Leasehold real estate law and practice - Procedural steps fo...

Learning Outcomes

After reading this article, you will be able to identify the essential procedural steps required for the assignment of a lease in England and Wales. You will understand when and why landlord’s consent is needed, the formal and documentary requirements, the obligations of both assignor and assignee, and the legal and practical effects of the assignment. This topic is directly relevant to SQE2’s assessment of leasehold real estate transactions.

SQE2 Syllabus

For SQE2, you are required to understand the law and practice of leasehold real estate, with the ability to follow the correct procedure for the assignment of a lease and to identify risks, consents, and legal consequences for the parties involved. When revising this topic, pay particular attention to:

• The formalities and documentation required for a valid assignment of a lease
• The role and necessity of landlord’s consent (including qualified/fully qualified covenants)
• The steps for satisfying pre-assignment requirements (e.g., rent, property condition, contractual notices)
• Drafting and executing the assignment deed or transfer
• The legal consequences for assignor and assignee, including continuing liability and covenants
• Post-assignment steps: notification, registration, and practical completion

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. Which of the following usually must be obtained before a lease assignment can occur?
   1. Landlord’s written consent (if required by covenant)
   2. Consent of all previous assignees
   3. Confirmation of local authority planning
   4. A declaration from the subtenant
2. Which statement is most accurate regarding documentation for an assignment of a lease?
   1. A simple email between assignor and assignee will always suffice
   2. The assignment must be by deed for legal validity
   3. Only oral agreement is required
   4. Assignment is always automatic on sale of the business
3. On a lease granted after 1996, when is a former tenant normally released from ongoing liability after an assignment?
   1. Never
   2. Automatically on lawful assignment
   3. Only after 12 months have passed
   4. After the next rent review

Introduction

Assignment of a lease is the process by which an existing tenant (the assignor) transfers their leasehold interest to a new tenant (the assignee). The procedure protects all stakeholders—including the landlord—by ensuring that key documentation, covenants, and legal requirements are satisfied. The following explains each step in detail, focusing on what a newly qualified solicitor must know for SQE2.

The Need for Landlord’s Consent

Many leases, especially those of commercial or high-value residential premises, contain covenants restricting assignment, or requiring landlord’s consent—either absolutely, on reasonable terms (qualified covenant), or on fully qualified terms (consent not to be unreasonably withheld).

Key Term: assignment of a lease
The legal transfer of a tenant’s remaining interest in a lease to a new party (the assignee), with the assignee stepping into the leaseholder’s obligations.

Key Term: qualified covenant
A leasehold covenant stating that assignment is only allowed with the landlord’s consent, but without stating that such consent must not be unreasonably withheld.

Key Term: fully qualified covenant
A leasehold covenant allowing assignment with landlord’s consent, which explicitly must not be unreasonably withheld.

Key Term: authorised guarantee agreement (AGA)
An agreement by which an outgoing tenant guarantees performance of the lease covenants by their immediate assignee, permitted in some post-1996 commercial leases as a condition of assignment.

Worked Example 1.1

A tenant under a 15-year commercial lease wishes to assign the last 6 years to a third party. There is a clause requiring landlord’s consent, “not to be unreasonably withheld.” What is the first step the tenant should take?

Answer:
The tenant should formally request the landlord’s consent in writing, providing details of the proposed assignee, relevant references, and any other information reasonably required under the lease. Until consent is granted, the assignment cannot proceed lawfully.

Procedural Steps for Assignment of a Lease

The assignment process involves several distinct steps, with practical and legal consequences at each stage.

Step 1: Review the Lease and Identify Preconditions

Carefully review the individual lease to identify:

• Any restrictions or conditions on assignment
• Whether the landlord’s consent is required, and if so, whether it may be withheld on specified grounds
• Any preconditions, such as up-to-date rent or repair obligations
• Notice periods or other procedural rules

A note of existing breaches (e.g., arrears, disrepair) is essential, as these may prevent assignment or require resolution beforehand.

