Assignment of a lease - Completion and post-completion steps

Learning Outcomes

This article outlines the completion and post-completion steps in lease assignments, including:

• Completion tasks in an assignment of a lease: agreement and execution of the deed of assignment, calculation and settlement of apportionments, dealing with any licence to assign, and completion under recognised conveyancing practice (including the Code for Completion by Post).
• Deed execution formalities for individuals and companies, including acceptable electronic signing practices, witness requirements, and the effect of dating and delivery.
• Authorised Guarantee Agreements (AGAs) under the Landlord and Tenant (Covenants) Act 1995: lawful requirements, scope of guarantee, and release of liability.
• SDLT and LTT on lease assignments: return thresholds (including £40,000), filing deadlines, and applicable surcharges.
• HM Land Registry requirements: when assignment must be registered (AP1 for registered leases, FR1 for first registration of unregistered leases with more than seven years unexpired) and priority protection during the “registration gap”.
• Landlord notification requirements post-completion: notice of assignment, fees, and practical consequences of non-compliance (including breach of covenant and rent misdirection risks).
• Ancillary post-completion matters: transfer or replacement of a rent deposit deed, transfer of any management company share, and common pitfalls to avoid.

SQE1 Syllabus

For SQE1, you are required to understand the completion and post-completion steps in lease assignments, with a focus on the following syllabus points:

• Deed formalities on assignment: execution requirements for individuals and companies, witnessing, dating and delivery.
• Apportionments of rent, insurance and service charge; use of retentions to cover balancing service charge reconciliations.
• Landlord’s consent to assignment, the statutory duty to act reasonably and promptly (Landlord and Tenant Act 1988), and the role of a licence to assign.
• Authorised Guarantee Agreements (AGAs): scope, release, and when they can be lawfully required for “new leases” under the 1995 Act.
• SDLT/LTT on lease assignments: when a return is required, applicable deadlines, and key thresholds and surcharges.
• Registration requirements at HM Land Registry, the OS1 priority period, and the “registration gap”.
• Landlord notification: notice of assignment requirements, fees, and ramifications for covenant compliance.
• Typical leasehold-specific post-completion matters (e.g., rent deposit deed transfer, management company share transfer).

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 legal requirement for the execution of a deed of assignment of a lease?
2. When must an assignment of a lease be registered at HM Land Registry?
3. What is the purpose of notifying the landlord after completion of an assignment?
4. What is an Authorised Guarantee Agreement (AGA), and when might it be required?

Introduction

The assignment of a lease is the legal transfer of a tenant’s leasehold interest to a new party. This process involves a series of completion and post-completion steps to ensure the assignment is valid, enforceable, and properly recorded. For SQE1, you must be able to identify the required formalities, calculate financial adjustments, comply with statutory obligations, and understand the ongoing responsibilities of both assignor and assignee.

Assignments typically require landlord’s consent where the lease contains a qualified covenant against assignment, and this is usually documented in a formal licence to assign. Completion will normally be under the Law Society’s Code for Completion by Post, with priority protection obtained through an OS1 search for registered titles. After completion, prompt SDLT/LTT compliance and HM Land Registry applications are critical, as is service of notice of assignment on the landlord in the manner specified by the lease.

Key Term: deed of assignment
A formal legal document transferring the leasehold interest from the assignor (outgoing tenant) to the assignee (incoming tenant). It must be executed as a deed.

Completion of a Lease Assignment

Executing the Deed of Assignment

The assignment of a lease must be completed by a deed, usually prepared by the assignee’s solicitor and approved by the assignor’s solicitor. The deed must be executed as a deed by all parties, with signatures witnessed.

Execution formalities are strict: the deed must make clear on its face that it is a deed, be signed, witnessed (if signed by an individual), and delivered. Companies may execute by two authorised signatories, by a director in the presence of a witness, or using the common seal in accordance with their articles. HM Land Registry accepts certain electronic execution routes (including “Mercury” style signing) if the prescribed safeguards are met and the deed is properly witnessed. The deed should not be dated until completion, when title is intended to pass in equity for registered dispositions subject to registration.

Where the outgoing or incoming tenant is subject to a mortgage of the leasehold title, lender consent to the assignment may be required by the charge and should be obtained before completion. If the assignor’s lease is charged, undertakings must provide for discharge or for lender consent as relevant.

Key Term: apportionment
The process of dividing sums (such as rent or service charge) between assignor and assignee according to the period each is responsible for.

Apportionments

On completion, the assignor and assignee must settle any financial adjustments for sums paid or due under the lease. This includes rent (typically paid quarterly in advance in commercial leases), service charges (often on-account with later balancing), and insurance premiums.

• Rent and insurance are typically apportioned on a time basis from and including the completion date to the next payment date, paid by the assignee to the assignor if the assignor has already paid in advance.
• Service charge demands are often on estimated budgets, with an annual reconciliation that may reveal a shortfall or surplus. Because the final accounts are not usually available at completion, it is prudent to negotiate a retention from the purchase price (held by the assignee’s solicitor) to cover any assignor-period shortfall shown on the final statement. Any surplus relating to the assignor’s period is typically repaid to the assignor.

