Assignment of a lease - Pre-contract enquiries and searches

Learning Outcomes

This article outlines pre-contract due diligence in the assignment of a lease, focusing on the key enquiries and searches, their legal and practical significance, application of relevant rules to SQE1-style scenarios, principal risks for an incoming tenant, due diligence steps to ensure a valid and secure assignment, landlord’s consent requirements and when an Authorised Guarantee Agreement (AGA) may be required, and the use of registration priority searches to protect the transaction.

SQE1 Syllabus

For SQE1, you are required to understand the assignment of a lease from a practical viewpoint, including the due diligence steps and legal checks needed before an assignment is completed, with a focus on the following syllabus points:

• The process and legal effect of assigning a leasehold interest
• The purpose and scope of pre-contract enquiries on lease assignments
• The main searches required before assignment of a lease
• The risks and liabilities for an assignee and how to identify them
• The role of standard enquiry forms (e.g., CPSEs) and their content
• The importance of investigating title, covenants, and compliance issues
• Landlord and Tenant (Covenants) Act 1995: release on assignment and AGAs
• The distinction between assignment and subletting and how alienation covenants control them
• Planning and building control compliance (including time limits for enforcement)
• Registration, the priority period (OS1/OS2) and protection against the registration gap
• Transaction-specific and location-specific searches (e.g., coal mining, flood, commons)
• Financial standing of the assignee, arrears risk, and apportionments
• Company and bankruptcy searches where parties are corporate or financed

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 is the main purpose of pre-contract enquiries when acting for a proposed assignee of a lease?
2. Which searches are essential before completing the assignment of a commercial lease?
3. What is the effect of failing to check for landlord’s consent to past alterations before assignment?
4. Name two key risks for an assignee if pre-contract enquiries and searches are not carried out thoroughly.

Introduction

When a lease is assigned, the outgoing tenant (assignor) transfers their entire leasehold interest to a new tenant (assignee). Before completion, the assignee’s solicitor must conduct thorough pre-contract enquiries and searches to uncover any issues that could affect the lease or the property. These steps are essential to ensure the assignee is not exposed to unexpected liabilities or breaches and that the assignment is valid and enforceable.

Pre-contract due diligence is shaped by the principle of caveat emptor: the seller is not obliged to disclose all defects or issues. Standard enquiries help flush out what the assignor knows, but external searches and a careful title review are necessary. In many leases, landlord’s consent is a prerequisite for assignment; even where consent is required “not to be unreasonably withheld”, the assignor should apply early and the assignee should anticipate common conditions (for example, provision of references or an AGA in post-1995 leases).

Assignments are different from sublettings. A sublease creates a new inferior lease; the tenant remains in the chain of title and liable to the landlord. An assignment transfers the tenant’s whole interest; post-1995 leases typically release the assignor on assignment (subject to any AGA), while the assignee steps into the tenant covenants.

Pre-Contract Enquiries: Purpose and Scope

Pre-contract enquiries are a core part of due diligence on a lease assignment. They allow the assignee to obtain information about the lease, the property, and any issues that could impact their occupation or obligations.

Key Term: pre-contract enquiries
Questions raised by the assignee’s solicitor to the assignor (and often the landlord) to clarify the lease terms, property condition, compliance, and liabilities before assignment.

The main objectives are to:

• Identify all lease covenants and obligations that will bind the assignee
• Clarify the current rent, service charges, insurance, and any arrears
• Check for breaches of covenant, unauthorised alterations, or disputes
• Confirm compliance with planning, building regulations, and statutory requirements
• Ensure all necessary consents (especially landlord’s consent to assignment and to alterations) have been obtained
• Identify whether the landlord is likely to require an AGA and any other conditions (e.g., guarantor, rent deposit, references)

Standard forms, such as the Commercial Property Standard Enquiries (CPSEs), are commonly used in commercial lease assignments. These should be tailored to the specific property and updated if business circumstances suggest additional risks (for example, anticipated major works or contested service charge items).

Key Term: CPSE (Commercial Property Standard Enquiries)
A set of standardised forms used to obtain detailed information from the assignor about the property, lease, and compliance issues in commercial transactions.

