Assignment of a lease - Deed of assignment and covenants for...

Learning Outcomes

This article outlines the legal requirements and process for assigning a lease, including:

• Deed of assignment: function and content
• Covenants for title: meaning and effect
• Practical steps and risks in lease assignments
• Landlord consent requirements and consequences of non-compliance
• Transfer of liability for tenant covenants on assignment
• OS1/OS2 and K15/K16 search operations
• Authorised Guarantee Agreements and their application
• Section 17 notices for fixed charges
• Registration and notice requirements to ensure effectiveness at law

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, with a focus on the following syllabus points:

• 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), including typical leasehold modifications
• The need for and effect of landlord consent to assignment (absolute and qualified covenants; Landlord and Tenant Act 1927 and 1988)
• The transfer of liability for lease covenants on assignment (old and new leases; privity of contract/estate; Authorised Guarantee Agreements)
• Pre-completion and post-completion steps, including OS1/OS2 and K15/K16 searches, AP1/FR1 registration, and serving notice of assignment
• The consequences of failing to comply with assignment formalities and consent provisions (forfeiture risk; damages; declaratory relief)
• Section 17 notices and overriding leases when pursuing former tenants for fixed charges

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 are the essential legal requirements for a valid assignment of a lease?
2. What is the difference between full title guarantee and limited title guarantee in a deed of assignment?
3. When is landlord consent required for an assignment, and what are the risks of assigning without it?
4. 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. It is also critical to distinguish assignment from subletting: assignment transfers the whole of the tenant’s interest to the assignee; subletting grants a further lease out of the tenant’s interest and leaves the tenant in place under the head lease.

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.

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.

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. The deed requirement applies even where the original lease was created orally.
• 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 (subject to relief), damages, or injunctive relief.
• Registration: If the lease is registered, or the assignment relates to a lease of more than seven years, the disposition must be completed by registration at HM Land Registry for the assignment to take effect at law. An assignment of a registered lease must be registered in all cases.

Key Term: deed of assignment
A formal legal document, executed as a deed, by which a tenant transfers their leasehold interest to an assignee.

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.

Landlord’s Consent

Most leases contain either an absolute covenant against assignment (no assignment permitted), or a qualified/fully qualified covenant (assignment permitted with consent, which is not to be unreasonably withheld). Statute modifies the position:

• Landlord and Tenant Act 1927, s 19(1) implies into qualified covenants that consent to assign is not to be unreasonably withheld.
• Landlord and Tenant Act 1988 requires landlords to deal with consent requests within a reasonable time, to give written reasons for any refusal, and ensure any conditions attached to consent are themselves reasonable.

Reasonable preconditions that landlords may require include bank and trade references, accounts demonstrating covenant strength, an Authorised Guarantee Agreement (AGA) if justified by the lease or reasonably required, a rent deposit, and/or a guarantor. Refusal will usually be reasonable if the proposed assignee’s intended use would breach the user clause or the assignee lacks covenant strength. Delays or blanket refusal without reasons may give rise to a claim for damages under the 1988 Act.

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).

Privity of estate allows enforcement between the landlord and the current tenant; privity of contract keeps the original tenant liable on old leases for the whole term. Under the 1995 Act, tenants under new leases are released on lawful assignment, subject to any AGA they have given.

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.

Where consent is refused, an assignment made regardless may still be effective between assignor and assignee, but the assignor will be in breach of the alienation covenant and risks forfeiture action. In practice, if the tenant considers a refusal unreasonable, the prudent course is to seek a court declaration rather than proceed without consent.

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 against the landlord until consent is obtained or relief granted, and the original tenant may remain liable for all lease obligations in the meantime.

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 (licence to assign).
• 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. For new leases, include an express indemnity if the assignor is to give an AGA (to back-to-back the risk).
• Execution: The deed must be signed by the parties and witnessed, and delivered as a deed.

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.

