Unit 6 – Procedure of Assigning a Lease

Question 1

Who applies for the landlord’s consent for assigning a lease?

Answer 1

The assignor’s solicitor.

 Where landlord’s consent is required, it is usually embodied in a formal licence (a licence to assign).

Question 2

What undertaking do the landlord’s solicitors usually require from the assignor’s solicitors?

Answer 2

• Landlord’s solicitors usually require an undertaking from the assignor’s solicitors for the payment of legal and other professional costs involved in considering the proposed assignment and the licence to assign.

Question 3

Timing of landlord’s consent …

Answer 3

• The landlord’s consent must be given by or on completion of the assignment, otherwise the assignor is likely to be in breach of the assignment covenant in the lease.

Question 4

Timing of landlord’s consent to assign under SCs

Answer 4

• Either party may rescind the contract by notice if the consent has not been given three working days before the completion date or if, by that time, consent has been given subject to a condition to which the buyer reasonably objects.

I.e., can rescind any time before 3 working days before completion date.

• Where timing of completion is important (e.g., where there is a dependent transaction), it is safest not to exchange until landlord’s consent has been obtained. Otherwise, assignment may fall through when the landlord refuses consent, whereas the dependent transaction would still be binding.

Question 5

Timing of landlord’s consent to assign under SCPCs

Answer 5

• If the landlord’s consent has not been obtained by the completion date, completion is postponed until five working days after the assignor notifies the buyer that consent has been given.

– Where landlord’s consent to assign is not obtained by the completion date, the contract may not be rescinded until.6 months have passed since the original completion date.

– Either party may then rescind by serving notice on the other.

Question 6

Purpose of license to assign & who prepares the draft?

Answer 6

• Purpose = for the landlord to give consent to the assignment of the lease by the assignor of the assignee.
• Draft licence to assign is produced by L’s solicitor to amend or agree the draft.
• Where assignor and the assignee enter into covenants, then the licence will have 3 parties (i.e., including the landlord). The licence must be in the form of a deed.

Question 7

What are the key provisions in the license to assign?

Answer 7

(a) Landlord consent – Often this consent is time-limited to make up for the fact that an assignee’s financial position may change or deteriorate before taking the assignment. This is usually limited to 3 months.

(b) If lease was granted on or after 1 Jan 1996 – assignor will typically give an AGA to the landlord.

(c) The assignor agrees to pay the landlord’s legal and professional costs.

Question 8

Assignee of an old lease (before 1 Jan 1996)

Answer 8

 Assignee of an old lease is liable under doctrine of privity of estate for all the covenants in the lease which touch and concern the land (not personal covenants).

 This privity of estate only lasts for as long as the lease remains vested in the assignee.

 Direct Covenant – Landlord will seek to extend the liability of the assignee by requiring it, as a condition of the landlord’s consent, to enter into a direct covenant to observe the covenants in the lease for the remainder of the term of the lease.

 This creates privity of contract between the landlord and assignee. This direct covenant is usually contained in the licence to assign.

Question 9

Assignee of a new lease (on or after 1 Jan 1996)

Answer 9

 Assignee of a new lease is liable for breaches of covenant committed while the lease is vested in them (although they are liable during that time for all the tenant covenants, not just those which touch and concern the land).

 On future assignment of the lease, the Landlord and Tenant Covenants Act 1995 automatically releases the assignee.

 Direct Covenant – If the landlord requires a direct covenant from the assignee, then this covenant should be limited to the period the assignee is actually the tenant, not the remainder of the entire term.

 To compensate the landlord for this loss of privity of contract for the whole of the term, statute allows the landlord to require that the assignor enters into an AGA instead.

Question 10

Where there is a provision in the lease can the landlord insist that the assignor enter into an AGA whether it is or is not reasonable?

Answer 10

Yes.

Question 11

Where there is no original provision in the lease, can the landlord insist on the AGA whether it is or is not reasonable?

Answer 11

No..

Question 12

Is deduction of freehold title required under the SCs?

Answer 12

No. This should be inserted as a special provision.

Question 13

Where the assignor’s lease is registered with absolute title does the assignee need to deduce title to freehold?

Answer 13

No.

Question 14

If the assignor;s lease is unregistered..

