Assignment of a lease - Pre-completion formalities

Learning Outcomes

After reading this article, you will be able to identify and explain the key pre-completion formalities required for the valid assignment of a lease. You will understand how to verify leasehold title, obtain and document landlord’s consent, and manage tenant covenants and indemnities. You will also be able to apply these principles to SQE1-style scenarios and avoid common pitfalls in lease assignments.

SQE1 Syllabus

For SQE1, you are required to understand the legal and practical steps involved in the assignment of a lease, especially the pre-completion checks and procedures. As you revise this topic, focus on:

• The process for verifying leasehold title (registered and unregistered)
• The requirements for obtaining landlord’s consent to assignment
• The effect of tenant covenants and indemnities on continuing liability
• The documentation and checks required before completion of a lease assignment
• The impact of the Landlord and Tenant (Covenants) Act 1995 on liability after assignment

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 documents must a buyer’s solicitor review to verify the assignor’s right to assign a registered leasehold title?
2. What is the statutory duty of a landlord when a tenant applies for consent to assign a lease?
3. How does the Landlord and Tenant (Covenants) Act 1995 affect the assignor’s liability after assignment of a lease granted after 1 January 1996?
4. What is an Authorised Guarantee Agreement (AGA) and when might a landlord require one?

Introduction

When a tenant (the assignor) transfers their leasehold interest to a new tenant (the assignee), strict pre-completion formalities must be followed to ensure the assignment is valid and that all parties’ rights and obligations are clear. These steps include verifying the leasehold title, securing landlord’s consent, and managing ongoing tenant liabilities. Failure to complete these checks can result in an invalid assignment or unexpected liabilities for the parties involved.

Verifying Leasehold Title

Before proceeding to completion, the assignee’s solicitor must confirm that the assignor has the right to assign the lease and that the lease is free from undisclosed adverse interests or restrictions.

Registered Leasehold Titles

For registered leases, the solicitor should obtain up-to-date official copies of the leasehold title and, if relevant, the superior freehold title from HM Land Registry. The following must be checked:

• The assignor is the registered proprietor.
• The lease is still subsisting and there are no notices or restrictions preventing assignment.
• The lease term remaining is sufficient for the assignee’s purposes and any lender’s requirements.
• The Charges Register is reviewed for mortgages or other encumbrances that must be discharged or consented to before assignment.
• The lease itself and any variations, licences, or supplemental deeds are reviewed for assignment restrictions.

Key Term: registered leasehold title
A leasehold interest in land that is registered at HM Land Registry with its own title number and register entries.

Unregistered Leasehold Titles

For unregistered leases, the assignor must provide an epitome of title showing an unbroken chain of ownership from a good root of title (at least 15 years old) to the present. The solicitor must:

• Check all deeds for proper execution, stamping, and consistency of property description.
• Ensure the assignor has the right to assign and that there are no missing links or adverse entries.
• Conduct Land Charges searches against all relevant estate owners for their period of ownership to reveal any registered covenants, charges, or restrictions.

Key Term: epitome of title
A chronological schedule of title deeds and documents (with copies attached) evidencing ownership of unregistered land or leasehold interests.

Leasehold-Specific Checks

Regardless of registration status, the lease itself must be reviewed for:

• Any restrictions on assignment (e.g., absolute or qualified covenants)
• Requirements for landlord’s consent or other third-party approvals
• Service charge and ground rent obligations
• Break clauses, options to renew, or other key terms

Landlord’s Consent

Most leases restrict the tenant’s ability to assign without the landlord’s written consent. The process for obtaining consent is governed by the lease and by statute.

Key Term: landlord’s consent
The formal written approval required from the landlord before a tenant may assign (transfer) their leasehold interest, usually subject to statutory and contractual conditions.

Lease Provisions

The lease will specify whether assignment is:

• Absolutely prohibited (rare in commercial leases)
• Permitted only with landlord’s consent (qualified covenant)
• Permitted with landlord’s consent not to be unreasonably withheld (fully qualified covenant)

Statutory Duties

Under the Landlord and Tenant Act 1988, where the lease contains a qualified covenant against assignment, the landlord must:

• Respond to a written application for consent within a reasonable time
• Not unreasonably withhold consent (if the covenant is fully qualified or so modified by statute)
• Give written reasons if consent is refused
• Specify any conditions to consent in writing

Key Term: Landlord and Tenant Act 1988
A statute imposing duties on landlords to deal promptly and reasonably with applications for consent to assign, sublet, or otherwise deal with leasehold interests.