The most relevant forms for assignments are CPSE.1 (general commercial property) and CPSE.4 (assignment of a lease). CPSEs typically probe boundaries, rights, utilities, fire safety, planning/building control, environmental status, insurance, occupiers, and disputes, providing a structured basis for follow-up requisitions where the replies raise concerns.

Key Areas of Enquiry

Lease Covenants and Obligations

The assignee will take on all lease covenants that run with the lease. It is essential to identify:

• Repair and maintenance obligations (including any existing disrepair). For full repairing obligations, consider any schedule of dilapidations and whether there are outstanding landlord notices. Some leases allow “self-help” recovery by landlords, but these operate only where expressly reserved.
• User restrictions (permitted use of the premises). A permitted user clause can be narrow; changing use often requires landlord’s consent in addition to planning permission. A mismatch between intended use and the user covenant is a breach, even if planning permission exists.
• Alienation provisions (future assignment or subletting). Absolute covenants bar dealings outright; qualified covenants allow dealings with landlord consent (which, under statute, must not be unreasonably withheld and should not be delayed).
• Insurance and service charge liabilities. Identify insured risks, exclusions, deductibles, and whether terrorism cover is included. For service charges, review budgets, reserve funds, major works planned, caps, and dispute history.
• Any unusual or onerous terms (forfeiture on insolvency, keep-open obligations, restrictions on hours of use or deliveries).

Key Term: alienation covenant
A lease clause restricting or controlling the tenant’s ability to assign, sublet, or otherwise deal with the lease.

Leases granted on or after 1 January 1996 are governed by the Landlord and Tenant (Covenants) Act 1995. On assignment, the outgoing tenant is usually released from future liability; however, a landlord may lawfully require an AGA as a condition of consent (for commercial leases), making the assignor guarantee the immediate assignee’s performance. For pre-1996 leases, privity of contract can keep the original tenant liable after assignment; pre-contract enquiries should confirm the lease grant date and any release arrangements.

Key Term: Authorised Guarantee Agreement (AGA)
A written guarantee given by an outgoing tenant (assignor) for the covenants of the immediate assignee, often required by landlords as a condition of consent under the 1995 Act.

Financial Commitments

Enquiries should clarify:

• Current rent, service charge, and insurance contributions
• Any arrears or disputes over payments
• Details of rent review provisions and upcoming reviews (method of review, assumptions/disregards, timing, and if any recent memorandum is outstanding)
• VAT status of rent and charges (has the landlord opted to tax?)
• Apportionments on completion and whether retentions will be needed for unresolved service charge balancing or known major works

A thorough check of ledgers and supporting breakdowns is essential. If arrears exist, ensure these are resolved before completion or that appropriate retentions and indemnities are negotiated. Where rent reviews are pending, consider the financial exposure and whether the proposed use could affect the open market rental basis.

Property Condition and Alterations

The assignee should check:

• The physical state of the property and any outstanding repairs
• Whether any alterations have been made, and if so, whether landlord’s consent and statutory approvals were obtained
• If there are any unauthorised works that could lead to enforcement action or breach of covenant
• Whether consented works complied with all conditions

Planning and building control involve separate regimes. Missing planning permission can be enforced, generally within four years from substantial completion for operational development and four or ten years for material changes of use (depending on the use), while breaches of planning conditions are typically enforceable for ten years. Building regulation breaches can lead to enforcement notices and, although prosecutions are time-limited, injunctions may still be available for unsafe works. For common installations (e.g., replacement glazing), check for relevant self-certification (such as FENSA) or completion certificates.

Compliance and Disputes

It is important to confirm:

• Compliance with planning permission and building regulations for all works
• That there are no outstanding enforcement notices or statutory breaches (including health and safety, fire safety, and accessibility)
• Whether there are ongoing disputes with the landlord, neighbours, or third parties (e.g., service charge adjudications, noise complaints, boundary issues)
• Environmental status: desktop reports and, where indicated, intrusive surveys. Under contaminated land regimes, owners/occupiers may face remediation liabilities even if they did not cause contamination.

