Assignment of a lease - Deed of assignment and covenants for title

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Overview

Lease assignment is a key concept in property law, involving the transfer of leasehold rights from one tenant to another. This process utilizes important legal tools such as deeds of assignment and title covenants to ensure transactions are valid and enforceable. For SQE1 FLK2 exam candidates, a strong grasp of these topics is necessary, as they link to core areas of property law, contract law, and conveyancing. This article explores lease assignments, focusing on the legal framework, practical applications, and exam considerations.

Legal Framework of Lease Assignments

Statutory Basis

The main legal basis for lease assignments comes from two significant pieces of legislation:

  1. Law of Property Act 1925: Section 136 details the requirements for a valid legal assignment, including the need for writing and landlord notification.

  2. Landlord and Tenant (Covenants) Act 1995: This Act introduced major changes in the law on privity of contract and estate, especially affecting leases assigned after 1 January 1996.

Case Law Influence

Several key cases have shaped lease assignment law:

  • P & A Swift Investments v Combined English Stores Group Plc [1989] AC 632: The House of Lords decided that an absolute covenant against assignment can be modified by the landlord's behavior.

  • Street v Mountford [1985]: This case clarified the definitions of leasehold interest and tenant obligations.

Deed of Assignment: Structure and Function

A deed of assignment is the key legal document for transferring leasehold interests. It typically includes:

  1. Parties: Identifies assignor, assignee, and usually the landlord.
  2. Recitals: Background on the original lease and previous assignments.
  3. Operative Clauses: The actual assignment of lease rights and duties.
  4. Covenants: Assurances by the assignor about the lease’s status.
  5. Execution Clause: Formal signatures and necessary witnessing.

Legal Requirements for Validity

For a deed of assignment to be valid, it must meet specific criteria:

  • Execution: Signed by both parties or their representatives.
  • Delivery: Effective upon delivery, presumed when executed unless indicated otherwise.
  • Witnessing: Signatures must be observed and attested.
  • Form: Clearly intended to serve as a deed.

Covenants for Title in Lease Assignments

Title covenants offer assurances to the assignee about the title's quality. The Law of Property (Miscellaneous Provisions) Act 1994 outlines implied covenants for title.

Types of Covenants

  1. Full Title Guarantee: Includes broad assurances, such as the right to assign, no encumbrances, and quiet enjoyment.

  2. Limited Title Guarantee: Offers narrower assurances, used when the assignor has limited knowledge of the property history.

Key Covenants Explained

  1. Right to Assign: The assignor confirms their legal right to transfer the lease.

  2. Freedom from Encumbrances: Assures no undisclosed charges affect the assignee’s use.

  3. Further Assurance: The assignor agrees to perfect the assignee’s title if needed.

  4. Quiet Enjoyment: Guarantees undisturbed possession by assignor or successors.

Practical Application and Exam Relevance

Example 1: Commercial Lease Assignment

Scenario: A tech startup, GrowthTech Ltd, wants to take over a lease from DownsizeCorp, which is reducing office space.

Key steps:

  1. Review the original lease for assignment restrictions.
  2. Check if landlord consent is needed and any conditions.
  3. Conduct due diligence on DownsizeCorp’s lease compliance.
  4. Draft a thorough deed of assignment with all necessary elements.
  5. Decide between full or limited title guarantee based on available information.

Example 2: Residential Sublease Assignment

Scenario: Student Alice wishes to transfer her flat sublease to Bob for six months.

Exam points:

  1. Confirm if the headlease allows subletting and assignment.
  2. Obtain needed consents from head and sublessor landlords.
  3. Explain Alice’s potential ongoing liability unless released by the sublessor.
  4. Provide notice to relevant parties as required by Section 136.
  5. Advise on suitable covenants for the short-term lease.

Legal and Practical Challenges in Lease Assignments

Consent and Reasonableness

The Landlord and Tenant Act 1988 requires landlords not to unreasonably withhold assignment consent. In International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986], the court outlined criteria for judging a refusal.

Candidates should:

  • Analyze scenarios to assess landlord reasonableness.
  • Advise on consequences of proceeding without consent.
  • Discuss tenant remedies for unreasonable refusals.

Liability Post-Assignment

Liability after assignment varies with lease date:

For 'old' leases (before 1996):

  • Original tenants remain liable for the full term.
  • Assignees are liable while holding the lease.

For 'new' leases (from 1996 onwards):

  • Landlord and Tenant (Covenants) Act 1995 allows for tenant release upon assignment.
  • Allows Authorised Guarantee Agreements (AGAs) for outgoing tenants to guarantee assignee performance.

Conclusion

Understanding lease assignments, particularly deeds and title covenants, is vital for SQE1 FLK2 candidates. These concepts form the legal basis for transferring leasehold interests, protecting all parties, and ensuring smooth transactions. Key aspects include:

  1. Statutory basis and case law impact.
  2. Deed of assignment structure and requirements.
  3. Title covenants and their scope.
  4. Practical considerations in lease assignments.
  5. Challenges with landlord consent and liability.

By mastering these principles, candidates can effectively prepare for the SQE1 FLK2 exam, building the skills needed for property law and conveyancing practice.