Answer 14

General law = assignee is entitled to call for the lease and all assignments under which the lease has been held during the last 15 years, but not for evidence of the freehold title

Question 15

What form is used for the assignment?

Answer 15

Deed of assignment (Form TR1).

The Assignee’s solicitor will draft the TR1.

Question 16

What pre-completion searches should be carried out by the assignee before the assignment goes ahead?

Answer 16

1) Registered lease – Official search of the registers of leasehold title (OS1) – check for new entries & gain priorty period within which to register the transfer

2) Unregistered lease – land charges search giving priorty period of 15 working days

Question 17

Licence to assign ..

Answer 17

• Landlord’s solicitor supplies ‘top copies’ (engrossments) of the licence.
• If it contains covenants, it must be made by deed.
• Where assignee is to give direct covenant to the landlord, the licence is usually drawn up in two parts.

1. Landlord executes the original licence (which is gen to the assignor on completion for onwards transmission to the assignee)
2. Assignee executes the counterpart (which is given to the landlord to take effect on completion).
3. AGA.

• Assignor’s AGA is contained in the licence or created as a separate deed to take effect only on completion of the assignment.

Question 18

What documents will the assignor hand to the assignee?

Answer 18

(a) The lease

(b) The transfer deed (TR1 or deed of assignment)

(c) The licence to assign executed by landlord.

(d) Evidence of freehold title in accordance with the contract (lease not registered or not registered with absolute title)

(e) Evidence of discharge of the assignee’s mortgage

(f) Copies of duplicate notices served by the assignor and its predecessors on the landlord in accordance with a covenant in the lease requiring the landlord to be notified of any dispositions.

(g) Insurance policy (or copy if insurance is effected by the landlord) and receipt (or copy) relating to the last premium due.

(h) Receipt for rent (and other outgoings for which the assignor wishes to claim reimbursement).

Question 18

Apportionments on rent

Answer 18

• Unless completion takes place on a day when the annual rent becomes due under the lease, the instalment will need to be apportioned on completion, so that the assignee reimburses the assignor for the period from completion until the next rent day.
• Completion statement = should be supplied by assignor which shows the amounts due and explains how they have been calculated.

 Copies of receipts / demands /evidence of the apportionments should be supplied with the completion statement so the assignee can check the apportioned sums.

Question 19

What documents should the assignee hand the assignore?

Answer 19

(a) Money due in accordance with the completion statement

(b) Duly executed counterpart licence to assign

(c) A release of deposit (only likely where the assignee is paying a premium)

Question 20

Is SDLT / LTT payable on the purchase price and the rent for a licence to assign?

Answer 20

NO. Only payable on the purchase price charged by the assignor (due in 14 days from completion).

No SDLT/LTT charged on the rent as it will have been paid when the original lease was granted.

Question 21

Registering an assignment of a lease (registered property) …

Answer 21

• Where lease is already registered at the Land Registry, an application for registration of the transfer to the assignor should be made within the priority period given by the pre-completion OS1 search.
• Once registered, the lease continues to be registered until it expires.
• Assignee’s solicitor applies for registration of title.

Question 22

Registering an assignment of a lease (unregistered lease)..

Answer 22

• Unregistered lease which at the date of the transfer to the assignee, still has over seven years of the term unexpired = needs to be registered at Land Registry within 2 months of the assignment or will be void in respect of the legal estate.
• Application for registration with absolute title can be made where the assignee can produce satisfactory evidence relating to the superior title. In any other case, only good leasehold title can be obtained.
• If freehold title is already registered = the lease is noted against the freehold title.
• If freehold title is unregistered (or registration pending) = assignee may consider lodging a caution against first registration against the freehold title, in order to protect their interests against a subsequent buyer of the freehold.
• Lease has seven years or less unexpired = incapable of registration with separate title.
• Assignee’s solicitor applies for registration of title.

Question 23

What is the assignee likely to coevnant to with the landlord and for how long?

Answer 23

In the licence to assign the assignee is likely to covenant with the landlord to perform the covenants in the lease for the duration of the assignment.

Question 24

Whose solicitor prepares the draft contract for the assignment?

Answer 24

assignor’s solicitor.

Question 25

Should the landlord in the licence to assign insert a clause limiting the time period for which the assignment can take place? I.e., assignmnent must take place within 3 months from the completion of licence to assign

Answer 25

YES.