Assignment of a lease - Pre-completion formalities

Learning Outcomes

This article explains the key pre-completion formalities required for the valid assignment of a lease, including:

• Verification of leasehold title (registered and unregistered)
• Landlord’s consent procedures and documentation
• Tenant covenants, continuing liability, and indemnity arrangements
• Deed formalities and s2 LP(MP)A 1989 contract requirements for assignment
• Pre-completion searches and priority protection (OS1/OS2 and Land Charges)
• Rent and other outgoings apportionments and the effect of s45(2) LPA 1925
• Authorised Guarantee Agreements for new leases and their practical limits
• Common pitfalls in lease assignments
• Practical application to SQE1-style scenarios

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, with a focus on the following syllabus points:

• 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
• The formalities for assignment: valid contract under s2 LP(MP)A 1989 and valid deed execution and delivery
• The role and mechanics of OS1/OS2 searches and Land Charges searches, and the differences in priority protection
• Bankruptcy and company insolvency searches and why lenders require them
• Rent and service charge apportionments and the evidential value of receipted demands (including the effect of s45(2) LPA 1925)
• Post-completion registration requirements for registered and unregistered leases

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.

An assignment of a lease is a disposition of an interest in land. A valid contract for assignment must comply with s2 Law of Property (Miscellaneous Provisions) Act 1989 (writing, signed by or on behalf of both parties, incorporating all agreed terms). To transfer the legal estate, the assignment must be effected by deed (s52 Law of Property Act 1925). Deeds executed by individuals require signature and attestation by an independent adult witness, and deeds executed by companies must comply with s44 Companies Act 2006. In practice, the “deed of assignment” may be on Land Registry form TR1 (for registered leases or where first registration is triggered) or a bespoke deed for short unregistered leases.

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.

Key Term: deed of assignment
A deed by which a tenant transfers their leasehold estate to an assignee. For registered leases, a TR1 is typically used; for short unregistered leases (seven years or less remaining), a bespoke deed format is used.

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. Title investigation is governed by caveat emptor; the burden falls on the buyer’s solicitor to obtain and assess sufficient information to be satisfied with title and any encumbrances.

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. Confirm the name matches the contract and the lease; check the proprietorship register for any restrictions (e.g., a restriction requiring landlord’s consent or a certificate of compliance before registration of an assignment).
• The lease is still subsisting and there are no notices or restrictions preventing assignment. For example, entries may refer to alienation covenants or require compliance certification under the lease.
• The physical extent matches the lease plan; if a transfer of part of the lease is contemplated, ensure the lease permits it and that a compliant plan is available for any OS2 and subsequent registration.
• The lease term remaining is sufficient for the assignee’s purposes and any lender’s requirements. Short remaining terms may affect lending and marketability.
• The Charges Register is reviewed for mortgages or other encumbrances that must be discharged or consented to before assignment. If a legal charge is registered against the leasehold title, obtain the lender’s redemption figure and arrange discharge (e.g., e-DS1). If a release of part is involved, confirm a DS3 with an annexed plan.
• The lease itself and any variations, licences, or supplemental deeds are reviewed for assignment restrictions. Check the alienation clause (absolute, qualified, or fully qualified), preconditions to consent (references, rent payments, compliance with covenants), and any requirement for an AGA.

The freehold or superior title may also contain entries that affect the leasehold (e.g., estate rentcharges, superior rights). Reviewing that title ensures alignment and highlights issues such as lack of landlord capacity or superior mortgagee restrictions that could affect a licence to assign.

Key Term: OS1 search
An official search with priority of the whole of a registered title. It updates register entries and gives a 30-working-day priority period to register the assignee’s application.

Key Term: OS2 search
An official search with priority of part of a registered title. It requires a plan and similarly gives a 30-working-day priority period for registration.

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 as deeds, delivery, and stamping (if applicable), and consistency of property description and plans. Confirm that any deed of variation or licence affecting alienation is included.
• Ensure the assignor has the right to assign and that there are no missing links or adverse entries. If there were intermediate assignments, confirm notice of assignment was served on the landlord as required by the lease.
• Conduct Land Charges searches against all relevant estate owners for their period of ownership to reveal any registered covenants, charges, or restrictions. At pre-completion stage, repeat the Land Charges search against the assignor’s name only to obtain a 15-working-day completion priority.

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

For unregistered leases with more than seven years unexpired at assignment, post-completion first registration will be required within two months; failure to register will render the legal estate void as against third parties, leaving only an equitable interest.

Leasehold-Specific Checks

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

• Any restrictions on assignment (e.g., absolute or qualified covenants). If absolute, assignment is prohibited; if qualified, consent is required; if fully qualified, consent must not be unreasonably withheld.
• Requirements for landlord’s consent or other third-party approvals (e.g., superior landlord’s consent if the landlord is itself a lessee; mortgagee consent where the lease terms require it).
• Pre-conditions to a valid assignment, such as providing financial and professional references, evidence of trade, accounts, or guarantees.
• Service charge and ground rent obligations, including arrears and ongoing liabilities. Confirm the regime for apportionments and any balancing charges following service charge reconciliations.
• Repairing obligations, alterations covenants, and compliance position. Ensure any existing breaches are identified; consider the effect of implied covenants for title and whether to modify them to exclude liability for physical state.
• Break clauses, options to renew, or other key terms that may affect value or assignee occupation strategy (e.g., user clause and planning compatibility).

