Property Law 8

Question 1

Leasehold covenants - when were ‘old leases’ created?

Answer 1

before 1 January 1996

Question 2

Which action do you look at when considering whether a lease is an old or new lease?

Answer 2

It is the date of creation of the lease which is critical, not the date of any subsequent assignment, as to whether the old rules or the new rules apply to the lease.

Question 3

Who is liable for breaches in old tennancies?

Answer 3

In old leases, the liability of the original landlord and the original tenant continues for the full duration of the lease term. This is the case even after an assignment of either the reversion (landlord’s interest) or the lease (tenant’s interest).

Question 4

What changed between an old lease and a new lease?

Answer 4

LTCA 1995, s 3 provides for
- the automatic transmission of the benefit and burden of all landlord covenants to the new owner of the reversion, and
- of the benefit and burden of all tenant covenants to the assignee.

Question 5

What is the exception to the rule for new leases?

Answer 5

The only exception to this rule in LTCA 1995, s 3(6) is for those covenants which are ‘expressed to be personal to any person’.

Question 6

When might an old tenant be liable for a breach by the new tenant?

Answer 6

If the outgoing tenant has provided an authorised guarantee agreement (‘AGA’) under LTCA 1995, s 16 on assignment, the landlord could sue the FORMER tenant who is guaranteeing the obligations of their IMMEDIATE successor.

Question 7

What is the remedy for the Landlord if he sues the previous tenant under an AGA?

Answer 7

Damages

Question 8

If the previous tenant is sued under an AGA, what action may he have against the current tenant?

Answer 8

The former tenant may be able to recoup damages paid out on behalf of a defaulting assignee using an indemnity.

Question 9

If the previous tenant is sued under an AGA, what action may he have against the current tenant if he doesn’t have an indemnity?

Answer 9

The rule in Moule v Garrett (1872) LR 7 Exch 101.

If one person is compelled to pay damages because of the legal default of another, the former is entitled to recover those damages from the defaulting party.

Question 10

Can restrictive covenants in New Leases be enforced directly against sub-tenants?

Answer 10

Yes

Question 11

Can positive covenants in New Leases be enforced directly against sub-tenants?

Answer 11

No

Question 12

How can a Landlord enforce positive covenants in New Leases against sub-tenants?

Answer 12

• They can enforce against the tenant and so the tenant will have a clause where the sub-tenant covenants to observe and perform the covenants contained in the head lease.
• If the landlord forfeits the head lease, the sublease is also automatically terminated, subject to a claim for relief.
• Landlord will, as a condition of consent to the subletting, insist on any subtenant of the property entering into direct covenants with it to observe and perform the covenants in the lease.

Question 13

What does ‘alienation’ mean?

Answer 13

a disposal of all or part of the tenant’s interest in the lease

Question 14

If a tenant’s covenant against assigning a lease is qualified, they will need permission of the Landlord, does the Landlord have to act reasonably when considering the request?

Answer 14

Yes - s19(1)(a) of the Landlord and Tenant Act 1927 converts a qualified covenant into a fully qualified covenant.

Question 15

If a tenant requests an assignment orally, when must the landlord give his decision?

Answer 15

Must act reasonably but no time limit or how they respond

Question 16

If a tenant requests an assignment in writing, when must the landlord give his decision?

Answer 16

Must respond in writing within a reasonable amount of time. Case law says 28 days.

Question 17

When considering a sublease, what covenants will the Landlord require?

Answer 17

Covenants that are no less strict than those in the Lease.

Question 18

How long can a underlease be for?

Answer 18

Must be shorter than the lease

Question 19

Who drafts the licence to underlet

Answer 19

The Landlord’s Solicitor (at the tenant’s cost)

Question 20

Who drafts the underlease

Answer 20

The Tenant’s solicitor

Question 21

What are the pre-exchange steps for an assignment/sublet of a lease by the Landlord’s solicitor?

Answer 21

· Takes instructions

· Confirms receipt of application, sets out any requirements

· If client wishes to proceed in principle, drafts licence to assign/sublet and sends to tenant’s solicitor (costs normally paid for by the tenant under an “undertaking for costs”)

Question 22

What are the pre-exchange steps for an assignment of a lease/sublet by the Tennant’s solicitor?

Answer 22

· Takes instructions

· Applies for consent to assign/sublet from Landlord

· Prepares draft contract (if applicable) and deduces title. Forwards licence to assign/sublet to assignee’s solicitor.

· Answers pre-contract enquiries.

· Once agreed, engrosses the contract, obtains tenant’s signature and sends engrossment to assignee’s solicitor.

Question 23

What are the pre-exchange steps for an assignment of a lease by the Assignee’s/Undertenant’s solicitor?

Answer 23

· Takes instructions

· Assists tenant’s solicitor if anything needed for consent.

· Reviews draft contract (if applicable) and investigates title. Reviews and reports on lease. Reviews the licence to assign/sublet.

· Raises pre-contract enquiries and searches.

· Arranges for assignee to sign contract.

