RE13/14
Lease Alienation (Assignment)
Alienation
A lease will often contain restrictions on the Tenant’s ability to DISPOSE of his LEASE EARLY
i.e. ASSIGN it to another person.
Alienation INCLUDES:
Assignment = when tenant disposes of residue of lease and retains no interest in the lease or the property.
o Must be effected by deed and registered at the Land Registry
Under/Sub-letting = when tenant creates new leasehold interest and becomes the sub-tenant’s
landlord. Might be over-all/part of the premises under a head lease or all/part term of head lease
(except for nominal reversion of one day) – carving it out of existing lease
Parting with possession = when tenant allows someone else into occupation or is
excluded from occupation themselves (no sub-lease or assignment occurs)
Shared occupation = several different people/companies occupying the premises
o s.42 LTA 1954 = “two bodies corporate shall be taken to be members of a group
where one is the subsidiary of the other or both are subsidiaries of a third body”
Charging = granting a mortgage or other security over the leasehold interest held by tenant
Where a tenant seeks to assign his lease, he will enter into an SCPC contract because it will be a sale of a
commercial property.
Landlord’s concerns Assignee’s concerns Assignor’s concerns
- Who is the tenant? - Not able to negotiate the lease beyond - Make sure landlord’s consent
- Are they able to meet their agreeing a deed of variation with is obtained in good time
rent obligation? landlord - Landlord will want an AGA so
- Are they going to comply with their - Otherwise must take the lease or leave assignor also wants to make sure
other obligations? it that the assignee can meet his
- Can they provide suitable - It is taking the lease subject to its obligations under the lease
guarantors as back-up? burdens
- Who will pay its costs for having - What incumbrances and potential
lawyers check the documentation problems are there?
for assignment?
Checklist for ASSIGNMENT
1. Are there restrictions on the whole or part of the premises being assigned?
o Commonly the lease will restrict assignment of part of the property
o CHECK THE ALIENATION CLAUSE under TENANT’S OBLIGATIONS
4.14.1: “The Tenant must not assign… except as authorised under this clause 4.14 or Schedule 5”
Clause 4.14.2: “The Tenant may, with the Landlord’s consent, assign the whole of the Premises”.
o If the lease provides that the Tenant may, with the Landlord’s consent, only assign the whole of the premises:
The Tenant will be unable to assign part of the premises only.
The Tenant will only be able to assign the whole by obtaining the landlord’s consent.
2. Does the Tenant have to obtain the Landlord’s consent?
o CL 2.1: Ordinarily assignment will be permissible only by the Landlord giving consent.
o Where the landlord’s consent is required, this usually requires the parties to enter into a formal licence
(A LICENSE TO ASSIGN).
o Where the landlord’s consent is required, SCPC 11.3.5 requires this to be obtained before Completion.
o If consent is not provided, the time for completion is postponed until 5 working days after the seller gives the buyer
written notice that consent has been obtained.
,RE13/14
3. Can the Landlord refuse consent?
o Must not be withheld unreasonably:
Term will be implied by s19(1)(a) Landlord and Tenant Act 1927 if it is not already a term of the lease. Check
the lease and cite the correct provision.
Refusal of consent to assignment due to a breach of covenant can be perfectly reasonable – Ashworth Frazer
Ltd v Gloucester City Council [2001] UKHL 59.
o Landlord must give consent within a reasonable time, unless it is reasonable not to do so.
s1 Landlord and Tenant Act 1988.
Refusal of consent to an assignment on grounds of prospective breach of covenant
Ashworth Frazer Ltd v Gloucester City Council [2001]
The House of Lords has overturned the Court of Appeal's 1999 decision in Ashworth Frazer and held that a refusal by a landlord of
consent to an assignment on the ground that the proposed assignee intends to use the property in breach of the user covenant is
capable of being a reasonable refusal of consent. Whether it is a reasonable refusal in any particular case, will depend on the
facts of the case – case by case status (not absolute ruling)
4. Are there any conditions on the Landlord giving his consent?
o s19(1A) Landlord and Tenant Act 1927 enables the landlord and tenant to agree in advance specified circumstances
in which the landlord may withhold his consent to an assignment.
Common Conditions:
o Does the Tenant have to enter into an AGA with the Landlord?
SCPC 11.3.3(b) requires a seller on assignment (i.e. the Outgoing Tenant), where the Landlord’s
consent is required to assign the lease, to enter into an AGA.
An AGA is an agreement between the Outgoing Tenant (assignor) and the Landlord in which the
Outgoing Tenant agrees to guarantee the Incoming Tenant’s (assignee’s) performance of covenants
under the lease.
