U6. Assingment of Commerical Lease and Underlease

Question 1

What is the assingment of a lease?

Answer 1

The Transfer of the unexpired residue of the term of an existing / subsisting lease or underlease by the existing tenant (assignor) to a new tenant (assignee)

As the tenant is taking what is left of the term, there is no scope to amend the lease unless the landlord is prepared to enter into a deed of variation of its terms.

Question 2

On what terms are assingments usually allowed?

What is usually required?

Answer 2

Commercial leases typically permit assignment of the whole with the landlords written consent under a qualified or fully qualified covenant.

Thus, a formal licence to assign is usually required (landlords formal consent)

Question 3

How should solicitors deduce and investigagte the title for the purposes of assigning a lease or underlease?

Answer 3

The assignors solicitor should investigate and deduce the title in the usual manner to anticipate problems and specify the incumbrances within any contract.

Question 4

What documents should be deduced by the assignors solicitor for Leases with Registered titles when assigning a lease?

Answer 4

Leasehold title

1. Official copies and filed/title plan, together with an official copy of the lease and any other documents referred to in the title
2. Any other documents and deeds ancillary or collateral to the lease (e.g licences to assign)

Superior Title

1. No obligation to deduce the superior title, although best practice

Question 5

What documents should be deduced by the assignors solicitor for Unregistered leases when assigning a lease?

Answer 5

Leasehold Title

1. Copy lease and any assignments, as well as any other documents and deeds ancillary or collateral to the lease in the last 15 years.

Superior title

1. The assignor is under no obligation to deduce the superior title, however should if the lease will be subtantively registrable following the assignment, so that the lease may be registered with absolute leasehold title.
2. If the superior title is registered, official copies and filed plan may be obtained from HM Land Registry if the assignor does not provide them.

Question 6

What 3 steps will the assignees solicitor take at the pre-contract stage?

Answer 6

THE ASSIGNES SOLICITOR will need to investigate title and report to the assignee.

The Assigns Solicitor Will:

1. Raise detailed standard enquires (eg CPSEs) and any appropirate specific enquires/requisitions.
2. Undertake the usual pre-contract searches
3. Request a draft licence to assign from the assignors solicitor.

Question 7

What is a licence to assign?

Answer 7

A Licence to assign gives the landlords formal written consent to the proposed assignement and is the required form of giving consent to assignments.

For new leases it may also contain an Authorised Guarantee Agreement.

For Old leases it will typically contain a direct covenant between the landlord and the assignee.

Question 8

What is the typical provision to cover the landlords cost for the tenant deciding to assign the lease?

Answer 8

The land lord will typically require an undertaking from the assignors solicitors to be responsible for the landlords legal and other professional costs In relation to the proposed assignment.

It is important that the assignors solicitors do not agree without their clients consent to give the undertaking and until they are in receipt of cleared funds on the client account.

Question 9

Is a contract needed between the assignore and assignee for an tenant to assign their lease ?

Answer 9

Like the grant of a lease or underlease, most assignments will proceed to completion without a formal contract or agreement.

However, the parties must not complete until the formal license to assign has been completed.

Question 10

If the parties (Assignee and assignore) of a lease assingment decide to use a contract, what should they do before the exchange of contracts and why?

Answer 10

They should complete any required formal licences to assign before exchange.

This is because the standard conditions in contracts for the assignment of a lease can have a negative affect.

Question 11

What are the 3 standard conditions in relation to contracts for the assignment of a lease between the asignee and asignee?

Answer 11

1. SC 8.33 - Rescission owing to no licence to assign
   Either Party may rescind the contract by notice if by 3 working
   days before completion
   a) Consent has not be given or
   b) It has been given subject to a condition to which a
   party reasonably objects
2. SCPCs 11.35 - Postponement of Completion
   Completion date will be postponed until five working days after:
   a) The seller gives written notice to the buyer that
   consent has been given
   b) A Court has declared that consent has been
   unreasonably withheld
3. SCPCs 11.3.6 - Recission owing to no response
   If no consent or court declaration has been obtained after 6
   months from the original completion date, either party can
   rescind the contract by written notice

Question 12

If assingment of a lease was goverened by a qualified covenant (ie consent required, what is the effect of the tenant assigning a lease without consent?

