Structure and Content of a Lease (Alienation) Flashcards
What is meant by ‘alienation’ in the context of leasehold property?
Generic term relating to different ways of creating an interest in the property for the benefit of a 3rd party
LL will usually impose an absolute covenant in the lease against T dealing with the leasehold interest, ‘except as expressly permitted by this lease.’
Alienation includes:
- Assignment – transferring lease to someone else
- Underletting (AKA subletting) - allowing someone else to occupy under a shorter term, whilst tenant remains in occupation
- Charging (mortgaging)
- Sharing occupation
- Parting with possession (catch-all term covering assignment and underletting and other informal arrangements)
Give a brief example of assignment and underletting
A (freehold owner + LL) granted B, the tenant, the leasehold estate in 2010 for a term of 20 years
In 2015, B sold lease to C by way of assignment. C could not negotiate the terms of the lease, as it had already been negotiated and granted in 2010, and they are buying the unexpired residue (15 years)
In 2018, C allowed D to use the top floor of the building to run a business
- C needs the head landlord’s (A’s) consent to do this and a lease of part of the premises was negotiated between C and D
- The term of the sublease must be less than the headlease, otherwise it would be an assignment (passing the same term on)
- C is D’s LL and C is A’s undertenant
There are three statutory provisions relevant to assignment of commercial leases. In name only, what are these?
Section 19(1)(a) Landlord and Tenant Act 1927
Section 19(1A) Landlord and Tenant Act 1927
Section 1 Landlord and Tenant Act 1988
What does Section 19(1)(a) Landlord and Tenant Act 1927 state?
Impliedly converts all qualified covenants into a fully qualified covenant (consent to assignment is not to be reasonably withheld)
What does Section 19(1A) Landlord and Tenant Act 1927 state?
This allows for the landlord and the tenant to agree in advance conditions and circumstances in which it would not be unreasonable for the landlord to refuse consent
- Conditions are often that the assignor agrees to give an authorised guarantee agreement for the assignee and/or that the assignee agrees to provide guarantors
- Circumstances can include that the assignor is up-to-date with the rent and/or that the assignee is of sufficient financial strength to enable it to comply with the tenant’s covenants in the lease
The effect is that such pre-agreed conditions and circumstances are deemed reasonable.
What does Section 1 Landlord and Tenant Act 1988 state?
This means that where there is a qualified covenant on assignment (whether the proviso that consent is not to be unreasonably withheld is express or implied by statute) and T has made a written application for consent, LL must within a reasonable time:
- a) give consent, except in a case where it is reasonable not to give consent
- b) serve on T written notice of its decision whether or not to give consent
specifying in addition: - i) if the consent is given subject to conditions, those conditions,
- ii) if the consent is withheld, the reasons for withholding it
What guidelines have the Court of Appeal given in regards to determining the landlord’s reasonableness under s19(1)(a) (when refusing assignment)?
(a) The purpose of a fully qualified covenant against assignment is to protect LL from having its premises used or occupied in an undesirable way, or by an undesirable tenant or assignee
(b) LL is not entitled to refuse its consent to an assignment on grounds which have nothing whatever to do with the relationship of LL and T in regard to the subject matter of the lease
(c) It is unnecessary for LL to prove that the conclusions which led it to refuse to consent were justified, if they were conclusions which might be reached by a reasonable person in the circumstances
(d) It may be reasonable for the landlord to refuse its consent to an assignment on the ground of the purpose for which the proposed assignee intends to use the premises, even though that purpose is not forbidden by the lease
(e) In general, LL is bound to consider only its own relevant interests when
deciding whether to refuse consent to an assignment of a lease. However, it would be unreasonable for LL not to consider the detriment which would be suffered by the T if consent were to be refused, if that detriment would be extreme and disproportionate in relation to the benefit gained by LL
(f) Subject to the above propositions, it is, in each case, a question of fact, depending on all the circumstances, whether LL’s consent to an assignment is being withheld unreasonably
Give some examples of where consent has been/may be reasonably withheld
1) Where proposed assignee’s references were unsatisfactory
2) Long-standing and extensive breach of repairing covenant by assignor + LL not reasonably satisfied that assignee could remedy the breach
3) Where assignee could compete with LL’s business
4) Where assignment would lower value of LL’s reversion (if LL has a future intention to sell)
5) Where proposed assignee intends to carry on a use detrimental to premises
6) Where proposed assignee would acquire protection under Part II of the LTA, unlike assignor
7) Where LL anticipates breach of user covenant, the correct approach is to examine what the reasonable landlord would do when asked to consent in the circumstances
- It would usually be reasonable for a landlord to withhold consent where an assignee proposed to use the premises in breach of the terms of the lease.
Give some examples of where consent has not been/may not be reasonably withheld
1) Where LL has refused to obtain some advantage for itself
2) Where there are minor breaches of repairing covenant
3) Where premises had been on the market for 18 months, rent was significant + slight harm to LL would be outweighed by prejudice to the tenant
What is underletting?
An underlease is a lease created by someone who is already a tenant, for a shorter term than the headlease, even if just one day shorter
Helpful if T is struggling financially, so they can pay their rent another way + if they want the property back later or if the property has several floors, so they can underlet one of them and keep the rest
LL might not consent to assignment due to concerns about financial strength of occupier, but might agree to underlease as head tenant still in place
What are a landlord’s main concerns in relation to underletting?
1) Undertenant may become direct tenant if HT’s lease is forfeited and UT applies for relief from forfeiture or if the leases expire and UT exercises statutory right to stay on and HT doesn’t
2) LL has limited control over what happens, as HT exercises rights as LL, so they will have to go through HT to get anything done
Which two statutory provisions relevant to assignment, also apply to underletting?
Section 19(1)(a) Landlord and Tenant Act 1927
- Impliedly converts qualified covenants to fully qualified covenants
Section 1 Landlord and Tenant Act 1988
- Where there is a fully qualified covenant and and the tenant has made a written application for consent, the landlord must within a reasonable time:
- (a) give consent, except in a case where it is reasonable not to give consent
- (b) serve on the tenant written notice of its decision whether or not to give consent specifying in addition:
- (i) if the consent is given subject to conditions, those conditions,
- (ii) if the consent is withheld, the reasons for withholding it
What conditions in regards to underletting might the landlord include in the alienation covenant of the lease?
- Terms of UL mirror the terms of HL
- Annual rent of UL is as high as annual rent of HL and must be reviewed at same time and on same terms as HL
- UT to enter direct covenant with HT to perform covenants of UL and HL, except paying rent twice
- No further underletting permitted
- That any underletting must exclude s 24–28 in Part II of the Landlord and Tenant Act 1954, which give business tenants the statutory right to stay on the property and renew their leases at the expiry of the contractual term