If the Incoming Tenant breaches the covenants, the Landlord can sue the Outgoing Tenant for the
breach under the AGA.
It is advisable for the Outgoing Tenant to obtain an indemnity from the Incoming Tenant so that the
Outgoing Tenant can recover any damages he has to pay from the Incoming Tenant in the event he is
sued by the landlord. (SCPC 7.6.5 entitles the seller to insert an indemnity in such circumstances)
o Does the lease require the buyer to provide a surety (guarantor) to the lease as a condition of the grant of
his consent?
Clause 4.14.3(c): any consent to assign may be subject to the condition that a guarantor guarantees
the assignee’s performance of the Tenant’s obligations, and the assignee enters into a rent deposit
deed with the Landlord providing for a deposit of at least six month’s rent as security for the
assignee’s performance of the tenant’s covenants.
o Any further conditions? E.g. references from current landlord’s, bankers, employers etc.
Landlord will want:
Surety/guarantors LL may also require the buyer to provide a surety (guarantor) to the lease as a
condition of the grant of his consent
-
Undertaking from assignor’s limit these to reasonable costs
-
solicitor to cover LL’s costs On assignment of commercial lease, usual for the LL’s solicitor to require an
for preparing license to undertaking from the seller’s solicitors for the payment of costs
-
assign discuss capping them
-
make sure you have client’s express written consent to enter to undertaking
References - typically, from banks/current landlord/employer/professional like an
accountant or solicitor
- basically someone the assignee trades with frequently
- may also want to see 3 years’ audited accounts
Direct covenants from
assignee
, RE13/14
AGA SCPC 11.3.3 = requires assignor to enter into an AGA with landlord to guarantee
assignee’s performance of all tenant covenants
-
if it is included in the lease then he may require this even if not reasonable
• otherwise he can require assignor’s entrance into an AGA only if it is
reasonable to do so
• SCPC 11.3.5 further provides that if the landlord’s consent has not been
obtained by the completion date, completion is postponed until five
working days after the seller notifies the buyer that consent has been given.
• The contract may not be rescinded until six months have passed since the
original completion date (SCPC 11.3.6)
Premium Landlord can require a premium to be payable for his consent ONLY if the lease
expressly says he may
5. Do any Clauses in the Lease need amending in order for the assignment to complete successfully?
o Is the user clause sufficient for the incoming Tenant’s Proposed Use?
o WS14: Clause 6.15 (of lease of part): the Tenant shall not use the Premises for any purpose other than the Permitted
Use i.e. an absolute prohibition, meaning the lease would need to be altered for the incoming tenant.
o Check the definition of Permitted Use; restricted to a particular class of use in the Town and Country Planning (Use
Classes) Order?
If it is not, the landlord will need to agree to vary the lease.
If acting for landlord, he will need to enter into a deed of variation.
Are there any other amendments necessary; e.g. does the landlord want to take the opportunity to
increase the rent?
You may be asked to draft a clause varying the lease (see Exemplar).
6. If assignment is successful, the lease will ordinarily require the buyer to notify the landlord of successful completion.
o Look for a REGISTRATION OF ALIENATION clause (under Tenant’s Obligations; normally follows the Alienation
clause) – landlord will want it registered as assignee will not have legal title if not registered
7. Practical Considerations on Assignment
For the Landlord:
o Will not know the incoming tenant.
The transaction is between the current tenant and an unknown party to the Landlord.
The Landlord will be concerned to know that the incoming tenant is a good tenant i.e. will pay
rent on time, adhere to covenants etc.
The Landlord can mitigate the risk by conducting due diligence; i.e. seeking references
particularly from previous landlords, conducting company searches etc.
The license to assign
Consent to assign is embodied in a ‘LICENCE TO ASSIGN’
the landlord’s solicitor will provide the top copy of the licence at completion (if it contains covenants then it must be
executed as a deed)
landlord will usually want the assignee to enter into direct covenants with him so that they have privity of contract
landlord will execute the original copy of the licence and give it to the assignor (who then gives it to the assignee on
completion)
assignee executes the counterpart and gives it to the landlord on completion
The Tenant needs consent from the landlord to be able to assign his interest.
o In WS 13, Task 1, this was given in Clause 2.1.
The Landlord needs:
o An AGA from the seller
Required by Clause 4.14.3 of the Lease.
In WS 13, Task 1, this was given in Clause 2.3 and Clause 4 of the License.
The terms of the AGA will generally be set out in a schedule to the License.
