U6. LH Ailenation Flashcards
What is Alienation in leases?
What are the Land Lord and Tenants Concerns?
Alienation concerns dealing with the tenants interest under the lease.
The landlord will usually wish to have control over who occupies or has an interest in the property other than the tenant to protect his own interest.
The tenant will wish to be able to deal with its interests as freely as possible, so that the lease is marketable, and his interests are not unduly restricted.
What is the effect of no alienation clause?
In the absence of express restriction, the tenant will be able to deal with their interest in any way they wish.
What will 5 things a typical alienation clause deal with?
- Assignment
- Underletting / Subletting
- Charging / Mortgage
- Sharing Occupation
- Parting with or Sharing Possession
What is an assignment of a lease?
The transfer of the remainder of a lease by the existing tenant (assignor) to another tenant (the assignee)
-Assignment of whole only is normally permitted with the landlords consent.
-Assignment of part is usually prohibited as underleases are generally preferred for dealing with parts of the lease
What is underletting / subletting
The grant of a further lease carved out of an existing lease, for the whole or part of the premises, but for a shorter term than the existing lease. (If longer, it would be an assignment) The existing lease becomes the head lease and the further lease is an underlease/ sublease
What is sharing occupation?
Where a license is given to share occupation (rather than exclusive possession with legal possession
What is parting with or sharing possession?
Formal or informal assignment and underletting, or other arrangements, with the same effect
When deciding to agree to assingment of the lease, when will a refusal be reasonable?
Whether or not such refusal is reasonable will be a question of fact. However, reasons must relate to the landlord and tenant relationship in the lease, and the landlord must act reasonably and not discriminatively.
Examples of reasonable reasons to refuse include:
○ The tenants proposed use conflicts with the landlords business or tenant mix policy
Significant breaches of the lease
Concerns regarding the assignee’s covenant strength (ability to adhere to promises in the lease)
is it usual for the tenant to be given permission to assign part of the lease?
NO, the Assignment of part is usually prohibited as underleases are generally preferred for dealing with parts of the lease.
Is it usual for the tenant to be given permission to assign the whole lease?
Assignment of whole only is normally permitted with the landlords consent.
In commercial leases, is Charging / Mortgaging usually allowed?
Charging / Mortgaging will normally permitted for commercial leases, except a charge of the whole by way of floating charge.
In any even the typical forfeiture clause in a commercial lease will be unsuitable for most lenders.
This is because most lenders would seek to reposess and so have no capital value making It unsutiable as security as it would not have a resale value.
What type of tenants would usually wish to be allowed to share occupation and why?
Corporate tenants will normally seek to permit sharing occupations with other companies within the same group.
This is because if another company within the same group of companies as the tenant is in occupation, otherwise it would technically be a breach of alienation provisions.
For similar reasons, a retail tenant may wish to have the opportunity to create concession arrangements with others.
Is underletting of a whole or a part usually allowed?
Yes
Why do tenants prefer the granting of an underlease as compared to assigning a lease?
- Temporary basis
- May be able to make a profit from the underlease rent
- Will not be liable under an Authorised Guarantee Agreement and will be able to take control in the event of default by the undertenant
- In a falling market, they may be able to recover some of their costs by making some
Why do landlords prefer the granting of an underlease as compared to assigning a lease?
- The existing tenant will remain liable under the existing lease.
However, it’s important to remember the landlord will lose direct control over the occupation of the property, and they may become the landlord of an undesirable subtenant in the event of forfeiture, surrender, or disclaimer of head lease or the subtenant claiming security of tenure.
