Underletting Flashcards
What is the effect of granting an underlease to an undertenant?
Tenant remains tenant and must pay rent and ensure obligations are performed
Why might a tenant choose to underlet?
- If they are not using all of the premises
- If they do not need premises for the moment but likely to in future
- If they cannot find a willing assignee but can find a willing undertenant
What happens if a lease is silent on underletting?
Tenant is free to underlet
What do commercial leases typically require regarding underletting?
They likely impose a requirement of consent from landlords
Landlords want to vet prospective candidates to ensure suitability.
What is the effect of statute if there is a qualified covenant against underletting?
It is automatically upgraded to fully qualified covenant and decision must be made within reasonable time
Considerations for reasonableness are like assignment
What do lease covenants regulating underletting not discuss?
They do not talk in terms of conditions and circumstances on which consent may be reasonably withheld
This is because the tenant remains ultimately liable for observing covenants.
What conditions are often imposed on underletting?
- Preventing underletting together with property that does not belong to the landlord
- Requiring payment of a lump sum
- Asking for a rent-free period beyond what is normal in that market
- May require underlease at a rent no lower than in tenant’s lease
- Containing covenants no less onerous than in tenant’s lease
What types of privity exist between parties in a lease?
- Privity of contract exists between landlord and tenant, as well as tenant and undertenant
- Privity of estate exists between landlord and tenant and tenant and undertenant
Can a landlord enforce covenants against undertenants?
No, landlord is not able to enforce covenants against undertenants
Therefore, LL usually requires that undertenant directly covenants with landlord to ensure enforceability.
What does the landlord’s solicitor consider at pre-exchange?
- The landlord’s solicitor considers the application to underlet.
- Requests undertaking for costs and issues draft licence to tenant’s solicitor to ensure it will comply with tenant’s obligations under lease
What does the Tenant’s Solicitor do at pre-exchange?
- Applies for consent to underlet (whole transaction relies on this being successful)
- Prepares draft lease and agreement for underlease – underlease is usually very limited in what provisions they can offer.
- Reviews draft licence to underlet and sends copy to undertenant
- Deduces title and responds to any queries on title
- Answers pre-contract enquiries
- Engrosses the agreement for underlease, obtains the tenant’s signature and sends counterpart to undertenant’s solicitor
What is the requirement for the term granted by underlease?
It must be less than the remaining term of the tenant’s lease, even if only one day less.
Is it necessary to have an exchange at all?
No, it is not actually necessary to have an exchange at all.
What documents are needed for title deduction?
Either a copy of registered leasehold title or a copy of landlord’s registered leasehold title together with a copy of the lease.
Done by the tenant’s solicitor
What does the Assignee’s Solicitor do at pre-exchange?
- Reviews draft lease and agreement for lease and amends as required.
- Reviews draft licence to underlet
- Investigates title and raises any queries on title
- Raises pre-contract enquiries and searches
- Arranges undertenant to sign counterpart lease
What is the process of exchange in a lease agreement?
Tenant’s solicitor and undertenant’s solicitor exchange in a similar manner to freehold (Law Society Formula B).
Is a deposit required during the exchange?
No deposit.
What does the agreement for lease typically specify?
It may set a fixed date or, more likely, outline what conditions need to be satisfied.
What is usually included with the agreement for underlease?
A draft of the agreed form of underlease is usually annexed to it.
Therefore can only exchange once terms have been agreed
What does the landlord’s solicitor do pre-completion?
- Engrosses agreed form of licence to underlet and circulates for execution.
- Obtains landlord’s execution to licence to underlet
What does the tenant’s solicitor prepare pre-completion?
- The tenant’s solicitor prepares the original and counterpart underlease (get T to sign og, send counterpart to UT for sig)
- Prepares and sends a completion statement, detailing the money due on completion
- Obtains tenant’s execution to licence to underlet
What does the undertenant’s solicitor do pre-exchange?
- Arranges for the undertenant to sign the counterpart underlease.
- Obtains funds from client needed to complete as per completion statement
- Raises pre-completion searches
- Obtains undertenant’s execution to licence to underlet
What searches does the undertenant’s solicitor raise pre-completion?
OS1 – if against whole of tenant’s interest
OS2 – if underletting part of tenant’s interest
OS3 – if the underlease is not registrable
What is the first step in the completion process?
Parties solicitors agree to date and complete the licence to underlet.
What does the undertenant’s solicitor do during completion?
Undertenant’s solicitor sends tenant’s solicitor completion monies.
How do tenant’s solicitor and undertenant’s solicitor agree to complete?
They agree over the telephone to complete and date the executed underleases.
What do tenant’s solicitor and undertenant’s solicitor send to each other?
They send the completed original and counterpart underleases to each other.
What does the tenant’s solicitor do post-completion?
Sends notice of underlease to landlord’s solicitor.
What are the responsibilities of the undertenant’s solicitor post-completion?
- Arranges to submit SDLT or LTT return and pay
- Registers underlease if necessary.
