ALIENATION SUMMARY

ALIENATION SUMMARY  Analyse alienation covenants and apply common law/statute to advise a client  Advise a client on the PROCEDURE for assigning/underletting a lease. What is it? ALIENATION  TRANSFER OF INTEREST IN LEASE. • Tenant disclaims their interest in the lease. ◦ E.g. client’s business is not doing well so client wants to get out of the lease. If there is no break clause in the lease, their only option is alienation. • Alienation can involve: ◦ Assignment ◦ Underletting/subletting ◦ Parting with possession (grant of licence) ◦ Sharing the lease ▪ E..g. business that has different groups and parent company. ◦ Mortgaging/charging ▪ Creating a mortgage over the property – charging/mortgaging. ◦ Surrender ▪ Both agree to bring lease to an end/surrender the lease. Assignment • When tenant sells interest of lease part way through term. ◦ Tenant  Assignee (becomes the new tenant) ◦ Is the sale/transfer of an EXISTING LEASE- cannot change the original lease terms Underletting/subletting • When tenant grants a NEW LEASE out of its own lease/ leasehold interest ◦ Underletting works by granting an underleae. ◦ Headlease = between Landlord and Tenant ◦ Underlease = Between Tenant and Undertenant. ▪  Legal interest vests in undertenant through this document. ◦ Tenant or assignee grants underlease to undertenant ◦ Landlord grants headlease to tenant/assignee PRIVITY OF CONTRACT = contractual link between parties who signed contract. • Due to privity of contract  LL may sue tenant for breach of lease. PRIVITY OF ESTATE = the relationship between parties who share an immediate interest in the same land. • E.g. Landlord-tenant, assignee–undertenant (in diagram above) STATUTE SUMMARY COVENANTS ABSOLUTE COVENANTS = Complete prohibition on tenant from undertaking an action. • E.g. The Tenant shall not carry out any structural or external alterations to the Premises. QUALIFIED COVENANTS = Tenant merely restricted  may undertake the action with LL’s consent. • E.g. The Tenant shall not make any non-structural alterations to the Premises without landlord’s consent. FULLY QUALIFIED COVENANTS • (1)Restricts tenant from undertaking action without LL’s consent AND • (2) Landlord cannot reasonably withhold consent • ‘the tenant shall not make any non-structural alterations to the Property without landlord’s consent not to be unreasonably withheld’ S.19(1)(a) LTA 1927 What does it relate to? Qualified covenants relating to all forms of alienation Only applies to qualified covenants ‘containing a covenant condition or agreement against assigning, underletting, charging or parting with the possession of demised premises or any part thereof without licence or consent’ Qualified covenants are upgraded to become FULLY QUALIFIED  LL cannot unreasonably withhold consent. One condition LL can impose: allows LL to recover reasonable costs incurred in giving consent (legal/professional fees). International Drilling v Louisville = Reasonableness Test Grounds for refusal must be based on the LL-Tenant relationship, cannot be for personal reasons.  E.g. Incoming tenant unlikely to comply with obligations/ pay rent = reasonable grounds to refuse = pertains to LL-T relationship. Ashworth Frazer v Gloucester Would be reasonable to refuse consent where LL believed that proposed assignee/undertenant intended to use premises in a way which would breach a covenant. Moss Bros Group v CSC If assignment would contravene a tenant-mix policy = reasonable grounds for refusing it. Shopping centre where obliged to have mixture of retailers. S.19(1A) LTA 1927 DOES NOT APPLY TO ALL LEASES  only QUALIFYING LEASES. Qualifying lease definition = S.19(1E) new, commercial lease granted on or after 1 Jan 1996. Only applies to ASSIGNMENT Allows LL and Tenant to agree circumstances where consent may be refused. (e.g. material breach of lease) S.19(1A)(a) = any circumstances in which the landlord may withhold his licence or consent to an assignment of the demised premises or any part of them. • Circumstances = a list of circumstances – which if they exist – the LL would be automatically reasonable in withholding consent to assign. Also allows conditions to be attached to any consent given. (e.g. security/deposit, guarantor, AGA) s.19(1A)(b) = any conditions subject to which any such licence or consent may be granted • Conditions = list of conditions which it would be automatically reasonable for the LL to impose. These circumstances and conditions will be automatically deemed to be REASONABLE. If circumstance exists when LL refuses consent automatically reasonable If condition attached to consent  automatically reasonable for LL to impose. ESSENTIALLY  EFFECT = CONSENT FOR ASSIGNMENT = WILL NOT BE SUBJECT TO THE REASONABLENESS TEST IF CONDITION IMPOSED OR CIRCUMSTANCE FOR REFUSAL IS IN THE LEASE.  If considering application to ASSIGN A NEW LEASE  you are dealing with a fully qualified covenant (either because it has been drafted that way or because it has been upgraded by s.19(1)(a) LTA 1927) Always s.19(1)(a) first and then S.19(1A) to consider if application complies with any circumstances/conditions set out in the Lease = therefore automatically reasonable. If there are NO provisions in the lease OR this situation does not MATCH the provisions  consider the application in context of the reasonableness test (International Drilling) HOWEVER  WATCH OUT  if circumstances/conditions are to be determined by reference to the Landlord/some other person • E.g. Where in the opinion of the landlord the assignee is of inadequate financial standing…’. In such cases the landlord (or such other person) must act reasonably, or there may be a right for the tenant to refer the issue to an independent third party – s.19(1C) LTA 1927 S.1 LTA 1988  ONLY MENTION IF RELEVANT