Property (Alienation)

Question 1

What happens to the liability of the original tenant or landlord in leases created before 1 January 1996 after assignment?

Answer 1

For leases created before 1 January 1996 (Old Lease Regime), the liability of the original landlord and tenant continues for the full duration of the lease term, even after assignment.

The original tenant and landlord remain liable for covenants even after transfer.

Question 2

What happens to the liability of the original tenant or landlord in leases created after 1 January 1996

(New Lease Regime)

Answer 2

Under the LTCA 1995, privity of contract for new leases is abolished.

• The original tenant is automatically released from tenant covenants upon assignment
• The landlord does not receive automatic release and must apply to the tenant or court for release.

Question 3

Does liability automatically pass to the new tenant or landlord upon assignment?

(New Lease Regime)

Answer 3

Yes, the benefit and burden of landlord and tenant covenants automatically pass to the new owner (reversioner) and new tenant (assignee), who become liable from the date of assignment.

Question 4

What is an exception to the rule of benefit and burden passing automatically?

(New Lease Regime)

Answer 4

Covenants expressed as personal to any party do not pass to a third party and are limited to the original parties for breaches occurring during their occupation.

Question 5

Can a landlord sue a former tenant for breaches committed by an assignee?

(New Lease Regime)

Answer 5

The landlord can enforce breaches against the current tenant.

If the current tenant cannot comply, the landlord may seek remedy from previous tenants for breaches made by the assignee - this depends on whether an AGA was provided.

Question 6

What is an Authorised Guarantee Agreement (AGA) and when is it used?

(New Lease Regime)

Answer 6

An AGA is a guarantee agreement where an outgoing tenant guarantees the obligations of their immediate successor. It applies only to their immediate assignee and ends with further assignment.

Simply, should the assignee be unwilling/unable to comply, the landlord may look to a former tenant who provided an AGA.

Question 7

What is an indemnity covenant and how does it protect the outgoing tenant?

(New Lease Regime)

Answer 7

An outgoing tenant should ensure their assignee enters into an express indemnity covenant

The assignee agrees to pay rent and perform all covenants.

The former tenant may sue the assignee for breach of the indemnity and recoup damages paid to the landlord.

Question 8

What is a sublease and the enforcement problem it presents?

Answer 8

A sublease is created when the tenant leases part of their interest without transferring it entirely.

There is no direct relationship between the head landlord and the subtenant, complicating enforcement.

Question 9

How does s.3(5) address enforcement of restrictive covenants in subleases?

What type of covenant can be enforced against sublesees?

Answer 9

Restrictive covenants in new leases can be enforced against any owner or occupier of the premises, even without direct relationship.

Positive covenants, however, cannot be enforced against subtenants.

Question 10

What is alienation in leasehold terms?

Answer 10

Alienation refers to the disposal of all or part of a tenant’s interest in the lease, often through assignment.

Question 11

What is assignment and its effects?

Answer 11

In assignment, the tenant transfers their lease to an assignee, making the assignee the landlord’s tenant and passing on obligations to pay rent and perform covenants.

Question 12

Can a tenant freely assign their lease?

Answer 12

If the lease is silent, assignment is allowed.

However, landlord consent may be required, and covenants can be absolute, qualified, or fully qualified.

Question 13

What is an absolute covenant against assignment?

Answer 13

An absolute covenant forbids assignment. Common in commercial leases, it prevents splitting the premises.

Question 14

What is a qualified covenant for assignment?

Answer 14

A qualified covenant allows assignment with landlord consent

s.19(1)(a) LTA converts a qualified covenant into a fully qualified covenant - the landlord **must act reasonably if deciding to withhold consent, and must do so within a reasonable time. **

Question 15

When can a landlord reasonably withhold consent for assignment?

Answer 15

Consent can be withheld if justified concerns exist about the assignee’s ability to pay rent or other tenant/landlord relationship factors.

Consent cannot be witheld on a basis not related to the tenant/landlord relationship (e.g. disliking the business, or race/age etc)

Question 16

What liability does an original tenant have after assignment in an old lease?

Answer 16

Under old leases, the original tenant remains liable to the landlord under privity of contract for rent and obligations.

Question 17

What changes to liability occur after assignment in new leases post-January 1996?

Answer 17

The original tenant is released from liability, and tenant covenants pass to the new tenant upon assignment.

Question 18

What effect does AGA have on the outgoing tenant? When does the chain stop?

Answer 18

An outgoing tenant only guarantees the next tenant under the AGA.

If there are subsequent assignments, the outgoing tenants liability under AGA end.

Question 19

What are the pre-exchange steps in assignment?

