Learning Outcomes
After studying this article, you will be able to identify the key pre-contract enquiries and searches required on the assignment of a lease, explain the legal and practical significance of each, and apply the relevant rules to SQE1-style scenarios. You will also be able to advise on the main risks for an incoming tenant and the due diligence steps needed to ensure a valid and secure lease assignment.
SQE1 Syllabus
For SQE1, you are required to understand the assignment of a lease from a practical viewpoint. This article focuses on the due diligence steps and legal checks needed before an assignment is completed.
- 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
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 is the main purpose of pre-contract enquiries when acting for a proposed assignee of a lease?
- Which searches are essential before completing the assignment of a commercial lease?
- What is the effect of failing to check for landlord’s consent to past alterations before assignment?
- 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 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
Standard forms, such as the Commercial Property Standard Enquiries (CPSEs), are commonly used in commercial lease assignments.
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).
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)
- User restrictions (permitted use of the premises)
- Alienation provisions (future assignment or subletting)
- Insurance and service charge liabilities
- Any unusual or onerous terms
Key Term: alienation covenant
A lease clause restricting or controlling the tenant’s ability to assign, sublet, or otherwise deal with the lease.
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
- VAT status of rent and charges
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
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
- Whether there are ongoing disputes with the landlord, neighbours, or third parties
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.
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: To reveal planning permissions, building regulation approvals, enforcement notices, and other local matters.
- Water and drainage search: To confirm connections and any liabilities.
- Environmental search: To identify contamination or environmental risks.
- Chancel repair liability search: To check for ancient liabilities to contribute to church repairs.
- Company search (if assignor or landlord is a company): To confirm existence and solvency.
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.
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.
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.
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.
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.
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, local authority, water and drainage, environmental, and company searches.
- Checking for landlord’s consent to assignment and to past alterations is critical to avoid invalid assignments or breaches.
- The assignee’s solicitor must ensure all arrears and breaches are resolved or protected before completion.
- 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
- priority search (OS1/OS2)