Ensure the assignor produces evidence of payment (e.g., rent and insurance receipts) to support calculations. Note also the evidential rule in section 45(2) Law of Property Act 1925: on production of a receipt for last rent due, an assignee may assume rent has been paid and covenants performed unless the contrary appears.

Authorised Guarantee Agreements (AGAs)

For leases granted on or after 1 January 1996, the outgoing tenant may be required to enter into an Authorised Guarantee Agreement (AGA) as a condition of assignment. An AGA is permitted under the Landlord and Tenant (Covenants) Act 1995 for a “new lease” and must be confined to guaranteeing the immediate assignee’s performance. The assignor is released from the AGA on the assignee’s lawful onward assignment.

Landlords often require an AGA where the assignee’s covenant strength is weaker than the assignor’s, but any condition must be reasonable if imposed under a qualified covenant against assignment. An AGA should not seek to extend liability beyond the immediate assignee or revive privity of contract for future successors.

Key Term: Authorised Guarantee Agreement (AGA)
A written agreement in which the assignor guarantees the assignee’s performance of the lease covenants until the assignee lawfully assigns the lease.

Practical Completion Steps

At completion, the following actions are typically taken:

• The deed of assignment is executed and dated.
• Apportionments are calculated and settled (with any agreed retention for service charge reconciliation).
• The assignee pays any premium or consideration due.
• Keys and relevant documents (e.g., original lease and counterpart, insurance details, rent and service charge receipts) are handed over.
• The assignor provides the executed licence to assign (if required), any AGA, and evidence of any lender’s consent or discharge.
• Where a rent deposit is held by the landlord, the parties should arrange for the deposit deed to be assigned or replaced and for the assignor to be released if agreed by the landlord.
• In blocks with a management company, any share or membership held by the tenant should be transferred in accordance with the company’s constitution as part of completion deliverables.

Most assignments are completed in accordance with the Law Society’s Code for Completion by Post. The seller’s (assignor’s) solicitor acts as the buyer’s (assignee’s) agent for completion purposes and undertakes to send completion documents out on the same day funds are received, and to redeem/discharge any known registered charges in accordance with undertakings.

Key Term: Code for Completion by Post
Law Society code under which the seller’s solicitor acts as the buyer’s solicitor’s agent to complete by post, giving undertakings on discharge of charges and same-day dispatch of completion documents.

Key Term: notice of assignment
A formal written notice to the landlord informing them of the assignment and providing required documents.

Worked Example 1.1

A tenant assigns a lease on 15 May. Rent of £9,000 per annum is paid quarterly in advance on 25 March, 24 June, 29 September, and 25 December. What apportionment is due on completion?

Answer:
The assignor has paid rent for the quarter 25 March to 23 June. The assignee must reimburse the assignor for the period 15 May to 23 June (40 days). The calculation is: £9,000 ÷ 4 = £2,250 per quarter; £2,250 ÷ 91 days = £24.73 per day; £24.73 × 40 = £989.20 due from assignee to assignor.

Post-Completion Steps

SDLT Requirements

An assignment of a lease may trigger a liability to Stamp Duty Land Tax (SDLT) where consideration (a premium or similar) is paid. The assignee must file an SDLT return and pay any tax due within 14 days of completion.

Key points:

• SDLT on an assignment is calculated on the consideration for the assignment only. There is no SDLT on the rent element because rent SDLT is assessed on the grant of the lease, not its assignment.
• A return is required if the consideration is £40,000 or more, even if no SDLT is payable after applying rates and reliefs.
• Higher rates may apply for residential purchases by additional property owners, and there is an additional 2% surcharge for non-UK resident purchasers of residential property. These rules can apply to long residential lease assignments where the consideration thresholds are met.

In Wales, Land Transaction Tax (LTT) applies. LTT returns must be filed within 30 days. The £40,000 return threshold broadly aligns for assignments, though rates and certain reliefs differ from SDLT.

Key Term: SDLT return
A statutory form submitted to HMRC to report and pay any SDLT due on the assignment of a lease.

Registration at HM Land Registry

If the lease is already registered or the unregistered lease has more than seven years unexpired at the date of assignment, the assignment must be registered at HM Land Registry.

• Registered lease: apply on form AP1 to register the assignee as proprietor of the leasehold title within the OS1 priority period (typically 30 working days). Include the SDLT5 (or LTT certificate), the executed assignment (or TR1), and any necessary consents or discharges. Legal title does not pass until registration is completed for registered titles.
• Unregistered lease with more than seven years unexpired: the assignment triggers first registration on form FR1 (with DL). The application must be lodged within two months of completion or the assignment is void as regards the legal estate (it will only operate in equity). If the freehold reversion is registered, the lease will be noted against it.
• Short leases (seven years or less unexpired): no registration of the assignment is required, though the lease remains binding as a legal interest. If the superior title is unregistered, consider a caution against first registration to protect the tenant’s position.

Use an OS1 search to secure priority for registered titles and submit within the priority period to avoid third-party entries taking priority during the registration gap.

