc
4) Assignor’s solicitor must usually give an undertaking to LL’s solicitor that they will pay the legal and professional costs involved in considering assignment and giving licence to assign – limited to reasonable costs incurred
5) LL might require assignor to enter an authorised guarantee agreement to guarantee performance of T’s covenants by assignee
What are the consequences under the SCs if licence to assign not ready by completion?
Either party can rescind contract by notice if consent not given 3 working days before completion or if consent has been given subject to a condition which assignee reasonably objects
What are the consequences under the SCPCs if licence to assign not ready by completion?
If LL’s consent not obtained by completion, this is postponed until 5 working days after assignor notifies assignee consent has been given
Contract cannot be rescinded until 6 months since original completion date; can then be rescinded by either party serving notice
What is the purpose of a licence to assign and who prepares the draft?
Allows LL to give consent to assignment. Without it, assignor may breach their alienation covenants
Draft licence produced by LL’s solicitor and assignor’s solicitor will amend or agree the draft
Common for LL, assignor and assignee to all get a signed and dated part on completion
- Licence must be in the form of a deed
What will be some of the key provisions in the licence to assign?
LL gives consent – time limited to prevent huge change in assignee’s financial situation
If lease after 1st Jan 1996 – assignor usually gives an AGA to LL (new lease)
If lease before 1st 1996, direct covenant by assignee to LL to perform T’s covenants for the remainder of the term (old lease)
Assignor agrees to pay LL’s legal and professional costs
How does the licence to assign deal with contractual liability in relation to both old and new leases?
Assignee of an old lease is liable under doctrine of privity of estate for all covenants which touch and concern the land, for as long as the lease is vested in them
- The direct covenant mentioned above extends their liability for the whole term by creating privity of contract between LL and assignee
Assignee of a new lease is liable for breaches of all T’s covenants whilst the lease is vested in them, but once it is further assigned, the assignee is released from these T’s covenants
- This is why LL usually asks for AGA
What provisions will an authorised guarantee agreement (AGA) usually contain?
An AGA usually contains covenants by the assignor:
- (a) guaranteeing that the assignee will perform the tenant’s covenants in the lease, including the covenant to pay rent
- (b) promising to perform such covenants if the assignee does not
- (c) indemnifying the landlord for the assignee’s failure to pay rent or to observe the other covenants
- (d) promising to take a new lease if the liability of the assignee is disclaimed on insolvency
Assignor’s liability under the AGA ends when the assignee assigns it further (to assignee 2)
Generally, how should title be investigated for assignment of a lease?
Assignor’s solicitor should investigate title in the same way as for a freehold purchase
They need to investigate freehold title, leasehold title + provide a copy of the lease and licence permitting assignment to current/previous Ts
How does the investigation of title differ if the assignor’s lease is registered with absolute title?
Assignee does not need to investigate the freehold
How does the investigation of title differ if the assignor’s lease is registered with good title?
The assignee will try to deduce the freehold title; they are not entitled though
- Neither set of standard conditions requires the assignor to deduce the freehold title, so a special condition is needed
- In registered land, a search can be made under open register rules
- In unregistered land, freehold title will be deduced in the normal way
How does the investigation of title differ if the assignor’s lease is unregistered?
The assignee is entitled to call for the lease + all assignments during the last 15 years, but not entitled to call for evidence of the freehold title
- They will only be able to get a good leasehold title, unless freehold is registered with absolute title
- In registered land, a search can be made under open register rules
- In unregistered land, freehold title will be deduced in the normal way
Neither set of standard conditions requires the assignor to deduce the freehold title, so a special condition is needed
What pre-contract searches and enquiries will be undertaken before assignment of a lease?
Assignee’s solicitor should make the same enquiries and searches as they would for a freehold purchase
In addition, they should ask to see insurance policy for the property + see a receipt for the last payment of rent + insurance premium to ensure assignor is not in breach
How is the transfer of the lease by assignment actually carried out + what form does it take?