Where the assignor is in breach of a tenant covenant (e.g., repair), this may cause issues at completion and for lender acceptance. The transfer should modify implied covenants for title to exclude the physical state, consistent with standard conditions and practice.

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)

The lease may also set conditions, such as the assignee’s financial standing, prohibitions on assignment of part, or prohibitions on assignment for less than market value. It may require references, payment of the landlord’s reasonable legal costs, or entry into an AGA for new leases.

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

The landlord owes these duties to the tenant and any guarantor; a breach may sound in damages. Reasonableness is assessed case by case; legitimate reasons include poor financial standing, proposed change of use in breach of the lease, or subsisting tenant breaches that would not be remedied. Unreasonable conditions might include demanding a premium for consent (absent an express lease right), extending liability beyond what the 1995 Act permits, or insisting on an assignee-direct covenant that unreasonably duplicates statutory liability.

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. Include business plans for commercial tenancies where relevant.
• Ensure all conditions in the lease for assignment are satisfied (e.g., payment of landlord’s costs, provision of references, remedying existing breaches, or entry into an Authorised Guarantee Agreement if reasonably required for a new lease).
• Obtain the landlord’s written consent (licence to assign) before completion. If the licence includes covenants, it should be executed as a deed. Licences are often prepared in multiple parts: an original executed by the landlord and a counterpart executed by the assignee; if the assignor is to give an AGA, that may be incorporated or set out in a separate deed.
• Check whether superior landlord consent is also required where the landlord holds under a headlease.

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. A chain of indemnity between successive assignees may exist, but the landlord can sue the original tenant for breach irrespective of assignment. It was also common to require the assignee to enter into a direct covenant with the landlord to perform lease covenants for the remainder of the term, creating contractual privity with the landlord despite absence of privity of estate.

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.

In practice, the assignor should seek an indemnity from the assignee to mitigate residual exposure. For old leases, an indemnity covenant from the assignee to the assignor is generally implied where value is given; if value is not given (e.g., a gift), include an express indemnity covenant in the deed.

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 of a new lease (granted on or after 1 January 1996).
• The assignee becomes liable for tenant covenants while holding the lease; liability ceases on lawful assignment onward.
• The landlord may require the assignor to enter into an Authorised Guarantee Agreement (AGA) as a condition of consent, but the AGA may only guarantee the immediate assignee; attempts to extend liability beyond this are void.

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. It may also require the assignor to take a new lease if the lease is disclaimed on insolvency or to pay a liquidated sum instead.

Under the 1995 Act, the need for an assignee’s “direct covenant” to the landlord is largely redundant because the burden and benefit of tenant covenants pass by operation of statute. A landlord’s request for such a covenant that purports to extend liability beyond statutory mechanisms is impermissible; the correct vehicle for managing risk is an AGA, if reasonable in the circumstances (e.g., where the proposed assignee’s financial standing is weak). Guarantors of the assignor are released on lawful assignment but can be required to guarantee the assignor’s obligations under an AGA.

Key Term: Landlord and Tenant (Covenants) Act 1995
Legislation that reformed liability on lease covenants for new leases, providing automatic release on assignment and enabling AGAs, subject to limits.

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. The indemnity should be expressly included in the deed of assignment where necessary (e.g., where no implied indemnity arises because no value is given). Indemnities should be robust, covering rent, service charge, insurance, repairs, and any costs arising from enforcement actions.

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. If there is a mortgage on completion, conduct the OS1/OS2 search in the lender’s name to protect both the transfer and the charge applications with priority.
• Carry out bankruptcy and company searches against the assignor and assignee (as appropriate) to confirm solvency and satisfy lender requirements. A bankruptcy-only search (K16) may be used for individuals; for companies, conduct Companies House searches to check for insolvency or restrictions on borrowing, and confirm corporate capacity under the articles.
• Review the Completion Information and Undertakings (CIU) and any undertakings to discharge charges over the leasehold title. Obtain redemption figures, confirm daily interest, and ensure sufficient funds are available to redeem any mortgage on the lease.
• Obtain up-to-date completion statements and ensure all apportionments (e.g., rent, service charge, insurance premium) are agreed, supported by demands and receipts. Apportion rent payable in advance from completion date to next rent payment date.
• Ensure all required documents are executed and available for completion (e.g., deed of assignment or TR1, licence to assign, AGA if applicable, indemnity covenants, and counterpart licence executed by the assignee).
• Verify that any conditions precedent to assignment in the lease have been satisfied (e.g., remedying breaches, providing required references, paying arrears).

Key Term: bankruptcy-only search
A Land Charges search on form K16 limited to bankruptcy entries, typically conducted where the buyer is an individual obtaining mortgage finance.