Key Term: registration of assignment
The process of updating the Land Registry to record the assignee as the new tenant. Required for leases with more than seven years unexpired.

Notification to the Landlord

Most leases require the assignee to notify the landlord of the assignment after completion. This usually involves serving a formal notice, providing a certified copy of the deed of assignment, and paying any registration fee specified in the lease.

Potential consequences of failing to notify include breach of covenant, misdirection of rent demands, and administrative issues in exercising rights under the lease (e.g., raising consents or making applications). Some leases provide that rent is not treated as validly paid by the assignee until notice has been given in the prescribed form.

Key Term: licence to assign
A deed by which the landlord consents to a tenant’s assignment and may impose reasonable conditions (e.g., references, AGA, costs). It creates contractual privity directly between landlord and assignee where required.

Worked Example 1.2

A lease requires the tenant to notify the landlord of any assignment within 21 days and pay a £50 fee. What should the assignee do after completion?

Answer:
The assignee must serve written notice of assignment on the landlord within 21 days, enclose a certified copy of the deed of assignment, and pay the £50 fee. Failure to comply may be a breach of covenant.

Worked Example 1.3

The premium for an assignment of a long residential lease is £35,000. Is an SDLT return required?

Answer:
No SDLT return is required because the consideration is below £40,000 and there is no SDLT payable. If the consideration were £40,000 or more, a return would be required even if no SDLT were due after rates and reliefs.

Worked Example 1.4

An unregistered lease with 9 years unexpired is assigned for value. What are the Land Registry implications?

Answer:
The assignment triggers first registration of the lease. The assignee must apply within two months of completion on form FR1 (with DL and supporting documents). If not registered in time, the assignment is void as to the legal estate and only operates in equity.

Related Issues

Landlord’s Consent

If the lease contains a qualified covenant against assignment, landlord’s written consent must be obtained before completion. The landlord may impose reasonable conditions, such as requiring references, a rent deposit, an AGA (where lawful and reasonable), and payment of reasonable legal and surveyor’s costs.

Two statutory regimes are key:

• Landlord and Tenant Act 1927 s19(1) implies that consent to assign cannot be unreasonably withheld (or conditioned) where there is a qualified covenant against assignment.
• Landlord and Tenant Act 1988 imposes a duty on landlords to deal with applications for consent within a reasonable time, to give written notice of the decision, and if refusing consent, to provide reasons. Unreasonable delay can amount to an unreasonable refusal. Remedies include damages for breach of statutory duty.

Practical guidance: submit a complete pack with the application (references, accounts, business plan if relevant, details of guarantor or proposed AGA) to limit delay arguments. In the contract, consider conditionality where consent is outstanding: under the Standard Conditions of Sale, either party can rescind if consent is not obtained three working days before completion date; under the Standard Commercial Property Conditions, rescission is not available until six months after the completion date.

Modifying the Lease

The terms of the lease cannot be changed on assignment. If the parties wish to vary the lease, a separate deed of variation is required, usually with landlord’s consent (and, where titles are registered, often a Land Registry application to note the variation). Any variation of a registrable lease that affects the extent or terms materially may need to be protected on the register.

Exam Warning

In SQE1 questions, always check whether the lease requires landlord’s consent to assignment and whether it has been obtained. Completing an assignment without required consent may be a breach of covenant and could lead to forfeiture.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• The assignment of a lease is completed by executing a deed of assignment, signed and witnessed by all parties, and properly dated on completion.
• Corporate execution must comply with Companies Act routes; electronic execution is acceptable if HM Land Registry’s requirements are observed.
• Apportionments for rent, service charge, and insurance must be calculated and settled on completion; a retention is often used to cover later service charge reconciliations.
• The assignor may be required to enter into an Authorised Guarantee Agreement (AGA) for “new leases” (post-1995) where reasonable; the AGA must be limited to the immediate assignee.
• SDLT may be payable on the assignment consideration; the assignee must file a return and pay any tax due within 14 days (LTT within 30 days in Wales). A return is required at or above £40,000 consideration even if no tax is payable.
• Assignments of registered leases must be registered by AP1 within the OS1 priority period; assignments of unregistered leases with more than seven years unexpired trigger first registration on FR1 within two months.
• The assignee must notify the landlord of the assignment, provide a certified copy of the deed, and pay any required fee within the timeframe and form required by the lease.
• Landlords must deal reasonably and promptly with applications for consent (Landlord and Tenant Act 1988) and cannot unreasonably withhold consent under a qualified covenant (s19(1) LTA 1927).
• Ancillary practicalities include transferring any rent deposit deed and any management company share, and ensuring lender consents or discharges relating to leasehold charges are properly dealt with.
• Failure to comply with lease terms or statutory requirements may result in breach of covenant, delay penalties, loss of priority in the registration gap, or—if first registration is missed for an unregistered lease with more than seven years unexpired—loss of legal title.

Key Terms and Concepts

• deed of assignment
• apportionment
• Authorised Guarantee Agreement (AGA)
• SDLT return
• registration of assignment
• notice of assignment
• licence to assign
• Code for Completion by Post