Transfers of legal title of an estate in land must be done by deed
- Called a ‘deed of assignment’ for assignment of a lease
Usually prepared by assignee’s solicitor
1) For a registered lease, assignment must be done by TR1
2) For an unregistered lease with an assignment of a lease exceeding 7 years
- Compulsory first registration
- TR1 or deed of assignment
3) For an unregistered lease with an assignment of a lease for 7 years or less
- Deed of assignment always used
How do covenants for title in the deed of assignment work?
Where the assignor sells with full or limited title guarantee, the covenants for title include a promise that the assignor has complied with T’s covenants in the lease
References to repair are excluded, so it is the assignee’s responsibility to check the physical state of the property
- Covered by both sets of standard conditions
- Must be an express modification of implied covenants for title in transfer deed though
How do indemnity covenants in the deed of assignment work?
For assignment of an old lease, an indemnity covenant from the assignee to the assignor is implied except where, for unregistered leases, value is not given by the assignee for the transaction
- In the latter case, an express indemnity covenant will be inserted into the transfer deed if required by the contract
For the assignment of a new lease, assignor is automatically released from liability, but if there is an AGA, an express indemnity covenant should be included in the transfer deed, meaning assignee indemnifies assignor if they must pay out to LL under AGA
What pre-completion searches will be carried out for assignment of a lease?
Registered lease
- Official search of leasehold title (OS1) to check for new entries and get a priority period within which to register the transfer (30 working days)
Unregistered lease
- Land charges search against name of assignor to check there are no adverse entries added since pre-exchange land charges search + to gain 15 working day priority period to cover completion of assignment
Company search
- Relevant in same circumstances as for freehold transactions
How is the licence to assign formalised pre-completion?
LL’s solicitor supplies engrossments (top copies) of the licence, by deed if containing covenants
LL executes original licence and assignee executes counterpart
Assignor’s AGA can be contained in licence or created as separate deed
What is apportionment and how is this noted pre-completion?
First rent payment will need to be apportioned, so that the assignee reimburses the assignor for the period from completion until the next rent day
Assignor should supply a completion statement with all amounts due and why
The completion process is very similar to that of a freehold purchase. What will the assignor give the assignee on completion?
Assignor gives assignee:
- Lease
- Transfer deed
- Licence to assign, executed by LL
- Evidence of freehold title if appropriate
- Evidence of discharge of assignee’s mortgage
- Insurance policy
- Receipt for rent – allows assignee to assume that rent paid and all covenants performed
What will the assignee give the assignor on completion?
Assignee gives assignor:
- Money due - Assignee pays assignor balance (if there is one payable) and any sums due, like apportionment
- Duly executed counterpart licence to assign
- Release of deposit (if assignee paying a premium)
How is SDLT/LTT dealt with for assignment of a lease?
Only payable on any premium and due at same rates as for freehold land
None charged on rent as this was paid when lease was granted
What must be done in terms of registering the assignment of a registered lease post completion?
Application for registration of the transfer to assignee should be made within priority period of pre-completion OS1 search
What must be done in terms of registering the assignment of a unregistered lease post completion?
1) If the unregistered lease has over 7 years to go, it will need to be registered within 2 months of the assignment or will be void
- Absolute leasehold title is satisfactory evidence of superior title
- Good leasehold title in all other cases
1a) If the freehold is registered, lease noted against freehold title
1b) If freehold is unregistered, assignee can lodge a caution against first registration of freehold to protect their interests against a subsequent freehold buyer
2) If the unregistered lease has 7 years or less to go, it cannot be registered with separate title
What is a notice of assignment?
If the lease provides that notice must be given to LL of assignment (standard provision), the notice should be given in duplicate with appropriate fee (set out in lease)
LL will sign one copy of notice as acknowledgement of receipt and return the receipted copy to be kept with title deeds