Key Term: OS1 search
An official search with priority of the whole of a registered title. It updates register entries and provides a 30-working-day priority period for the transfer and mortgage applications.

Key Term: OS2 search
An official search with priority of part of a registered title. It requires a plan and provides a 30-working-day priority period for applications relating to the part.

Priority protection differs between registered and unregistered land:

• OS1/OS2 searches protect the registration application(s). Applications lodged within the 30-working-day priority period take precedence over subsequent applications. Diarise the noon deadline on the last day of the priority period.
• A pre-completion Land Charges search (K15) protects the completion date for unregistered land. The buyer will not take subject to Land Charges registered after the date of the search provided completion occurs within 15 working days. Post-completion, apply for first registration within two months where more than seven years remain on the lease.

Section 45(2) LPA 1925 provides evidential comfort: on production of a receipt for the last rent due, the assignee may assume rent has been paid and covenants performed unless the contrary appears. Inspect rent and service charge receipts at completion.

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 of the leasehold register and the lease, check the alienation clause for assignment restrictions, and ensure landlord’s written consent (licence to assign) is obtained. An OS1 search in the lender’s name should be submitted to secure a 30-working-day priority period for registration. The assignor must enter into an AGA if reasonably required, guaranteeing the immediate assignee’s covenants until the assignee lawfully assigns onward. The assignor should also obtain an indemnity covenant from the assignee. Pre-completion steps include agreeing apportionments, checking bankruptcy/company searches, and ensuring the deed of assignment/TR1, licence, and AGA are executed as deeds.

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 landlord can pursue the original tenant for breaches. The assignor’s solicitor should obtain an indemnity covenant from the assignee to compensate for any future breaches and ensure any existing breaches are remedied before completion. The solicitor should also confirm whether any direct covenant to the landlord is required under the lease terms.

Worked Example 1.3

Scenario:
An unregistered lease with nine years unexpired is being assigned for value. The superior freehold is unregistered. The buyer’s lender requires security over the lease.

Question:
What pre-completion and post-completion formalities must be addressed to protect the buyer and lender?

Answer:
Pre-completion, examine the epitome of title and confirm a good root, an unbroken chain of assignments, and proper execution of deeds. Undertake a Land Charges search (K15) against the assignor to secure a 15-working-day completion priority, and a bankruptcy-only search (K16) against the buyer for the lender. Agree apportionments and ensure any landlord’s licence to assign is obtained and executed. On completion, ensure the deed of assignment is properly executed and delivered. Post-completion, apply for first registration of the lease (FR1 with DL) within two months, attaching the lender’s charge for registration. Failure to register renders the legal estate void against third parties, jeopardising the lender’s security.

Worked Example 1.4

Scenario:
A registered lease contains a restriction: “No disposition by the proprietor of the registered estate is to be registered without a certificate by the landlord that the provisions of clause 3.6 (alienation) have been complied with.”

Question:
How should the assignee’s solicitor manage this restriction before completion?

Answer:
Obtain a licence to assign from the landlord and ensure it includes, or is accompanied by, a certificate of compliance referencing clause 3.6. The OS1 search should be conducted and the registration application must include the certificate to satisfy the restriction, otherwise the assignment will be rejected by HM Land Registry. Verify that all lease preconditions (rent paid, breaches remedied, references supplied, AGA if required) are fulfilled so the landlord can lawfully issue the certificate.

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. Also distinguish priority protection in registered land (OS1/OS2 protects registration applications) from unregistered land (K15 protects completion date). An assignment must be by deed; failure of deed formalities will prevent transfer of the legal estate.

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. Modify implied covenants for title in the deed to exclude liability for the physical state of the property where appropriate. Diarise the OS1/OS2 priority deadline and lodge applications within time; for unregistered leases with more than seven years unexpired, lodge FR1 within two months.

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 on registered titles and epitome requirements for unregistered titles.
• The legal requirements and process for obtaining landlord’s consent to assignment, including statutory duties under the Landlord and Tenant Act 1988 and practical licence drafting and execution.
• The effect of tenant covenants and indemnities on continuing liability after assignment, and the impact of the Landlord and Tenant (Covenants) Act 1995 on old vs new leases.
• The formalities for a valid assignment, including s2 LP(MP)A 1989 contract requirements and deed execution and delivery for individuals and companies.
• The importance of pre-completion searches (OS1/OS2 for registered land; K15/K16 for unregistered land) and the differences in priority protection.
• The need to check and agree apportionments for rent and other outgoings and to rely on s45(2) LPA 1925 where applicable.
• The requirement to discharge any mortgage on the lease and obtain evidence of removal or part release before or at completion.
• Post-completion registration: AP1 for registered leases, FR1/DL for unregistered leases with more than seven years unexpired, and service of notice of assignment as required by the lease.
• The need to distinguish between leases granted before and after 1 January 1996 for continuing liability and the lawful use of AGAs.

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
• deed of assignment
• Landlord and Tenant (Covenants) Act 1995
• OS1 search
• OS2 search
• bankruptcy-only search