Learning Outcomes
After reading this article, you will be able to explain the legal requirements and process for assigning a lease, including the function and content of a deed of assignment, the meaning and effect of covenants for title, and the practical steps and risks involved. You will also be able to identify when landlord consent is required, the consequences of failing to obtain it, and how liability for lease covenants transfers on assignment.
SQE1 Syllabus
For SQE1, you are required to understand the law and practice relating to the assignment of leases, including the formalities for a valid assignment, the structure and effect of a deed of assignment, covenants for title, and the impact of landlord consent provisions. In your revision, focus on:
- The legal requirements for a valid assignment of a lease
- The function and content of a deed of assignment
- The meaning and effect of covenants for title (full and limited)
- The need for and effect of landlord consent to assignment
- The transfer of liability for lease covenants on assignment (old and new leases)
- The consequences of failing to comply with assignment formalities
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 are the essential legal requirements for a valid assignment of a lease?
- What is the difference between full title guarantee and limited title guarantee in a deed of assignment?
- When is landlord consent required for an assignment, and what are the risks of assigning without it?
- Who remains liable for tenant covenants after an assignment of a lease granted in 1994?
Introduction
Assignment of a lease is the process by which a tenant (the assignor) transfers their entire leasehold interest to a new tenant (the assignee). This is a common transaction in both commercial and residential property practice. For a valid assignment, strict legal formalities must be followed, and the parties must consider the transfer of rights and liabilities, the need for landlord consent, and the appropriate covenants for title. Understanding these requirements is essential for SQE1.
Assignment of a Lease: Legal Requirements
An assignment of a lease is not simply a matter of handing over possession. The law requires specific formalities to be met for the assignment to be valid and enforceable.
Key Term: assignment of a lease
The transfer of the whole of a tenant's leasehold interest to a new tenant (assignee), so that the assignee steps into the shoes of the original tenant for the remainder of the lease term.
Formalities for a Valid Assignment
- Deed requirement: An assignment of a legal lease must be made by deed (Law of Property Act 1925, s 52). This means the document must be in writing, state it is a deed, be signed and witnessed, and be delivered as a deed.
- Landlord consent: Most leases contain a covenant restricting assignment without the landlord’s written consent. Assigning without consent is a breach of covenant and may lead to forfeiture.
- Registration: If the lease is registered or is for more than seven years, the assignment must be registered at HM Land Registry to be effective at law.
Key Term: deed of assignment
A formal legal document, executed as a deed, by which a tenant transfers their leasehold interest to an assignee.
Landlord’s Consent
Most leases contain a qualified covenant against assignment, meaning the tenant cannot assign without the landlord’s written consent, which cannot be unreasonably withheld (Landlord and Tenant Act 1988).
Key Term: qualified covenant against assignment
A lease provision prohibiting assignment without the landlord’s consent, but requiring that consent not be unreasonably withheld.
Effect of Assignment
On assignment, the assignee becomes the tenant and is bound by the lease covenants. The assignor’s ongoing liability depends on whether the lease is an "old lease" (granted before 1 January 1996) or a "new lease" (granted on or after that date).
Key Term: old lease
A lease granted before 1 January 1996, to which the doctrine of privity of contract applies, so the original tenant remains liable after assignment.Key Term: new lease
A lease granted on or after 1 January 1996, to which the Landlord and Tenant (Covenants) Act 1995 applies, so the assignor is generally released from future liability unless an Authorised Guarantee Agreement is given.
The Deed of Assignment: Structure and Content
A deed of assignment is the key document effecting the transfer of the lease. It must be carefully drafted to ensure all legal requirements are met and to allocate risk appropriately.
Essential Elements
- Parties: Clearly identify the assignor (current tenant) and assignee (incoming tenant). The landlord may also be a party if giving consent within the same document.
- Recitals: Briefly set out the background, including details of the original lease and any previous assignments.
- Operative clause: Clearly state that the assignor assigns the leasehold interest to the assignee.
- Covenants for title: Specify whether the assignment is with full or limited title guarantee.
- Indemnity: For old leases, include an indemnity by the assignee in favour of the assignor for breaches after assignment.
- Execution: The deed must be signed by the parties and witnessed.
Key Term: indemnity covenant
A promise by the assignee to compensate the assignor for any loss arising from breaches of tenant covenants after the date of assignment.
