Assignment of a lease - Obtaining landlord's consent

Learning Outcomes

After reading this article, you will be able to explain the legal requirements for assigning a lease, including when landlord’s consent is needed, how to request and obtain consent, the statutory duties imposed on landlords, and the effect of Authorised Guarantee Agreements (AGAs). You will also be able to identify common pitfalls and apply the relevant law to SQE1-style scenarios.

SQE1 Syllabus

For SQE1, you are required to understand the law and practice relating to the assignment of leases, especially the process for obtaining landlord’s consent and the statutory rules governing it. In your revision, focus on:

• The distinction between absolute, qualified, and fully qualified covenants against assignment
• The statutory modification of assignment covenants (Landlord and Tenant Act 1927, s 19(1)(a))
• The landlord’s statutory duties when a tenant requests consent to assign (Landlord and Tenant Act 1988)
• The process for requesting and granting consent, including timeframes and required information
• The landlord’s right to impose conditions, including Authorised Guarantee Agreements (AGAs)
• Remedies available to tenants if consent is unreasonably withheld or delayed

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the effect of a qualified covenant against assignment in a commercial lease?
2. What statutory duties does a landlord owe when a tenant requests consent to assign a lease?
3. When can a landlord lawfully require an outgoing tenant to enter into an Authorised Guarantee Agreement (AGA)?
4. What remedies are available to a tenant if the landlord unreasonably withholds or delays consent to assignment?

Introduction

When a tenant wishes to assign (transfer) their leasehold interest to another party, the lease will almost always require the landlord’s consent. The law sets out strict rules on how and when consent must be given, what conditions can be imposed, and what happens if the landlord acts unreasonably. For SQE1, you must be able to identify the relevant statutory provisions, apply the correct process, and advise on the consequences of non-compliance.

Assignment and Landlord's Consent: Key Principles

Types of Covenants Against Assignment

Most commercial leases include a covenant restricting assignment. There are three main types:

Key Term: absolute covenant
An absolute covenant prohibits assignment in all circumstances. The landlord is not required to consider any request for consent.

Key Term: qualified covenant
A qualified covenant allows assignment only with the landlord’s prior written consent.

Key Term: fully qualified covenant
A fully qualified covenant allows assignment with the landlord’s consent, but that consent must not be unreasonably withheld.

Statutory Modification of Assignment Covenants

Section 19(1)(a) of the Landlord and Tenant Act 1927 upgrades any qualified covenant against assignment in a lease to a fully qualified covenant. This means that, even if the lease says consent is needed, the landlord cannot unreasonably withhold consent.

Key Term: statutory modification
The automatic upgrading of a qualified covenant to a fully qualified covenant by operation of law.

The Landlord’s Statutory Duties

When a tenant requests consent to assign, the Landlord and Tenant Act 1988 imposes strict duties on the landlord:

Key Term: statutory duty to respond
The landlord must respond to a written request for consent within a reasonable time, giving consent (with or without reasonable conditions) or written reasons for refusal.

Key Term: burden of proof
If the landlord refuses consent or imposes conditions, the landlord must prove that the refusal or conditions are reasonable.

The Process for Obtaining Consent

1. Tenant’s Written Request: The tenant must make a formal, written request for consent to assign, providing all information reasonably required by the landlord (e.g., details of the proposed assignee, references, business plans).
2. Landlord’s Response: The landlord must respond in writing within a reasonable time, either granting consent (with or without reasonable conditions) or refusing consent with full reasons.
3. Reasonableness: The landlord can only refuse consent or impose conditions for reasons connected to the landlord-tenant relationship (e.g., financial standing of the assignee, likely use of the premises).
4. Remedies for Delay or Unreasonable Refusal: If the landlord fails to respond in time or acts unreasonably, the tenant may seek damages or a court declaration.

Conditions on Consent: Authorised Guarantee Agreements (AGAs)

Key Term: Authorised Guarantee Agreement (AGA)
An AGA is a guarantee given by the outgoing tenant (assignor) that the incoming tenant (assignee) will comply with the lease covenants after assignment. AGAs are permitted for leases granted on or after 1 January 1996 if required by the lease or if reasonable.

Worked Example 1.1

A tenant wishes to assign their lease to a new business. The lease contains a qualified covenant against assignment. The tenant provides full details of the assignee and requests consent. The landlord does not reply for two months.

Answer: The qualified covenant is upgraded to a fully qualified covenant by statute. The landlord is in breach of statutory duty for failing to respond within a reasonable time. The tenant may apply to court for a declaration or damages.

Worked Example 1.2

A landlord refuses consent to assignment because the proposed assignee has no previous experience in the relevant business sector, but has strong financial backing.

Answer: The landlord must show that refusal is reasonable. Lack of experience may be a reasonable ground if it creates a real risk of default, but if the assignee is financially sound and the business is similar, refusal may be unreasonable.

Worked Example 1.3

A lease granted in 2005 requires the outgoing tenant to enter into an AGA on assignment. The landlord insists on an AGA as a condition of consent.

Answer: For leases granted on or after 1 January 1996, the landlord can require an AGA if the lease expressly provides for it, or if it is reasonable in the circumstances. The outgoing tenant must give the AGA if required.

Exam Warning

For SQE1, always check the date the lease was granted. The rules on AGAs and continuing liability differ for leases granted before and after 1 January 1996.

Practical Steps and Remedies

• The tenant should always make a written request for consent, supplying all information the landlord may reasonably require.
• The landlord must respond in writing and within a reasonable time.
• If the landlord refuses consent or imposes conditions, reasons must be given and must relate to the landlord-tenant relationship.
• If the landlord fails to comply, the tenant may seek damages or a declaration from the court.
• If the lease is assigned without consent where required, the assignment is effective but is a breach of covenant and may lead to forfeiture.

Key Point Checklist

This article has covered the following key knowledge points:

• Assignment of a lease usually requires landlord’s consent, except where absolutely prohibited.
• Qualified covenants against assignment are upgraded by statute to fully qualified covenants: consent cannot be unreasonably withheld.
• The landlord must respond to a written request for consent within a reasonable time and give reasons for any refusal or conditions.
• The landlord’s reasons for refusal or conditions must be reasonable and relate to the landlord-tenant relationship.
• The landlord may require an AGA if the lease allows or if reasonable for leases granted on or after 1 January 1996.
• If the landlord breaches statutory duties, the tenant may seek damages or a court declaration.

Key Terms and Concepts

• absolute covenant
• qualified covenant
• fully qualified covenant
• statutory modification
• statutory duty to respond
• burden of proof
• Authorised Guarantee Agreement (AGA)