Please enable JavaScript.
Coggle requires JavaScript to display documents.
ALIENATION - Coggle Diagram
ALIENATION
ASSIGNMENT
The grant of a lease creates a leasehold interest > lease can be assigned by existing tenant (assignor) to new tenant (assignee)
- Assignment is a form of alienation = disposal of all or part of the tenant’s interest in the lease
- landlord becomes the landlord of the assignee
Used if assignor no longer needs premises for business / cannot afford to keep paying the rent > If the lease is silent, then the tenant is free to assignCovenant against assignment can be:
- Absolute = assignment is not allowed > common for commercial lease against assignment of part of the premises.
- Qualified = assignment is only allowed with the landlord’s consent BUT can be converted into a fully qualified covenant + landlord must give its decision on consent within a reasonable time
- Fully qualified = assignment is only allowed with the landlord’s consent BUT landlord must act reasonably if deciding to withhold consent
Reasonable to withhold consent
- Must relate to landlord/tenant relationship = cannot be personal dislike / race /sex
- Tenant-mix policy = assignee’s proposed use of the premises may be reasonable
- Inability to pay the rent = assignee’s ability to pay the rent may be reasonable
A commercial lease will contain: circumstances parties agree will be reasonable grounds for withholding consent and conditions that may be imposed on assignment
Assignor’s and assignee’s liabilities after assignmentPrivity of contract = original parties to a contract can enforce the obligations against each other, even after the contract has been assigned (contract is present)Privity of estate = current landlord and tenant can enforce the provisions of a lease against each other (landlord + tenant own legal estate in same property)Old leases = original tenant liable to landlord to pay the rent / perform obligations under privity of contract AND only limited obligations that automatically passed to the new tenant under privity of estate unless they covenant directly with landlordNew leases = after 1 January 1996 > original tenant is released from liability, and all of the tenant covenants are passed to the new tenant UNLESS excluded assignment
- Original tenant can agree to guarantee obligations of incoming tenant (only for them) = authorised guarantee agreement this is common in commercial leases + If the lease is silent, then the landlord can only insist on an AGA if it is reasonable to do so
Assignment procedure
Pre-exchangeLandlord’s solicitor
- Confirms receipt of application, sets out any requirements > long residential lease concept not always required
- If client wishes to proceed in principle, drafts licence to assign and sends to tenant’s solicitor AFTER undertaking is given
Tenant’s solicitor
- Applies for consent + landlord’s solicitor will ask tenant’s solicitor to give an undertaking for costs which is praise to pay them (landlord’s solicitor’s and surveyor’s costs in considering the application)
- Prepares draft contract (if applicable) and deduces title. Forwards licence to assign to assignee’s solicitor
- Answers pre-contract enquiries
- engrosses the contract, obtains tenant’s signature and sends engrossment to assignee’s solicitor.
Assignee’s solicitor
- 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.
- Raises pre-contract enquiries and searches = CPSE1 + CPSE4 enquiries which are specific to the assignment of a lease. + same searches as freehold
- Arranges for assignee to sign contract
Exchange
no deposit is usually payable + contract may set a fixed completion date, or may specify that completion is conditional
Pre-completionLandlord’s solicitor
- Engrosses licence to assign in triplicate (three copies), arranges for landlord to execute one copy
Tenant’s solicitor
- Arranges for tenant to execute one copy of the licence to assign
- Prepares and sends a completion statement detailing the money due on completion ( any apportioned annual rent, service charge and insurance rent)
- Responds to requisitions on title
- Approves deed of assignment and arranges for tenant to execute
Assignee’s solicitor
- 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 = if registered OS1 search of the whole of the tenant’s leasehold title
- Drafts deed of assignment = form TR1
Completion
- assignee’s solicitor sends the tenant’s solicitor the completion monies
- landlord’s solicitor, tenant’s solicitor and assignee’s solicitor agree over the telephone to complete and date the licence to assign
- tenant’s solicitor and assignee’s solicitor agree over the telephone to complete and date the deed of assignment
Post-completion
Assignee’s solicitor = submit SDLT or LTT return and pay appropriate SDLT or LTT if necessary / Registers assignment if necessary / Sends formal notice of assignment to landlord’s solicitor
UNDERLETTING
The grant of a lease creates a leasehold interest > tenant grants an underlease to an undertenant
- Underletting is a form of alienation = disposal of all or part of the tenant’s interest in the lease
