Property (Leasehold) - Assignment of Lease (5) Flashcards
What is assignment of lease?
Assignment of Lease: Assignment comprises the sale of an existing lease to a new tenant. It differs from a grant of lease in that: a) the lease terms remain the same; and b) landlord’s consent must invariably be obtained (if required under lease).
What is liability on assignment?
Liability on Assignment: The liability of parties following assignment will differ by the age of the lease.
(1) New Lease: For a lease granted since 1996, an assignor will be released from liability on assignment, unless they enter into an AGA.
(2) Old Lease: Under a lease granted before 1996, an original tenant is liable forever. Subsequent tenants are only liable for length of assignment, unless they enter into a direct covenant on assignment to remain liable forever.
What is a licence to assign?
Licence to Assign: Landlord consent is generally required to assign. Consent is provided by deed, executed on completion.
What is meant by agreement in principle?
Agreement in Principle: The assignor must use all reasonable endeavours to obtain the landlord’s consent. As a licence is not executed until completion, agreement should be obtained ‘in principle’ pre-completion.
(1) Reasonable Endeavours: ‘Reasonable endeavours’ includes providing references, solvency statements, and other information about the assignee to the landlord.
>References from current landlords, banks, employers, accountants, trade partners, and three years’ audited accounts (for businesses).
(2) Written Correspondence: The assignor must write to the landlord setting out their proposed assignment. The landlord must reply within a reasonable time. They cannot unreasonably withhold consent (unless absolute covenant).
(3) Conditions of Consent: Landlords can impose reasonable conditions on consent, including AGAs, Guarantors and Rent Deposits.
AGA Clause: If the original lease has an AGA requirement, the landlord can enforce it regardless of how reasonable it is.
No AGA Clause: If the original lease has no AGA clause, an AGA must be reasonable to impose.
(4) Costs Undertaking: Assignor’s solicitors will undertake to pay the landlord’s reasonable costs of process.
>Solicitors may require the assignor’s money on account first.
(5) Reasonable Refusal: Landlords can only refuse consent under a fully qualified covenant if ‘reasonable’.
Reasonable: a) poor references; b) assignor’s persistent breach of repair covenant; c) competition to landlord’s business; d) risk to freehold reversion value; e) anticipated detrimental use of property; f) inconsistent with other tenants; g) statutory protection; h) anticipated breach of lease terms; i) non-rent.
Unreasonable: a) personal gain; b) minor breaches; c) low risk of harm; d) discrimination.
Premium: Landlords cannot demand premiums as a condition of consent.
What are the contents of a licence to assign?
Formal Licence to Assign: The landlord drafts the licence deed, which will act as evidence of consent on completion.
(1) Contents: The licence contains the consent and any conditions or covenants attached.
(2) Covenants: The licence generally contains covenants (may also involve guarantors).
New Lease: Assignor typically enters AGA (if reasonable, or lease requires), and assignee indemnifies.
Old Lease: Assignee typically enters direct covenant (remains liable to landlord for duration of lease).
Rent Deposit: Assignee may be required to enter a rent deposit with the landlord.
(3) Execution: As covenants are involved, new lease assignments are typically executed in triplicate.
(4) Length of Consent: The length of consent is normally time limited, i.e. ‘must occur in next 3 months’.
What happens if a tenant fails to get consent for assignment?
Failure to Obtain Consent: Failure to obtain consent by assignment is a breach of alienation covenant. The effect differs, but both demonstrate the exchange should not occur until landlord consent has been obtained.
(1) SCs: Under the SCs, either party can rescind by notice if consent has not been not obtained by 3 working days before completion (or is provided subject to a condition the assignee reasonably rejects).
(2) SCPCs: Under the SCPCs, completion is postponed until 5 working days after the assignee is notified that consent has been given. Either party can rescind by notice only 6 months after completion date has passed without consent.
(3) Effect: If timing is of the essence, contracts should not be exchanged before consent has been provided.
What needs to be done in the pre-contract stage of assignment?
Investigation of Title
Investigation of Title: The assignor’s solicitor conducts title investigation in the same way as freehold. Both leasehold and superior freehold should be checked for relevant burdens.
Deduction of Freehold Title
Deduction of Freehold Title: Whether superior freehold title can be deduced will differ. By default, there is no obligation.
(1) Registered (Absolute Title): If a lease has absolute title, it means the lease was registered with full freehold title. The absolute title is proof of absolute freehold title, so it is generally not necessary to be deduced.
(2) Registered (Good Leasehold Title): Good leasehold title does not guarantee a sound freehold. There is no obligation to disclose the freehold, but without it, the assignee or their lender may refuse to proceed. If the freehold is registered, it may be sought online. If unregistered, it must be sought as a special condition of contract.