Form considerations:

• Registered leases: Use Land Registry form TR1 to assign a registered lease (the assignment must then be registered via AP1).
• Unregistered leases: A bespoke deed of assignment is used. If more than seven years remain on the term, the assignment triggers first registration of the leasehold title.
• Evidence and attachments: Where relevant, annex copies of the lease, any licences (to assign, to sublet, to alter), deeds of variation, and guarantees.

Best practice is to capture landlord consent in a separate licence to assign, unless the landlord agrees to combine consent with the assignment in a tripartite document.

Key Term: licence to assign
A deed by which the landlord gives formal consent to the proposed assignment, often including reasonable conditions (e.g., AGA, rent deposit, guarantor, costs) and obligations to serve notice of completion.

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 disposed of free from undisclosed encumbrances, except those they do not and could not reasonably know about. In leasehold assignments, this includes a statement that the lease is subsisting and not liable to forfeiture (subject to s 6 limitations).

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 and compliance.
• Limited title guarantee: Appropriate where the assignor is a personal representative, trustee, mortgagee in possession, or has limited knowledge of the lease’s history.

Modification for Leasehold Assignments

For leasehold assignments, the implied covenants for title are commonly modified so that the assignor does not warrant compliance with tenant covenants relating to the physical state of the property (e.g., repair, decoration, alterations). This reflects the principle of caveat emptor: the assignee must satisfy themselves about the property’s condition, usually via survey and due diligence.

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.

It is also standard to ensure that the transfer is expressly made subject to all matters set out in the lease and any entries on the register, to avoid an allegation of breach of the implied covenants (s 6 Law of Property (Miscellaneous Provisions) Act 1994 limits breaches where matters are expressly excepted, known to the assignee, or are of record).

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. The current tenant is liable under privity of estate while in possession.

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’s liability is limited to the period while the assignee holds the lease and only as specified in the AGA.

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 proceedings, damages, and costs. Even where consent is required, tenants should seek it and, if refused, consider applying for a declaration that the refusal is unreasonable rather than assigning regardless.

Reasonable preconditions often seen in licences to assign include:

• An AGA from the assignor (if an absolute lease condition or reasonably justified)
• Provision of bank and trade references, financial accounts, and details of intended use
• Rent deposit and/or guarantor where covenant strength is low
• Costs undertaking for the landlord’s legal and surveyor fees
• A covenant by the assignee to observe and perform tenant covenants for the remainder of the term, and by the assignor to serve notice of the assignment promptly

Under the Landlord and Tenant Act 1988, the landlord must respond within a reasonable time, give reasons if refusing, and any conditions must be reasonable.

Worked Example 1.4

A lease contains a fully qualified covenant against assignment of the whole. The tenant applies for consent with full financial details of the proposed assignee. The landlord delays for two months without explanation. What is the likely position?

Answer:
The landlord must deal with the application within a reasonable time and give written reasons for any refusal. Unexplained delay may breach the Landlord and Tenant Act 1988, exposing the landlord to damages. The tenant should not assign without consent but may seek a declaration or damages for the delay.

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). Landlords may also require direct covenants from assignees in licences to assign to create privity of contract.
• New leases (post-1996): The assignor is automatically released from future liability on lawful assignment (Landlord and Tenant (Covenants) Act 1995, s 5), unless required to enter into an AGA (s 16). The assignee is liable while they hold the lease and is released upon further lawful assignment. Any guarantor of the outgoing tenant is also released, but may be required to guarantee the assignor’s obligations under the AGA.

Pursuing former tenants and guarantors for fixed charges (e.g., rent, service charges) requires serving a section 17 notice within six months of the sum falling due. Payment under a section 17 notice entitles the payer to call for an overriding lease within twelve months.

Key Term: section 17 notice
A statutory notice under the Landlord and Tenant (Covenants) Act 1995 enabling recovery of fixed charges from a former tenant or guarantor, served within six months of the sum falling due.

Key Term: overriding lease
An intermediate lease granted to the former tenant/guarantor who has paid under a section 17 notice, positioning them as immediate landlord of the defaulting tenant and enabling control (e.g., forfeiture, re-letting).

For old leases, a chain of indemnity covenants between successive tenants is to pass responsibility for positive covenants; in practice, each deed of assignment should contain an indemnity covenant.

