The grant and the assignment of a commercial lease/underlease

Question 1

Lease is:

Answer 1

Grant of a right to the exclusive possession of land for an agreed period of time.
Estate in land which provides the holder of the estate with rights of possession AND use of the land (NOT ownership).
Contractual relationship BETWEEN the party that grants the lease (landlord OR lessor)
AND holder of the lease (tenant OR lessee).

Question 2

Commercial lease:

Answer 2

generally the grant of a business tenancy of commercial property within the Landlord and Tenant Act 1954
UNLESS has been contracted out.

Question 3

Residential lease:

Answer 3

is regulated separately AND includes statutory security of tenure, rights to buy, implication of terms AND rights to enfranchisement AND renewal.

Question 4

Drafting the lease:

Answer 4

Landlord’s solicitor drafts the lease AND the tenant’s solicitor WILL make proposed amendments, UNTIL the lease is agreed.

Question 5

Purpose of an agreement for lease:

Answer 5

Agreement for lease is a contract BETWEEN two OR more parties to enter into a lease.
Agreement will place a contractual obligation on the respective parties to enter into the lease, EITHER on a fixed date in the future OR following the satisfaction of conditions set out in the agreement.

Question 6

Deduction and investigation of title:

Answer 6

Tenant WILL want to ensure that the landlord is permitted to grant the lease.
Mortgage over the interest from which the leasehold title is to be granted, lender’s consent MUST be obtained.
Lease to be granted is an underlease, alienation covenant in the headlease MUST be reviewed to ensure underletting is permitted.
Grant of a lease of more than 7 years, tenant will require the landlord to deduce the freehold title to enable the tenant to obtain registration with an absolute leasehold title at HMLR.
Grant of a sub-lease of more than 7 years, tenant will require the landlord to deduce the head-lease AND freehold title to enable the tenant to obtain registration with an absolute leasehold title at HMLR.
Head-lease registered with absolute title, no need to see freehold title.

Question 7

Pre-contract enquiries and searches:

Answer 7

Same enquiries and searches before exchange AND completion will be undertaken as for the purchase of freehold title.

Question 8

Pre-completion formalities:

Answer 8

Lease is an interest in land and MUST be signed as a deed to comply with s.52 of the LPA 1925.
Lease will be prepared in two identical parts:
*Part 1 – lease is signed by the landlord AND given to the tenant.
*Part 2 – counterpart is signed by tenant AND given to the landlord.

Question 9

Following post-completion steps MUST be taken:

Answer 9

*Tenant will pay rent in advance for the period from completion date to the next rent payment date.
*Submit land transaction return for the payment of SDLT (England) AND LTT (Wales).
*Lease of over 7 years MUST be registered at HMLR with its own title.
*Lease for 7 years OR less BUT more than 3 years CAN be noted voluntarily at HMLR.
*Lease for less than 3 years CAN’T be noted.

Question 10

Deduction and investigation of title:

Answer 10

*Assignee’s solicitor will report to the client on the terms of the lease as it’s already in existence AND the subject of the sale.
*Any superior freehold title interest SHOULD be checked as part of the deduction of title of the lease.
*Lease is registered at HMLR with absolute title, no need to investigate the freehold title.

Question 11

Pre-contract enquiries and searches:

Answer 11

Same enquiries and searches before exchange and completion will be undertaken as for the purchase of freehold title.

Question 12

Landlord’s consent:

Answer 12

Assignor’s solicitor WILL review the lease to see if landlord’s consent is required for an assignment of the lease.

Question 13

Deed of assignment and covenants for title:

Answer 13

*Assignment of a lease is the transfer of the legal title to an estate in land AND therefore MUST be done by deed (s.52 LPA 1925).
*Lease is registered, form TR1 WILL need to be completed.
Form TR1 executed as a deed AND acts as the transfer deed.
*Lease is unregistered, lease being assigned exceeds 7 years, the assignment will lead to compulsory first registration of the lease (requiring completion of TR1 form).
TR1 executed as a deed AND acts as the transfer deed.
*Deed of assignment format, lease is 7 years OR less as first registration ISN’T triggered by its assignment.
*Covenants for title for full title guarantee OR limited title guarantee implies a set of covenants into the disposal instrument.
*In a lease, would imply a covenant that the seller has complied with the tenant’s covenants in the lease, including repair.
*Seller’s solicitor SHOULD modify the implied covenants of title to NOT to imply that the repair AND decoration covenants in the lease have been performed.

Question 14

Pre-completion formalities:

Answer 14

Assignment of a lease is the transfer of an interest in land AND MUST be signed as a deed to comply with s.52 of the LPA 1925.
Lease is registered, conduct a pre-completion search of the land register (form 0S1) to gain 30 working day priority period.
Lease is unregistered, conduct a land charges search against the name of the assignor to gain 15 working day priority period (form K15).

Question 15

Landlord’s license to assign (permitting the assignment) will be prepared in two identical parts:

Answer 15

*Part 1 - license is signed by the landlord AND given to the tenant.
*Part 2 – counterpart is signed by tenant AND given to the landlord.

Question 16

Prepare the transfer deed (form TR1 OR deed of assignment) between assignor (outgoing tenant)
AND assignee (incoming tenant).
Prepare…if being given.

Answer 16

authorised guarantee agreement

Question 17

Authorised guarantee agreement:

Answer 17

Lease is granted after 1 January 1996 AND the lease contains a qualified covenant against assignment,
AND the current tenant asks for permission to assign, the landlord CAN ask the current tenant (the assignor) to enter into an authorised guarantee agreement whether OR not it is reasonable to do so.
Absence of covenant against assignment, landlord CAN ask for an authorised guarantee agreement ONLY if it is reasonable to do so.
Assignor guarantees new tenant (the assignee) WILL perform the covenants AND guarantee WOULD ONLY last as long as the assignee remains the owner of the lease.

Question 18

Completion and post-completion steps:

Answer 18

Submit a land transaction return for the payment of SDLT (England) AND LTT (Wales).
Assignment of a registered lease MUST be registered at HMLR.
Assignment of an unregistered lease which has over 7 years to run, at the date of assignment WILL trigger first registration.
Notice of the assignment of the lease MUST be served on the landlord.

Question 19

License to assign -
Purpose of AND who prepare the draft:

Answer 19

License to assign is the landlord’s consent to the assignment of the lease by the assignor (outgoing tenant) to the assignee (incoming tenant).
Failure to obtain landlord’s consent could result in the breach of the alienation covenants in the lease AND forfeiture.
Draft of the license to assign WILL be produced by the landlord’s solicitor.

Question 20

Privity of contract and how the license deals with this -
Before 1 January 1996:

Answer 20

landlord to specify that the assignee gives the landlord a direct covenant to perform the tenant’s covenant’s under the lease for the remainder of the term of the lease.
Will create privity of contract between the landlord AND assignee.

Question 21

Privity of contract and how the license deals with this -
On or after 1 January 1996:

Answer 21

landlord will specify conditions to be met, including:
Direct covenant from the assignee to perform the tenant’s covenants under the lease (while it is a tenant only)
AND/OR
Giving of an authorised guarantee agreement by the assignor guaranteeing the performance of the tenant’s covenants by the assignee.

Question 22

License to assign SHOULD contain the following key provisions:

Answer 22

Landlord’s express consent to permit the assignment of the lease from assignor to assignee.
Lease granted before 1 January 1996 – conditions specified previously.
Lease granted on OR after 1 January 1996 – conditions specified previously.
Covenant to pay the landlord’s reasonable legal costs for preparing the license to assign.