Answer 12

An assignment without consent would be a breach of the lease and would make the assignment unlawful

Question 13

Should a draft Licence to assign be drafted?

Who would be the parties?

Answer 13

Yes, and normally must be by deed. The landlords solicitor prepares the draft licence to assign for approval by the solicitors acting for both the assignor and assignee.

The parties to the licence are usually:

1. The Landlord
2. The assignor
3. The assignee
4. Any any garantor.

Question 14

What are the 4 key provisions of the Licence to Assign (Consent to assign from Landlord) ?

Answer 14

1. Landlords Consent, for a specific window of time (ie within a month of the licence)
2. The Assignors agreement to meet the landlords cost (although the landlord should also have the underaking from the assignors solicitors)
3. An obligation to serve notice of the assignment on the landlord
4. NEW LEASES - If required, an Authorised Guarantee Agreement, or the requirement to enter into an AGA in a separate document
5. OLD LEASES - A direct covenant between the assignee and the landlord to observe and perform the tenant covenants for the rest of the term

Question 15

What is a New Lease?

Answer 15

A new lease is granted on or after 1st January 1996

Question 16

What is an Old Lease?

Answer 16

An old lease is granted before 1st January 1996

Question 17

What is the effect of privity of contract with regards to lease assignment of old leases?

How does the license to assign deal with this?

Answer 17

There will be no privity of contract between the landlord and the assignee. Thus the landlord will seek to upgrade privity of estate to privity of contract in the licence to assignee.

Privity of estate (ie the face they are the current holder of the interest) provides that the assignee will be liable to the landlord for observance and performance of the tenants covenans which touch and concern the land whilst the lease is vested in them. This is done by obtaining a direct covenant from the assignee in the licence to assign to observe and perform all the tenant covenants in the lease for the remainder of the term.

Question 18

What is the effect of privity of contract with regards to lease assignment of old leases?

How does the license to assign deal with this?

Answer 18

There will be no privity of contract between the landlord and the assignee, however privity of contract is abolished in the licence to assign in new leases.

Any tenant will be liable to the landlord for the observance and performance of all the tenant covenants in the lease (not just those which touch and concern the land as with old leases) whilst the lease is vested in them. The landlord may, in some circumstances require an Authorised Guarantee Agreement.

A tenant will automatically be released from liability on lawful assignment. The licence will rectify this by stating this is limited to the time whilst the lease is vested in the assignee.

Question 19

What is the deed of assingment?

Answer 19

The dead of assignment is the formal conveyance/transfer of the legal interest in the lease.

Question 20

What is the process for creating the deed of assignment?

Whos solicitor makes it?

Answer 20

A draft deed of assignment is prepared by the assignees solicitor and submitted to the assignors solicitor for approval.

Question 21

What form is required for the Deed of Assignment of Lease?

Answer 21

It depends on the original lease:

Registered Leases - TR1 Form

Unregistered Leases with more than 7 years left unexpired - TR1 Form or an deed of assignment

Unregistered Leases with 7 years or less unexpired - deed of assignment

Question 22

What is an express indemnity clause in a deed of assignment?

Answer 22

This is where the new assignee will give the original assignor indemnity against any liability they may have resulting from the assignees breach.

Question 23

When is an express indemnity clause required in a deed of assignment?

Answer 23

The standard condition provide for an express indemnity to be given by the assignee to the assignor, where the assignor may remain liable following completion.

Question 24

When will an indemnity clause by implied on a deed of assignment ?

Answer 24

It will automatically be implied for old leases on:

a) the assignment of a registered lease or

b) the assignment of an unregistered lease for value

Question 25

When should an express indemnity clause be given for old leases?

Answer 25

An express indemnity should usually be given in the deed, although It will automatically be implied on a) the assignment of a registered lease or b) the assignment of an unregistered lease for value

Question 26

When should there be an express indemnity clause on the deed of assignment for new leases?

Answer 26

An express indemnity should be given in the deed, if the assignor is to remain liable under an Authorised Guarantee Agreement

Question 27

Whaat Covenant of Title should always be added in an assignment of leasehold land? Why?