(3) Unregistered: If the lease is unregistered, the assignee is entitled to call for the lease and all assignments under it during the last 15 years (but not the freehold). However, the freehold is required to register with absolute title. If freehold is registered, it may be sought online. If unregistered, it must be sought as a special condition of contract.
Searches and Enquiries
Searches and Enquiries: Assignee’s solicitor conducts searches and enquiries. This includes the standard freehold searches, as well as bespoke assignment searches.
(1) Bespoke Searches: Bespoke searches include: a) existing insurance policies; b) receipts for rent and insurance (assignees liable for missed payments).
(2) No Searches: This stage may be skipped for shorter leases (this is inherently risky).
How are contracts exchanged?
Exchange of Contracts: Contracts are exchanged in the same manner as freeholds.
What pre-completion searches need to be undertaken for assignment?
Draft Deed
Draft Deed: Assignee’s solicitor will draft a deed of assignment, typically Form TR1 (see freehold).
Pre-Completion Search
Pre-Completion Search: Assignee’s solicitor will complete the pre-completion searches.
(1) Registered Lease: Form OS1/OS2 against leasehold title (30 working days priority).
(2) Unregistered Lease: Form K15 against assignor at Land Charges (15 working days priority).
(3) Company Search: A company search against assignor/assignee/landlord (if corporation).
Licence to Assign
Licence to Assign: Landlord will supply copies of the licence to assign, which will be by deed if containing covenants.
(1) Old Lease: Typically covenant between assignee and landlord, executed in 2 parts (as no AGA).
(2) New Lease: Typically an AGA and indemnity, executed in 3 parts.
Rent Apportionment
Rent Apportionment: Assignee must backpay assignor for any rent and other sums paid in advance.
(1) Completion Statement: Assignor provides Completion Statement of all sums due (incl. rent, bills, insurance).
(2) Copy of Receipts: Assignor provides copies of receipts upon which apportionment is calculated.
What are the contents of a deed of assignment?
Deed of Assignment: Leases are assigned by an ‘Assignment’, a deed drafted by the assignee’s solicitor.
(1) Registered Lease: Registered leases are transferred on Form TR1 (see freehold conveyancing).
(2) Unregistered Lease: Unregistered leases are transferred on:
More than 7 Years Remaining: Transferred on Form TR1 (triggers first registration).
7 Years or Less Remaining: Transferred on a simple ‘Deed of Assignment’ (same function).
(3) Contents: Contents are largely the same as in freehold (subject to indemnity and altering title covenants).
Altering Covenants for Title
Altering Covenants for Title: Assignment of a lease with full or limited title guarantee implies that the assignor has complied with tenant covenants, including repair. This conflicts with caveat emptor (no obligation to disclose physical defects).
(1) Covenant: Assignor removes the implication of compliance: ‘The covenants set out in section 4 of the LP(MP)A 1994 will not extend to any breach of the tenant’s covenants in the lease relating to the physical state of the property.’
(2) Effect: Assignor is not liable for failures to repair discovered after completion.
Indemnity Covenants
Indemnity Covenants: Indemnity covenants between assignor and assignee may be included.
(1) Old Lease: Indemnity for a direct covenant from assignee to assignor is implied, unless transfer of an unregistered lease for no value (must be expressly included).
(2) New Lease: Indemnity for AGA must be expressly included (if exercised).
What occurs on completion for assignment?
Completion: Completion is similar to freehold.
(1) Payment: Balance of purchase price and apportionments are paid.
(2) Document Exchange: Assignor hands over: a) lease; b) transfer deed; c) licence; d) evidence of title if required in contract; e) evidence of mortgage discharge; f) insurance details; g) final receipts etc.
(3) Presumptions: Assignee can presume that rent and other outgoings have been paid up to date on production of assignor’s final receipts - their solicitor should inspect them (s45 LPA).
What happens post-completion of assignment?
Notice of Assignment
Notice of Assignment: Notice of assignment should be provided in 2 parts to the landlord within 1 month of completion.
(1) Landlord Copy: Landlord retains one copy.
(2) Assignor Copy: Landlord signs and returns copy to assignor (acts as evidence of alienation compliance).
Stamp Duty
Stamp Duty: Stamp duty may be owed on purchase price (not rent - paid on grant).
Registration
Registration: The lease may require registration or, if registered, registration of transfer.
(1) Registered Lease: Application to register assignment in OS1 period.
(2) Unregistered (Over 7 Years Remaining): Lease must be registered within 2 months (else void).
Title: Superior absolute freehold title must be deduced for absolute title. Otherwise, good leasehold title.
Freehold Notice: Must be noted against registered freehold, or cautioned pending first registration.
(3) Unregistered (7 Years or Less): Leases not exceeding 7 years cannot be registered under a separate title.