Answer 19

• The tenant applies for landlord consent,
• Both solicitors prepare necessary documents
• Review title
• Arrange for contract signing.

Question 20

What is the tenant’s role in a consent application for assignment?

Answer 20

The tenant solicitor applies early for landlord consent and may need to provide an undertaking for landlord’s legal and surveyor costs.

Question 21

What are CPSE1 and CPSE4 enquiries?

Answer 21

CPSE1 and CPSE4 are standard enquiries for assignments, with CPSE4 specifically addressing lease assignment details.

Question 22

For an assignment of a long residential lease, is a deposit payable?

Answer 22

For an assignment of a long residential lease, 10% deposit would be usual as with a freehold.

Question 23

What pre-completion searches are carried out if the lease being assigned is registered (more than 7 years)?

Answer 23

An OS1 search of the whole of the tenants leasehold title.

Question 24

What is an underlease and how is it different from assignment?

Answer 24

An underlease grants a lease interest without transferring it entirely.

The tenant remains the landlord’s tenant and receives rent from the under-tenant.

Question 25

What is a fully qualified covenant for underletting? What effect does a qualified covenant have?

Answer 25

If a lease has a qualified covenant against underletting, it becomes fully qualified under s.19(1)(a) LTA, requiring landlord consent to be reasonable and timely.

Question 26

What restrictions can landlords impose on underletting?

Answer 26

Landlords can limit underletting to ensure tenants that any such under lease…

• is at a rent no lower than that in the tenant’s lease; or
• contains covenants no less onerous than in the tenant lease

Question 27

What enforcement limitations does a head landlord have over an undertenant?

Answer 27

The landlord cannot directly enforce covenants against an undertenant, as there is no privity of contract or estate.

There is no equivalent of an AGA for underletting, as the tenant remains liable to the landlord.

The landlord will usually want the under tenant to covenant directly with the landlord.

Question 28

What is required for a licence to assign or underlet?

Answer 28

Landlord consent is usually needed for assignment or underletting, provided through a licence to assign or underlet that may contain specific conditions.

Question 29

Is an exchange for an agreement for underlease always necessary?

Answer 29

No. It isn’t always necessary to have an exchange.If the parties are ready to complete, there is no need for the agreement for underlease.

Question 30

If the lease being underlet is over 7 years old, what must the tenant do to deduce leasehold title?

Answer 30

The tenant need only provide an official copy of the registered leasehold title.

Question 31

If the lease being underlet is 7 years old or under, what must the tenant do to deduce leasehold title?

Answer 31

The tenant will need to provide an official copy of the landlord’s freehold title together with a copy of the lease

Question 32

When underletting, what pre-completion search should be done for underletting of the whole?

Answer 32

OS1 search against tenant registered leasehold title

Question 33

When underletting, what pre-completion search should be done for underletting of the part?

Answer 33

OS2 search carried out against the appropriate part of the tenants registered leasehold title

Question 34

When is an 0S3 pre-completion search used for an underletting?

Answer 34

Where the underlease is not registrable, (any underlease for 7 years)

Question 35

When must a tenant notify a landlord of assignment or underlease completion?

Answer 35

The tenant must give the landlord formal notice within a month after assignment or underletting.

Question 36

What constitutes ‘a reasonable time’ in relation to the landlords statutory duty to respond to a written request in writing relating to permission to assign if it is converted to a ‘fully qualified covenant’

Answer 36

28 Days

The landlord is under a statutory duty to respond to the written request in writing within 28 days (a reasonable time according to Dong Bang Minerva v Davina)

Question 37

Which documents will the assignee be a party to?

Answer 37

TR1 and Licence to assign.

The landlord will want it to be a party to the licence to assign too to give a direct covenant to comply with the tenant covenants in the lease.

Question 38

When calculating SDLT - when is it payable from? When must it be paid?

Answer 38

14 Days from either

(a) Date of Completion; or
(b) Date of Occupation if Earlier

For example, if there was an agreement for underlease under which the undertenant was allowed to occupy the warehouse prior to completion for fit out purposes

Question 39

What document creates privity of contract between the landlord and the undertenant?

Remember, this concerns underletting not assignment!

Answer 39

Licence to underlet.

The landlord and undertenant, along with the tenant, will enter into this document. It grants formal permission to the underletting and will contain a covenant from the undertenant to comply with the tenant covenants in the lease.

Question 40

If a tenant serves a counter-notice in response to a s.146 notice within 28 days, what must the landlord do?

Answer 40

The landlord cannot proceed to claim forfeiture without first obtaining the lease of the court.

It does not matter that the tenant has failed to remedy the breach in the circumstances.