Step 2: Obtain Landlord’s Consent (If Required)

Where the lease includes a qualified or fully qualified covenant, the tenant must:

• Submit a formal written application for consent
• Supply required references, financial information, and details of the proposed assignee and assignment
• Respond promptly to any reasonable landlord requests

If the landlord’s consent is unreasonably withheld, the tenant may have recourse for a declaration or damages. However, an assignment without necessary consent is a breach and potentially grounds for forfeiture.

Worked Example 1.2

A shop tenant applies for landlord’s consent to assign the lease to a solvent business. The landlord requests a business plan and evidence of the assignee’s financial position, which are provided. The landlord withholds consent due to a “general preference for existing tenants.” Is this lawful?

Answer:
No. Where a fully qualified covenant applies, consent can only be refused on reasonable grounds related to the landlord-tenant relationship. General preferences or arbitrary refusals are not reasonable.

Step 3: Prepare and Execute the Assignment Documentation

Assignment of a lease (except very short interests) must be effected by deed, executed by the assignor and assignee as required by law.

Key Term: deed of assignment
A formal document by which the outgoing tenant assigns all their interest under the lease to the new tenant (assignee), typically executed as a deed.

Assignment deeds should:

• Clearly identify the property, parties, and lease
• State whether the assignment is subject to any mortgagee or other consent
• Include any required indemnities (e.g., for rent arrears or disrepair)
• Be signed, witnessed, and dated

For commercial leases post-1996, the landlord may require an AGA as a condition of assignment if the lease allows (especially in new leases and where the landlord’s consent is needed).

Step 4: Completion and Delivery

On completion:

• The assignor hands over executed deeds, keys, and any relevant lease documents to the assignee
• The parties complete any other steps required by the lease or contract

If landlord’s consent is a precondition, ensure written evidence is in hand before completion.

Step 5: Post-Completion Notices and Registration

• Serve any contractual or statutory notices, including notifying the landlord of completion (even if consent was not required or not needed for subsequent assignments)
• Provide certified copies of the assignment deed to the landlord (as may be specified)
• Arrange for registration of the assignment at HM Land Registry if the lease is registered (or the head lease so requires)

Step 6: Legal Consequences for Assignor and Assignee

• The assignee becomes bound by (and entitled to the benefit of) the covenants in the lease, except for pure personal obligations
• In a new lease (post-1996), the outgoing tenant is generally released from ongoing liabilities on lawful assignment unless an AGA is given
• For old leases (pre-1996), the outgoing tenant may remain liable under privity of contract and indemnity covenants

Revision Tip

Where doubt exists, always check the lease for assignment conditions, timing, and consent requirements. Never rely solely on practice or local custom. Failure to comply risks claims for breach and potential forfeiture.

Exam Warning

Assignment by deed without necessary landlord’s consent will usually be ineffective and constitute a breach, even if registered at HM Land Registry. The landlord might be able to forfeit the lease or claim damages.

Summary

Assignment of a lease is not automatic. It requires: careful review of the lease and property, compliance with any pre-conditions (especially landlord consent), proper execution of a deed of assignment, completion formalities, and notification to the landlord and—if required—registration. The legal obligations for both assignor and assignee after the assignment depend on the date the lease was granted and whether any AGA or indemnities have been provided.

Key Point Checklist

This article has covered the following key knowledge points:

• Assignment of a lease requires compliance with all lease preconditions, including landlord’s consent if required
• Assignment must usually be executed by deed to transfer legal title
• Qualified and fully qualified covenants restrict assignment and set the terms under which landlord’s consent can be withheld
• Assignor may be required to provide an AGA or indemnities, especially in new commercial leases
• Post-completion formalities include notifications and registration where required

Key Terms and Concepts

• assignment of a lease
• qualified covenant
• fully qualified covenant
• authorised guarantee agreement (AGA)
• deed of assignment