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. o 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: o Assignment o Underletting/subletting o Parting with possession (grant of licence) o Sharing the lease ▪ E..g. business that has different groups and parent company. o Mortgaging/charging ▪ Creating a mortgage over the property – charging/mortgaging. o Surrender ▪ Both agree to bring lease to an end/surrender the lease. Assignment When tenant sells interest of lease part way through term. o Tenant  Assignee (becomes the new tenant) o 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 o Underletting works by granting an underleae. o Headlease = between Landlord and Tenant o Underlease = Between Tenant and Undertenant. ▪  Legal interest vests in undertenant through this document. o Tenant or assignee grants underlease to undertenant o 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