Question 24

Pre-exchange steps for an assignment of a lease by the Assignee’s solicitor - what steps are involved in investigation of title?

Answer 24

If the lease is unregistered, investigate the landlord’s title,

If the lease is registered, then the assignee’s solicitor can rely on the leasehold official copies.

Raise CPSE1 enquiries (as does a buyer’s solicitor in a commercial freehold transaction)

Also raise CPSE4 enquiries which are specific to the assignment of a lease.

Question 25

What happens at exchange for an assignment of a lease of a leasehold (assuming there is a contract)?

Answer 25

• the tenant’s solicitor and assignee’s solicitor exchange in similar manner as for a freehold contract (usually adopting Law Society B)
• no deposit is usually payable for assignment of a rack rental lease (for an assignment of a long residential lease, a 10% deposit would be usual, just like for a freehold)
• the contract may set a fixed completion date, or may specify that completion is conditional (eg, on the landlord’s consent).

If an underlease, the contract will normally have a copy of the underlease attached and so can’t exchange until terms of underlease are agreed.

Question 26

What are the pre-completion steps for an assignment of a lease by the Landlord’s solicitor?

Answer 26

· Engrosses licence to assign in triplicate (three copies), arranges for landlord to execute one copy

Question 27

What are the pre-completion steps for an assignment of a lease by the Tenant’s solicitor?

Answer 27

· Arranges for tenant to execute one copy of the licence to assign

· Prepares and sends a completion statement detailing the money due on completion (eg, any apportioned annual rent, service charge and insurance rent)

· Responds to requisitions on title

· Approves deed of assignment and arranges for tenant to execute

Question 28

What are the pre-completion steps for an assignment of a lease by the Assignee’s solicitor?

Answer 28

· Arranges for assignee to execute one copy of the licence to assign

· Obtains funds from assignee needed to complete as per completion statement

· Raises requisitions on title

· Raises pre-completion searches

· Drafts deed of assignment

Question 29

What pre-completion searches are carried out if the lease is registered

Answer 29

The appropriate search is an OS1 search of the whole of the tenant’s leasehold title

Question 30

What pre-completion searches are carried out for a sublet?

Answer 30

If it is an underletting of the whole of the tenant’s interest, then an OS1 search is carried out against the tenant’s registered leasehold title.
If it is an underletting of part of the tenant’s interest, then an OS2 search is carried out against the appropriate part of the tenant’s registered leasehold title.

Where the underlease is not registrable, an OS3 search may be carried out against the tenant’s interest to check whether any adverse entries have been made since the date of the last copy of the tenant’s title register.

Question 31

What happens on completion for an assignment of a lease?

Answer 31

• the assignee’s solicitor sends the tenant’s solicitor the completion monies
• the landlord’s solicitor, tenant’s solicitor and assignee’s solicitor agree over the telephone to complete and date the licence to assign
• the tenant’s solicitor and assignee’s solicitor agree over the telephone to complete and date the deed of assignment

Question 32

What happens on completion for an underlease?

Answer 32

• the undertenant’s solicitor sends the tenant’s solicitor the completion monies
• the tenant’s solicitor and undertenant’s solicitor agree over the telephone to complete and date the executed underleases that they are holding
• the tenant’s solicitor and undertenant’s solicitor send the completed original and counterpart underleases to each other

Question 33

What steps are carried out by the Assignee’s solicitor Post-completion?

Answer 33

Assignee/ undertenant solicitor
· Arranges to submit SDLT or LTT return and pay appropriate SDLT or LTT if necessary

· Registers assignment/underlease if necessary

Tenant
· Sends formal notice of assignment/underlease to landlord’s solicitor

Question 34

How long can an underletting be for?

Answer 34

At longest, 1 day less than the lease itself. The underlease must be shorter than the tenant’s lease.

Question 35

If the lease on underletting is silent, is the tenant free to underlet?

Answer 35

Yes

Question 36

Is a qualified covenant against underletting automatically converted to a fully qualified covenant?

Answer 36

Yes - and the decision must be made within a reasonable time.

Question 37

Is there privity of contract between the Landlord and the undertenant?

Answer 37

No - there is between the landlord and the tenant and the tenant and the undertenant.

Question 38

Can the Landlord enforce covenants against the undertenant?

Answer 38

No - unless that Landlord required the undertenant to covenant directly with the Landlord as part of the licence to underlet with the tenant.

Question 39

Pre-exchange steps for an assignment of a lease by the Tennant’s solicitor - What documents are typically sent to the assignee for ‘deduce of title’?

Answer 39

Copy of the lease, AND

Official copies for the leasehold title, if registered interest
or
If it is not a registered interest (ie, a term of 7 years or less), then the landlord’s title.

Question 40

What form are licence of assignment of leases and underleases normally given by a Landlord?

Answer 40

By Deed

Question 41

What is a qualified covenant

Answer 41

LL can withhold consent

Question 42

What is a fully qualified covenant

Answer 42

LL can withhold consent if not acting unreasonably