Worked Example 1.5

A landlord seeks to recover six months’ unpaid rent from a former tenant under a new lease (assigned two years ago). No section 17 notice was served. Can the landlord recover the arrears?

Answer:
No. For fixed charges under a new lease, the landlord must serve a section 17 notice within six months of the sum falling due. Failure to do so bars recovery of that sum from the former tenant/guarantor.

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 points should be addressed:

• Pre-completion searches: Update the register and protect priority.
• Registration forms: Use AP1 for assignments of registered leases and FR1 (with DL schedule) for first registration of unregistered leasehold titles.
• Notice to landlord: Serve any required notice of assignment on the landlord (and superior landlords if applicable) in accordance with the lease/licence to assign.

Key Term: OS1/OS2 search
A pre-completion official search with priority of the whole (OS1) or part (OS2) of a registered title. The result confers a 30 working day priority period within which the buyer/assignee must lodge their application for registration.

Key Term: bankruptcy-only search (K16)
A Land Charges search against an individual buyer/borrower’s name to check for bankruptcy petitions/orders, typically made on registered titles for lender protection.

Typical documentation for registration includes:

• The deed of assignment (or TR1 for registered leases)
• The landlord’s licence to assign (if not incorporated in the assignment)
• Any indemnity covenants and guarantees required by the licence
• SDLT/LTT evidence (where applicable)
• For first registration of unregistered leases with more than seven years unexpired: the lease and any supporting title documents

If the lease was originally granted for more than seven years, the lease itself should already be registered; the assignment must then be registered to be effective in law. If completion of registration occurs outside the OS1/OS2 priority period, there is a risk that intervening dealings may take priority.

Worked Example 1.6

An assignee’s solicitor conducts an OS1 search on the registered lease, completing on 1 June. The priority period expires on 15 July. The AP1 application is lodged on 20 July. In the interim, a right of way is noted on the charges register. Does this bind the assignee?

Answer:
Yes. The OS1 priority period protects the assignee against intervening entries only if the registration application is lodged by 12 noon on the last day of the priority period. Lodging after expiry means the assignee takes subject to intervening entries, including the newly noted right of way.

Registration and Completion (Expanded Practical Steps)

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)
• The landlord’s consent/ licence to assign
• Any required indemnity covenants and guarantees
• Evidence of payment of SDLT/LTT (if applicable)
• AP1, with certified copies of the assignment and lease
• For unregistered leases with more than seven years unexpired: FR1 and DL listing the lease, assignment, searches, and supporting documents

Where a lender is involved, ensure the lender’s charge is registered and the lender’s priority is protected (OS1/OS2 in the lender’s name).

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:

• An assignment of a lease must be by deed and may require landlord consent; proceeding without consent risks forfeiture and damages.
• Consent to assign under qualified covenants is subject to statutory controls: it must not be unreasonably withheld, and landlords must respond within a reasonable time with reasons.
• The deed of assignment should include appropriate covenants for title (full or limited) and, for leasehold property, a modification excluding warranties about the property’s physical condition.
• Under old leases, the assignor remains liable for tenant covenants after assignment; under new leases, the assignor is generally released unless an AGA is given.
• Chains of indemnity covenants are essential on old leases to pass liability for positive covenants between successive tenants.
• Section 17 notices are required to recover fixed charges from former tenants or guarantors under new leases; payment can trigger an overriding lease.
• Pre-completion OS1/OS2 searches confer a 30 working day priority period; K16 searches check bankruptcy status for lender protection.
• Registration of the assignment is required for registered leases and for unregistered leases where more than seven years remain; failure to register within priority risks losing priority to intervening entries.
• A licence to assign is the usual vehicle for landlord consent and will commonly include reasonable conditions (AGA, rent deposit, guarantor, references, costs).
• The assignment remains effective between assignor and assignee even if consent is refused, but breach of covenant may lead to forfeiture; seek declaratory relief where refusal is arguable.

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)
• licence to assign
• OS1/OS2 search
• bankruptcy-only search (K16)
• section 17 notice
• overriding lease