Practical Steps

The assignor’s solicitor should:

• Submit a formal written application for consent, providing full details of the proposed assignee and any references required by the lease or landlord.
• Ensure all conditions in the lease for assignment are satisfied (e.g., payment of landlord’s costs, provision of references, or entry into an Authorised Guarantee Agreement if required).
• Obtain the landlord’s written consent (licence to assign) before completion.

Key Term: licence to assign
A formal deed or letter by which the landlord gives consent to the assignment of the lease, often including conditions or covenants by the assignee and assignor.

Tenant Covenants and Indemnities

The assignment of a lease affects ongoing liability for tenant covenants. The rules differ depending on whether the lease was granted before or after 1 January 1996.

Leases Granted Before 1 January 1996

Under the doctrine of privity of contract, the original tenant (assignor) remains liable for all tenant covenants throughout the term, even after assignment. The landlord may also require the assignee to enter into a direct covenant to perform the lease covenants for the remainder of the term.

Key Term: privity of contract
The legal relationship that binds the original parties to a contract (such as a lease), making them liable for its obligations even after assignment.

Leases Granted On or After 1 January 1996

The Landlord and Tenant (Covenants) Act 1995 changed the rules:

• The assignor is automatically released from future liability for tenant covenants on lawful assignment.
• The assignee becomes liable for tenant covenants while holding the lease.
• The landlord may require the assignor to enter into an Authorised Guarantee Agreement (AGA) as a condition of consent to assignment.

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

Indemnities

The assignor should obtain an indemnity from the assignee, requiring the assignee to observe and perform the lease covenants and to indemnify the assignor against any future breach. This is especially important if the assignor remains liable under an AGA or, for old leases, under privity of contract.

Key Term: indemnity covenant
A promise by the assignee to compensate the assignor for any loss or liability arising from breaches of tenant covenants after assignment.

Pre-Completion Searches and Final Checks

Before completion, the assignee’s solicitor must:

• Repeat Land Registry searches (OS1/OS2) or Land Charges searches to ensure no new adverse entries have been made since title investigation.
• Carry out bankruptcy and company searches against the assignor and assignee (as appropriate) to confirm solvency.
• Obtain up-to-date completion statements and ensure all apportionments (e.g., rent, service charge) are agreed.
• Ensure all required documents are executed and available for completion (e.g., deed of assignment, licence to assign, indemnity covenants).

Worked Example 1.1

Scenario:
A tenant wishes to assign a registered commercial lease to a new company. The lease requires landlord’s consent, and the landlord requests an AGA from the assignor.

Question:
What steps must the assignee’s solicitor take before completion, and what are the assignor’s ongoing liabilities?

Answer:
The solicitor must verify the assignor’s title by reviewing official copies, check the lease for assignment restrictions, and ensure landlord’s written consent (licence to assign) is obtained. The assignor must enter into an AGA, guaranteeing the assignee’s performance until the lease is further assigned. The solicitor should also ensure all pre-completion searches are updated and that the deed of assignment and AGA are executed before completion.

Worked Example 1.2

Scenario:
A lease granted in 1990 is being assigned. The assignor wants to avoid future liability for tenant covenants.

Question:
Is this possible, and what should the assignor’s solicitor do?

Answer:
No, for leases granted before 1 January 1996, the assignor remains liable for tenant covenants throughout the term due to privity of contract. The assignor’s solicitor should obtain an indemnity covenant from the assignee to compensate for any future breaches but cannot avoid ongoing liability to the landlord.

Exam Warning

For SQE1, always check the date the lease was granted. The rules on continuing liability differ for leases granted before and after 1 January 1996. Do not confuse the date of assignment with the date of grant.

Revision Tip

When reviewing a lease for assignment, always check for any absolute or qualified covenants restricting assignment, and ensure all landlord’s conditions are satisfied before completion.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• The steps for verifying leasehold title before assignment, including checks for restrictions and encumbrances.
• The legal requirements and process for obtaining landlord’s consent to assignment, including statutory duties.
• The effect of tenant covenants and indemnities on continuing liability after assignment, and the impact of the Landlord and Tenant (Covenants) Act 1995.
• The importance of pre-completion searches and ensuring all documents are executed before completion.
• The need to distinguish between leases granted before and after 1 January 1996 for continuing liability.

Key Terms and Concepts

• registered leasehold title
• epitome of title
• landlord’s consent
• Landlord and Tenant Act 1988
• licence to assign
• privity of contract
• Authorised Guarantee Agreement (AGA)
• indemnity covenant