Lease Alienation (Assignment)
Alienation
A lease will often contain restrictions on the Tenant’s ability to DISPOSE of his LEASE EARLY
i.e. ASSIGN it to another person.
Alienation INCLUDES:
Assignment = when tenant disposes of residue of lease and retains no interest in the lease or the property.
o Must be effected by deed and registered at the Land Registry
Under/Sub-letting = when tenant creates new leasehold interest and becomes the sub-tenant’s
landlord. Might be over-all/part of the premises under a head lease or all/part term of head lease
(except for nominal reversion of one day) – carving it out of existing lease
Parting with possession = when tenant allows someone else into occupation or is
excluded from occupation themselves (no sub-lease or assignment occurs)
Shared occupation = several different people/companies occupying the premises
o s.42 LTA 1954 = “two bodies corporate shall be taken to be members of a group
where one is the subsidiary of the other or both are subsidiaries of a third body”
Charging = granting a mortgage or other security over the leasehold interest held by tenant
Where a tenant seeks to assign his lease, he will enter into an SCPC contract because it will be a sale of a
commercial property.
Landlord’s concerns Assignee’s concerns Assignor’s concerns
- Who is the tenant? - Not able to negotiate the lease beyond - Make sure landlord’s consent
- Are they able to meet their agreeing a deed of variation with is obtained in good time
rent obligation? landlord - Landlord will want an AGA so
- Are they going to comply with their - Otherwise must take the lease or leave assignor also wants to make sure
other obligations? it that the assignee can meet his
- Can they provide suitable - It is taking the lease subject to its obligations under the lease
guarantors as back-up? burdens
- Who will pay its costs for having - What incumbrances and potential
lawyers check the documentation problems are there?
for assignment?
Checklist for ASSIGNMENT
1. Are there restrictions on the whole or part of the premises being assigned?
o Commonly the lease will restrict assignment of part of the property
o CHECK THE ALIENATION CLAUSE under TENANT’S OBLIGATIONS
4.14.1: “The Tenant must not assign… except as authorised under this clause 4.14 or Schedule 5”
Clause 4.14.2: “The Tenant may, with the Landlord’s consent, assign the whole of the Premises”.
o If the lease provides that the Tenant may, with the Landlord’s consent, only assign the whole of the premises:
The Tenant will be unable to assign part of the premises only.
The Tenant will only be able to assign the whole by obtaining the landlord’s consent.
2. Does the Tenant have to obtain the Landlord’s consent?
o CL 2.1: Ordinarily assignment will be permissible only by the Landlord giving consent.
o Where the landlord’s consent is required, this usually requires the parties to enter into a formal licence
(A LICENSE TO ASSIGN).
o Where the landlord’s consent is required, SCPC 11.3.5 requires this to be obtained before Completion.
o If consent is not provided, the time for completion is postponed until 5 working days after the seller gives the buyer
written notice that consent has been obtained.
,RE13/14
3. Can the Landlord refuse consent?
o Must not be withheld unreasonably:
Term will be implied by s19(1)(a) Landlord and Tenant Act 1927 if it is not already a term of the lease. Check
the lease and cite the correct provision.
Refusal of consent to assignment due to a breach of covenant can be perfectly reasonable – Ashworth Frazer
Ltd v Gloucester City Council [2001] UKHL 59.
o Landlord must give consent within a reasonable time, unless it is reasonable not to do so.
s1 Landlord and Tenant Act 1988.
Refusal of consent to an assignment on grounds of prospective breach of covenant
Ashworth Frazer Ltd v Gloucester City Council [2001]
The House of Lords has overturned the Court of Appeal's 1999 decision in Ashworth Frazer and held that a refusal by a landlord of
consent to an assignment on the ground that the proposed assignee intends to use the property in breach of the user covenant is
capable of being a reasonable refusal of consent. Whether it is a reasonable refusal in any particular case, will depend on the
facts of the case – case by case status (not absolute ruling)
4. Are there any conditions on the Landlord giving his consent?
o s19(1A) Landlord and Tenant Act 1927 enables the landlord and tenant to agree in advance specified circumstances
in which the landlord may withhold his consent to an assignment.
Common Conditions:
o Does the Tenant have to enter into an AGA with the Landlord?
SCPC 11.3.3(b) requires a seller on assignment (i.e. the Outgoing Tenant), where the Landlord’s
consent is required to assign the lease, to enter into an AGA.
An AGA is an agreement between the Outgoing Tenant (assignor) and the Landlord in which the
Outgoing Tenant agrees to guarantee the Incoming Tenant’s (assignee’s) performance of covenants
under the lease.