Where the property abuts non-adopted roads or undeveloped land, additional enquiries are prudent regarding rights of way, adoption risk, and maintenance contributions. If near a railway, the assignee should expect restrictions on works and potential rights of access; where near rivers/canals, consider liability for banks, towpaths, and flood risk.

Landlord’s Consents

Most leases require landlord’s written consent for assignment and for certain alterations. Failure to obtain consent can make the assignment or alterations invalid and expose the assignee to forfeiture or enforcement.

Key Term: landlord’s consent
The written approval required from the landlord for assignment of the lease or for specified actions (such as alterations), usually not to be unreasonably withheld.

On assignment, consent is commonly given by a licence to assign. The landlord may require references, a guarantor or rent deposit, and (for post-1995 leases) an AGA from the outgoing tenant. The licence may include a direct covenant from the assignee to observe the lease covenants (for older leases where privity of contract would not otherwise exist). Where the lease includes a restriction on the title requiring consent or compliance (visible on the registered proprietorship), this must be satisfied to enable registration of the assignment.

Key Term: licence to assign
A deed by which the landlord consents to a proposed assignment, often imposing conditions such as an AGA, references, or a rent deposit; it may include a direct covenant by the assignee to perform lease covenants.

Searches Before Assignment

In addition to enquiries, the following searches should be carried out:

• Land Registry search (OS1/OS2): To check for adverse entries and secure priority for registration.
• Official copies of the leasehold and superior titles: To confirm the assignor’s title and identify any restrictions or notices.
• Local authority search (LLC1 and CON29): To reveal planning permissions, building regulation approvals, enforcement notices, adoption of roads, and other local matters (including Article 4 Directions, conservation areas, and TPOs).
• Water and drainage search (CON29DW/CommercialDW): To confirm connections, adoption status, and any liabilities.
• Environmental search: To identify contamination or environmental risks; escalate to a specialist survey if indicated.
• Chancel repair liability search: To check for ancient liabilities to contribute to church repairs; where risk exists, indemnity insurance is common.
• Company search (if assignor or landlord is a company): To confirm existence, officers, solvency, and any fixed or floating charges.
• Bankruptcy/insolvency search: If the assignee is an individual borrower, search for bankruptcy entries; for corporate buyers, repeat company searches close to completion.
• Index map search (SIM) where appropriate: To verify registration status and identify separate titles (e.g., mines and minerals).
• Location-specific searches: Coal mining (CON29M), flood risk, commons/town or village green, highways extent, and (where relevant) Canal & River Trust or Network Rail considerations.

Key Term: priority search (OS1/OS2)
A Land Registry search that secures a 30-working-day priority period for registration and reveals any new entries on the title since the last official copy.

Key Term: index map search (SIM)
An HM Land Registry search revealing whether land is registered, any pending first registration, or cautions against first registration, and identifying relevant title numbers.

Key Term: mining search (form CON29M)
A search disclosing past and proposed coal mining activity, shafts, subsidence claims and similar risks that may affect stability and insurability.

These searches should be timed appropriately. OS1/OS2 is typically done post-exchange as a pre-completion search, but official copies and all pre-contract searches and enquiries should be obtained and reviewed before the parties commit.

Worked Example 1.1

A solicitor acts for an assignee of a commercial lease. The assignor has carried out internal alterations but cannot produce evidence of landlord’s consent or building regulation approval. What should the solicitor do?

Answer:
The solicitor should raise specific enquiries about the alterations, request copies of all consents and approvals, and check for any breaches. If consents are missing, the assignee may be at risk of enforcement or forfeiture. The solicitor should advise on the risks and may negotiate for indemnity insurance or require the assignor to regularise the position before completion. Where works fall within planning or building control regimes, consider the relevant enforcement time limits and whether conditions attached to any consent were complied with.

Worked Example 1.2

The assignor is in arrears of service charges and has not paid the last quarter’s rent. What is the risk for the assignee if this is not resolved before assignment?

