Learning Outcomes
After reading this article, you will be able to identify and explain the main legal and practical steps required to complete an assignment of a lease, including the execution of the deed of assignment, calculation of apportionments, SDLT requirements, registration at HM Land Registry, and notification to the landlord. You will also be able to apply these principles to SQE1-style scenarios and avoid common pitfalls.
SQE1 Syllabus
For SQE1, you are required to understand the legal and procedural requirements for the assignment of a lease, focusing on the completion and post-completion stages. In your revision, pay particular attention to:
- The formalities for executing a deed of assignment and the parties involved
- Calculation and handling of apportionments (rent, service charge, insurance)
- SDLT requirements and deadlines for lease assignments
- Registration requirements at HM Land Registry for leases and assignments
- Notification to the landlord and compliance with lease terms
- The role and effect of Authorised Guarantee Agreements (AGAs) in assignments
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.
- What is the legal requirement for the execution of a deed of assignment of a lease?
- When must an assignment of a lease be registered at HM Land Registry?
- What is the purpose of notifying the landlord after completion of an assignment?
- 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.
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.
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.
Apportionments
On completion, the assignor and assignee must settle any financial adjustments for sums paid or due under the lease. This includes rent, service charges, and insurance premiums.
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.
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.
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.
- The assignee pays any premium or consideration due.
- Keys and relevant documents (e.g., original lease, insurance certificates) are handed over.
- The assignor provides evidence of landlord’s consent (if required) and any AGA.
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), especially if a premium is paid or the remaining term exceeds seven years. The assignee must file an SDLT return and pay any tax due within 14 days of completion.
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 has more than seven years unexpired, the assignment must be registered at HM Land Registry. The application should be made within the priority period of the pre-completion search (usually 30 working days).
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.
Key Term: notice of assignment
A formal written notice to the landlord informing them of the assignment and providing required documents.
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.
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 or an AGA.
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.
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
| Step | Assignor/Assignee Action |
|---|---|
| Execute deed of assignment | Both parties sign as a deed, witnessed |
| Settle apportionments | Calculate and pay/receive rent, charges, etc. |
| Complete AGA (if required) | Assignor signs AGA if landlord requires |
| Pay SDLT and file return | Assignee files SDLT return within 14 days |
| Register assignment | Apply to HM Land Registry if required |
| Notify landlord | Serve notice, provide deed, pay fee |
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.
- Apportionments for rent, service charge, and insurance must be calculated and settled on completion.
- The assignor may be required to enter into an Authorised Guarantee Agreement (AGA) for leases granted on or after 1 January 1996.
- SDLT may be payable on the assignment; the assignee must file a return and pay any tax due within 14 days.
- Assignments of leases with more than seven years unexpired must be registered at HM Land Registry.
- The assignee must notify the landlord of the assignment, provide a certified copy of the deed, and pay any required fee.
- Failure to comply with lease terms or statutory requirements may result in breach of covenant or loss of legal title.
Key Terms and Concepts
- deed of assignment
- apportionment
- Authorised Guarantee Agreement (AGA)
- SDLT return
- registration of assignment
- notice of assignment