If the Incoming Tenant breaches the covenants, the Landlord can sue the Outgoing Tenant for the
breach under the AGA.
It is advisable for the Outgoing Tenant to obtain an indemnity from the Incoming Tenant so that the
Outgoing Tenant can recover any damages he has to pay from the Incoming Tenant in the event he is
sued by the landlord. (SCPC 7.6.5 entitles the seller to insert an indemnity in such circumstances)
o Does the lease require the buyer to provide a surety (guarantor) to the lease as a condition of the grant of
his consent?
Clause 4.14.3(c): any consent to assign may be subject to the condition that a guarantor guarantees
the assignee’s performance of the Tenant’s obligations, and the assignee enters into a rent deposit
deed with the Landlord providing for a deposit of at least six month’s rent as security for the
assignee’s performance of the tenant’s covenants.
o Any further conditions? E.g. references from current landlord’s, bankers, employers etc.
Landlord will want:
Surety/guarantors LL may also require the buyer to provide a surety (guarantor) to the lease as a
condition of the grant of his consent
-
Undertaking from assignor’s limit these to reasonable costs
-
solicitor to cover LL’s costs On assignment of commercial lease, usual for the LL’s solicitor to require an
for preparing license to undertaking from the seller’s solicitors for the payment of costs
-
assign discuss capping them
-
make sure you have client’s express written consent to enter to undertaking
References - typically, from banks/current landlord/employer/professional like an
accountant or solicitor
- basically someone the assignee trades with frequently
- may also want to see 3 years’ audited accounts
Direct covenants from
assignee
, RE13/14
AGA SCPC 11.3.3 = requires assignor to enter into an AGA with landlord to guarantee
assignee’s performance of all tenant covenants
-
if it is included in the lease then he may require this even if not reasonable
• otherwise he can require assignor’s entrance into an AGA only if it is
reasonable to do so
• SCPC 11.3.5 further provides that if the landlord’s consent has not been
obtained by the completion date, completion is postponed until five
working days after the seller notifies the buyer that consent has been given.
• The contract may not be rescinded until six months have passed since the
original completion date (SCPC 11.3.6)
Premium Landlord can require a premium to be payable for his consent ONLY if the lease
expressly says he may
5. Do any Clauses in the Lease need amending in order for the assignment to complete successfully?
o Is the user clause sufficient for the incoming Tenant’s Proposed Use?
o WS14: Clause 6.15 (of lease of part): the Tenant shall not use the Premises for any purpose other than the Permitted
Use i.e. an absolute prohibition, meaning the lease would need to be altered for the incoming tenant.
o Check the definition of Permitted Use; restricted to a particular class of use in the Town and Country Planning (Use
Classes) Order?
If it is not, the landlord will need to agree to vary the lease.
If acting for landlord, he will need to enter into a deed of variation.
Are there any other amendments necessary; e.g. does the landlord want to take the opportunity to
increase the rent?
You may be asked to draft a clause varying the lease (see Exemplar).
6. If assignment is successful, the lease will ordinarily require the buyer to notify the landlord of successful completion.
o Look for a REGISTRATION OF ALIENATION clause (under Tenant’s Obligations; normally follows the Alienation
clause) – landlord will want it registered as assignee will not have legal title if not registered
7. Practical Considerations on Assignment
For the Landlord:
o Will not know the incoming tenant.
The transaction is between the current tenant and an unknown party to the Landlord.
The Landlord will be concerned to know that the incoming tenant is a good tenant i.e. will pay
rent on time, adhere to covenants etc.
The Landlord can mitigate the risk by conducting due diligence; i.e. seeking references
particularly from previous landlords, conducting company searches etc.
The license to assign
Consent to assign is embodied in a ‘LICENCE TO ASSIGN’
the landlord’s solicitor will provide the top copy of the licence at completion (if it contains covenants then it must be
executed as a deed)
landlord will usually want the assignee to enter into direct covenants with him so that they have privity of contract
landlord will execute the original copy of the licence and give it to the assignor (who then gives it to the assignee on
completion)
assignee executes the counterpart and gives it to the landlord on completion
The Tenant needs consent from the landlord to be able to assign his interest.
o In WS 13, Task 1, this was given in Clause 2.1.
The Landlord needs:
o An AGA from the seller
Required by Clause 4.14.3 of the Lease.
In WS 13, Task 1, this was given in Clause 2.3 and Clause 4 of the License.
The terms of the AGA will generally be set out in a schedule to the License.