Answer:
The assignee may become liable for the arrears after assignment, depending on the lease terms and the landlord’s rights. The solicitor should ensure all arrears are cleared before completion or that appropriate retentions or indemnities are agreed. For future liabilities, review the service charge accounts and any pending major works to assess exposure and whether the completion apportionment should include a retention.

Worked Example 1.3

The lease to be assigned was granted in 2010 and contains a qualified covenant against assignment. The landlord is willing to consent but requires the outgoing tenant to enter into an AGA and to provide a 6-month rent deposit from the assignee. Is this lawful, and how should the assignee be advised?

Answer:
For post-1995 leases, a landlord may require an AGA as a condition of consent to assignment. A rent deposit from the assignee is also a common and generally lawful condition where it is reasonable in the circumstances. The assignee should be advised of the deposit terms (including triggers for drawdown and replenishment), whether a guarantor is also sought, and to confirm funding. The outgoing tenant should understand the scope of the AGA and when liability ends (typically when the immediate assignee assigns on). The licence to assign should record these terms and include any direct covenants required.

Worked Example 1.4

The assignee’s solicitor reviews title and notes a restriction requiring landlord’s consent to any assignment, and a mortgage registered against the leasehold title. How should the transaction be protected pre-completion and what must be satisfied for registration?

Answer:
Obtain updated official copies and carry out an OS1/OS2 priority search to secure a 30-working-day window for registration and to detect any new entries. Ensure the landlord’s consent is documented by a licence to assign and that any lender’s consent (or DS1 discharge) is available from the assignor’s mortgagee. The application to register the transfer must be made within the priority period; if there is a restriction requiring consent, lodge evidence of the consent (or compliance) with the application so the assignment can be registered.

Exam Warning

If landlord’s consent to assignment is required but not obtained, the assignment may be void or constitute a breach of covenant, exposing the assignee to forfeiture or enforcement action. For leases granted before 1996, the outgoing tenant may remain liable under privity of contract after assignment; for post-1995 leases, an AGA may be imposed as a condition of consent. Where restrictions appear on the title requiring consent or compliance, failure to satisfy them will prevent registration. Always protect the transaction with an OS1/OS2 priority search to avoid adverse entries in the registration gap.

Revision Tip

Always use the latest CPSE forms and tailor additional enquiries to the specific property and lease. Do not rely solely on standard questions. Distinguish clearly between pre-contract searches (e.g., local, drainage, environmental) and pre-completion searches (OS1/OS2). Note the different priority protections: OS1/OS2 protects the registration application; unregistered land K15 priority protects the completion date.

Key Point Checklist

This article has covered the following key knowledge points:

• The purpose of pre-contract enquiries is to uncover all relevant lease obligations, liabilities, and compliance issues before assignment.
• Standard forms such as CPSEs are used to structure enquiries, but additional tailored questions are often needed.
• Essential searches include Land Registry (official copies and OS1/OS2), local authority, water and drainage, environmental, company, and bankruptcy searches; consider index map and location-specific searches where relevant.
• Checking for landlord’s consent to assignment and to past alterations is critical to avoid invalid assignments or breaches; consent is usually by licence to assign and may include conditions such as an AGA, guarantor, or rent deposit.
• The lease grant date matters: post-1995 leases generally release the assignor on assignment, but an AGA may be lawfully required; pre-1996 leases may impose continuing liability via privity of contract.
• The assignee’s solicitor must ensure all arrears and breaches are resolved or protected (retentions/indemnities) before completion and confirm apportionments.
• Planning and building control compliance must be verified; understand enforcement time limits and the need for completion/self-certification documents.
• OS1/OS2 priority searches protect the registration application and reveal title changes; restrictions requiring consent must be satisfied to enable registration.
• Failure to conduct thorough enquiries and searches can expose the assignee to unexpected liabilities or loss of the lease.

Key Terms and Concepts

• pre-contract enquiries
• CPSE (Commercial Property Standard Enquiries)
• alienation covenant
• landlord’s consent
• licence to assign
• Authorised Guarantee Agreement (AGA)
• priority search (OS1/OS2)
• index map search (SIM)
• mining search (form CON29M)