- must be for a shorter term than the lease itself + tenant receives a rent from undertenant which tenant may use to pay rent under its own lease + tenant can enforce undertenant’s covenants
Used if:
- they are not using all of the premises, and it is possible to underlet the part they are not using
- they do not need the premises at the moment, but are likely to do so in future
- they cannot find a willing assignee, but can find a willing undertenant
If lease is silent = tenant is free to underlet BUT commercial lease will impose a requirement of consentCovenant against assignment can be:
- Absolute = underletting is not allowed
- Qualified = underletting is only allowed with the landlord’s consent BUT can be converted into a fully qualified covenant + landlord must give its decision on consent within a reasonable time
- Fully qualified = underletting is only allowed with the landlord’s consent BUT landlord must act reasonably if deciding to withhold consent
Commercial lease may contain an absolute covenant against underlettings of part, except for a permitted part BUT landlord can restrict underletting in regard to if the undertenant becomes the direct tenant of the landlord by:
- require that underlease same rent as tenant’s lease + contains covenants no less onerous than in the tenant’s lease
Lease covenants regulating underletting do not talk conditions and circumstances on which consent may be reasonably withheld
The undertenant’s liabilities to the landlordPrivity of contract / Privity of estate
- exists between the landlord and the tenant / the tenant and the undertenant NOT between the landlord and the undertenant
Landlord is not able to enforce covenants against the undertenant so usually want the undertenant to covenant directly with the landlord in the licence to underlet
- no equivalent of an authorised guarantee agreement for underletting, as the tenant remains liable to the landlord in any case
- if tenant forfeits lease > sublease is terminated
Underletting procedure
Pre-exchangeLandlord’s solicitor
- Considers application to underlet + will require tenant’s solicitor to give an undertaking for costs before beginning work. Once the undertaking for costs is in place, will prepare the draft licence to underlet
- If landlord is happy in principle to give consent, issues draft licence to underlet to tenant’s solicitor
Tenant’s solicitor
- Applies for consent to underlet
- Prepares draft underlease = full form lease, which similar to the tenant’s own lease OR lease by reference, incorporates sections of tenant’s lease by reference
- Answers pre-contract enquiries
- Reviews draft licence to underlet and sends copy to undertenant
- Deduces title and responds to any queries on title > if lease is over 7 years = tenant only provide an official copy of its registered leasehold title BUT if 7 years or under = tenant will need to provide an official copy of the landlord’s freehold title together with a copy of the lease
- Once agreed, engrosses the agreement for underlease, obtains the tenant’s signature and sends counterpart to undertenant’s solicitor
Undertenant’s solicitor
- Reviews draft underlease and agreement
- Reviews draft licence to underlet
- Investigates title and raises any queries on title
- Raises pre-contract enquiries and searches
Exchange
no deposit is usually payable + contract may set a fixed completion date, or may specify that completion is conditional + usually adopting Law Society B
Pre-completionLandlord’s solicitor
- Engrosses agreed form of licence to underlet and circulates for execution
Tenant’s solicitor
- Prepares original and counterpart underlease, obtains tenant’s signature to original and sends counterpart to undertenant for signature
- Prepares and sends a completion statement detailing the money due on completion ( any apportioned annual rent, service charge and insurance rent)
- Obtains tenant’s execution to licence to underlet
Undertenant’s solicitor
- Arranges for undertenant to sign counterpart underlease
- Obtains funds from assignee needed to complete as per completion statement
- Raises pre-completion searches = if registered OS1 search of the whole / Os2 for part / OS3 if unregistered
Completion
- parties’ solicitors agree to date and complete the licence to underlet
- undertenant’s solicitor sends the tenant’s solicitor the completion monies
- tenant’s solicitor and undertenant’s solicitor agree over the telephone to complete and date the executed underleases that they are holding
Post-completion
Undertenant’s solicitor = submit SDLT or LTT return and pay appropriate SDLT or LTT if necessary / Registers underleases if necessary
Tenant’s solicitor = Sends notice of underlease to the landlord’s solicitor
-
Other forms of alienation
Charge = tenant may create a charge over their lease > commercial tenant may do this as part of a floating charge over their business generally / residential leaseholder will do this when taking a mortgage
Share occupation = tenant may want to share occupation with a third party without creating an underlease > commercial lease will allow sharing with group companies