Covenants for Title
Covenants for title are implied by statute into deeds of assignment, unless expressly excluded or modified. They allocate risk between assignor and assignee regarding the assignor’s right to assign and the existence of adverse interests.
Key Term: full title guarantee
The assignor covenants that they have the right to assign the lease, will do all they reasonably can to transfer it, and that the lease is free from undisclosed encumbrances, except those they do not and could not reasonably know about.Key Term: limited title guarantee
The assignor covenants only that they have not themselves encumbered the lease and are not aware of anyone else having done so since they acquired it.
Application in Lease Assignments
- Full title guarantee: Usually given where the assignor is the original tenant or has full knowledge of the lease history.
- Limited title guarantee: Appropriate where the assignor is a personal representative, trustee, or has limited knowledge of the lease’s history.
Modification for Leasehold Assignments
For leasehold assignments, the implied covenants for title are usually modified so that the assignor does not warrant compliance with tenant covenants relating to the physical state of the property (e.g., repair). This reflects the principle of caveat emptor.
Key Term: caveat emptor
"Let the buyer beware" – the assignee must satisfy themselves as to the physical condition of the property; the assignor does not warrant it.
Landlord’s Consent and Risks of Non-Compliance
Assigning a lease without required landlord consent is a breach of covenant and may result in forfeiture. The assignment may also be ineffective, leaving the assignor liable for ongoing obligations.
Worked Example 1.1
A lease contains a clause prohibiting assignment without landlord consent. The tenant assigns the lease to a new tenant without obtaining consent. What are the consequences?
Answer: The assignment is a breach of covenant. The landlord may be able to forfeit the lease or claim damages. The assignment may be ineffective, and the original tenant may remain liable for all lease obligations.
Transfer of Liability for Lease Covenants
The effect of assignment on liability for lease covenants depends on the date of the lease:
- Old leases (pre-1996): The original tenant remains liable for all covenants for the whole term (privity of contract), even after assignment. The assignee is also liable while they hold the lease (privity of estate).
- New leases (post-1996): The assignor is automatically released from future liability on lawful assignment, unless required to enter into an Authorised Guarantee Agreement (AGA).
Key Term: Authorised Guarantee Agreement (AGA)
An agreement by which the assignor guarantees the immediate assignee’s performance of the lease covenants, usually required as a condition of landlord consent for new leases.
Worked Example 1.2
A tenant under a lease granted in 1994 assigns the lease to a new tenant. The new tenant defaults on rent. Who can the landlord pursue?
Answer: The landlord can pursue both the original tenant (assignor) and the current tenant (assignee) for the unpaid rent, as the original tenant remains liable under privity of contract.
Worked Example 1.3
A tenant under a lease granted in 2002 assigns the lease with landlord consent and enters into an AGA. The assignee defaults. Who is liable?
Answer: The landlord can pursue the assignee (current tenant) and the assignor (under the AGA) for the default. The assignor is only liable for breaches occurring while the assignee holds the lease.
Registration and Completion
If the lease is registered or is for more than seven years, the assignment must be registered at HM Land Registry to be effective at law. The following documents are usually required:
- The deed of assignment (or TR1 form for registered leases)
- The landlord’s consent (if not included in the deed)
- Any required indemnity covenants
- Evidence of payment of SDLT (if applicable)
Exam Warning
Assigning a lease without landlord consent where required is a common source of exam traps. Always check the lease for assignment restrictions and ensure consent is obtained before completing the assignment.
Revision Tip
For old leases, always include an indemnity covenant in the deed of assignment to protect the assignor from liability for breaches after assignment.
Key Point Checklist
This article has covered the following key knowledge points:
- The assignment of a lease must be by deed and may require landlord consent.
- The deed of assignment must include appropriate covenants for title (full or limited).
- For old leases, the assignor remains liable for all tenant covenants after assignment; for new leases, the assignor is generally released unless an AGA is given.
- Assigning without landlord consent is a breach of covenant and may result in forfeiture or damages.
- The deed of assignment should include an indemnity covenant for old leases.
- Registration of the assignment is required for leases over seven years or registered leases.
Key Terms and Concepts
- assignment of a lease
- deed of assignment
- qualified covenant against assignment
- old lease
- new lease
- indemnity covenant
- full title guarantee
- limited title guarantee
- caveat emptor
- Authorised Guarantee Agreement (AGA)