Answer 27

'The covenants set out in section 4 of the Law of Property (Miscellaneous Provisions) Act 1994 will not extend to any breach of the tenants covenants in the lease relating to the physical state of the property.' This is because on the transfer of leasehold property with full or limited title guarantee, it is implied that the covenants in the lease have been complied with. However, the assignor should not be providing any warranties in respect of the repair and condition of the property as caveat emptor usually applies.

Question 28

What is an authorized guarantee agreement?

Answer 28

AGAs only apply to new leases and provide that the assignor will indemnify the landlord for the assignee's breaches and remain liable for the covenants of the original lease. 1. INDEMNFIYS THE LANDLORD AGAINST ASSINGEES BREACH - Guarantee the assignees payment of rent, and observance and performance of the tenants covenants under the lease, indemnifying the landlord against any non-payment or any other breach. 2. Pay the rent and observe and perform the covenants in default of the assignee 3. Take a new lease if the lease is disclaimed on insolvency, or sometimes pay a liquidated sum instead if the landlord does not require them to take a new lease. 4. ONLY FOR THE IMMEDIATE ASSIGNEE - The assignor will be released on lawful of assignment of the lease by the assignee, ie they will only be liable for the assignee they assigned too, not anyone after who the assignee assigned onto.

Question 29

When assinging a lease, if the assignor had a guarantor on the original lease, will they also need to guarantee the new asignee?

Answer 29

Not directly, but may have to indirectly No, but they may lawfully be required to guarantee the assignors Authorised Guarantee Agreement, and so be indirectly guaranteeing the assignee.

Question 30

When can a landlord insist on an Authorised Guarantee Agreement?

Answer 30

A Landlord can only assist when it is reasonable: It will be automatically reasonable when there is an absolute specified pre-condition to giving consent to a proposed assignment of a whole If there is no absolute specified pre-condition, it can only be required by the landlord if it is reasonable to do so.

Question 31

Is it lawful for a landlord to get a direct covenant from the assignee to observe and perform the tenant's covenants under the lease and why?

Answer 31

No, it is unlawful for the landlord to seek to extend the assignees liability in this was because the assignee can only be liable whilst the lease is vested in them, and a direct covenant could go against this.

Question 32

What 3 steps must be taken pre-completion of the assignment of a lease?

Answer 32

1. The usual pre-completion searches should be undertaken 2. The landlords Solicitor engrosses the licence to assign for execution by the parties. This may contain the AGA, or it may be within a separate deed. 3. The assignors Solicitor should produce a completion statement for the assignees solicitor, setting out any apportioned sums due on completion.

Question 33

What 2 things should happen on completion of the assignment of lease?

Answer 33

1. The Balance Due should be submitted to the assignors solicitors, with the assignees solicitors handing over the part licence to assign. 2. The assignees solicitor should receive the following 5 things: 1. Original lease and ancillary deeds and documents 2. Deed of Assignment (or TR1 Form where required) 3. Part Licence to assign, executed by the landlord 4. Certified copy unregistered title information (if required) 5. Receipt for the rent - On receipt of this, the assignee may assume it has been paid and the covenant performed

Question 34

What are the 3 main post-completion matters on the assignment of a lease?

Answer 34

1. SDTLL/LTT Formalities 2. HM Land Registry Formalities 3. Notice of Assignment

Question 35

What are the HMRC Land Registry Formalities required post completion of a lease assignment?

Answer 35

It depends on the type of lease? 1. Registered Lease - Application to change the register / register the disposition, using form AP1 and submitted within the OS1 priority period. 2. Unregistered Lease with more than seven years left unexpired - Application for first registration of the lease, using form FR1 and DL in duplicate within 2 months of completion. If the superior title is registered, the lease will be noted in the chargers register of the land. 2a. Other Leases (leases 7 years or under) where the superior title is registered- Note lease against registered title and/or register easements within the lease 2b. Other leases (leases 7 years or under) where the superior title is unregistered - Consider lodging a caution against first registration against the name of the estate owner to protect the tenant on first registration of the superior title

Question 36

What is a notice of assignment?

Answer 36

This confirms that the assignment that was authorised has in fact taken place. It should be served on the landlord, in duplicate, accompanied by the relevant fee, and one copy of the receipted notice should be kept with the lease. A notice of assignment is usually a requirement set out in the lease and/or the licence to assign