Landlord and tenant law - Purpose and effect of an alienatio...

Learning Outcomes

This article explains the purpose, operation, and exam-relevant consequences of alienation covenants in leases, including:

• distinguishing absolute, qualified, and fully qualified covenants and predicting their effect on assignment, subletting, and parting with possession
• interpreting wording of typical exam clauses and identifying when s 19(1) LTA 1927 converts a qualified covenant into a fully qualified one and prohibits premiums for consent
• applying s 19(1A) LTA 1927 to commercial leases to evaluate the validity of pre-agreed conditions such as AGAs, rent deposits, and guarantors
• analysing a landlord’s duties and potential liability under the Landlord and Tenant Act 1988 when handling consent requests, including timing and written reasons
• assessing whether a landlord’s refusal, delay, or conditions are “reasonable” on SQE1-style facts and selecting appropriate tenant remedies
• explaining how the Landlord and Tenant (Covenants) Act 1995 reallocates liability on assignment and interacts with AGAs in alienation scenarios
• structuring clear, step-by-step answers to SQE1 MCQs and scenarios involving consent to assignment or subletting

SQE1 Syllabus

For SQE1, you are required to understand the purpose and effect of alienation covenants in leases, including the statutory and case law controls on assignment and subletting, with a focus on the following syllabus points:

• the different types of alienation covenants (absolute, qualified, fully qualified) and their legal consequences
• the statutory modification of qualified covenants by the Landlord and Tenant Act 1927, especially s 19(1)
• the additional statutory framework in commercial leases under s 19(1A) LTA 1927 for reasonable conditions such as AGAs
• the landlord’s duties under the Landlord and Tenant Act 1988 to deal with consent requests within a reasonable time and to give written reasons
• the principles for determining when a landlord may reasonably withhold consent to assignment or subletting
• the procedural requirements for seeking and granting landlord’s consent, including superior landlord consent where relevant
• the remedies available for unreasonable refusal or delay in giving consent, including damages and declaratory relief

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. Which of the following best describes a fully qualified alienation covenant?
   1. It absolutely prohibits assignment or subletting in all cases.
   2. It allows assignment or subletting only with landlord’s consent, which cannot be unreasonably withheld.
   3. It allows assignment or subletting without any landlord involvement.
   4. It requires landlord’s consent, which may be withheld for any reason.
2. Under a qualified covenant against assignment, what is the effect of s 19(1) of the Landlord and Tenant Act 1927?
   1. The landlord’s consent can be withheld for any reason.
   2. The landlord’s consent cannot be unreasonably withheld.
   3. The tenant may assign without consent.
   4. The covenant becomes void.

3. True or false? A landlord can refuse consent to assignment solely because they personally dislike the proposed assignee.

Introduction

Alienation covenants are a standard feature of leases, restricting or regulating a tenant’s ability to transfer (assign) or sublet their leasehold interest. These covenants are important for both landlords and tenants, as they balance the landlord’s interest in controlling who occupies the premises with the tenant’s need for flexibility. The law imposes limits on the operation of such covenants, especially regarding the landlord’s ability to withhold consent and the procedures that must be followed.

Types of Alienation Covenants

There are three main types of alienation covenants found in leases:

• Absolute covenants: prohibit assignment or subletting entirely.
• Qualified covenants: prohibit assignment or subletting unless the landlord consents.
• Fully qualified covenants: prohibit assignment or subletting unless the landlord consents, and such consent is not to be unreasonably withheld.

Key Term: alienation covenant
A clause in a lease restricting or regulating the tenant’s ability to assign, sublet, or otherwise transfer their leasehold interest.

Key Term: absolute covenant
A lease clause that completely prohibits assignment or subletting by the tenant under any circumstances.

Key Term: qualified covenant
A lease clause that prohibits assignment or subletting unless the landlord gives consent, but does not specify any reasonableness requirement.

Key Term: fully qualified covenant
A lease clause that prohibits assignment or subletting unless the landlord gives consent, and expressly states that consent is not to be unreasonably withheld.

Key Term: landlord’s consent
The formal approval required from the landlord before a tenant may assign or sublet the lease, where the lease contains a qualified or fully qualified alienation covenant.

Key Term: parting with possession
A transfer of physical control of premises (or part of them) to another person, even if no formal sublease is granted; often restricted by alienation clauses alongside assignment and subletting.

Statutory Modification: Landlord and Tenant Act 1927

Section 19(1) of the Landlord and Tenant Act 1927 modifies any qualified covenant against assignment, subletting, charging, or parting with possession by implying a term that the landlord’s consent cannot be unreasonably withheld. This means that, in practice, most qualified covenants are treated as fully qualified covenants. Section 19(1) also prevents a landlord demanding a premium or “fine” for granting consent, although the landlord may recover its reasonable legal and other professional costs of considering and documenting consent.

For commercial leases granted on or after 1 January 1996, s 19(1A) (inserted by the Landlord and Tenant (Covenants) Act 1995) permits a lease to specify in advance the circumstances in which consent may be withheld and the conditions that may reasonably be imposed. In particular, it confirms that it can be reasonable to require an outgoing tenant to give an Authorised Guarantee Agreement (AGA) for the performance of the covenants by its immediate assignee.

Key Term: s 19(1) LTA 1927
Implies into qualified covenants that landlord’s consent cannot be unreasonably withheld and prohibits fines or premiums for consent.

Key Term: s 19(1A) LTA 1927
In a commercial lease (post-1995), allows specified reasonable preconditions to consent—commonly including requiring an AGA from the outgoing tenant.

Landlord’s Consent and Reasonableness

Where the lease requires landlord’s consent to assignment or subletting, the landlord must act reasonably in deciding whether to grant or withhold consent. The landlord cannot refuse consent for reasons unrelated to the landlord and tenant relationship or for arbitrary or discriminatory reasons. The core test is whether no reasonable landlord would have withheld consent in the circumstances. It may be reasonable to refuse consent where the proposed assignment would likely lead to a breach of user covenants or where the proposed assignee’s financial standing is inadequate.

Key Term: reasonableness (in landlord’s consent)
The legal standard requiring the landlord to have valid, lease-related grounds for refusing consent to assignment or subletting, rather than acting capriciously or for irrelevant reasons.

Classic authorities include guidance that consent cannot be refused for collateral purposes outside the lease and must address legitimate landlord concerns (such as compliance with use clauses, reputation relevant to the permitted use, or financial ability). It can also be reasonable to impose conditions, such as curing existing tenant breaches before consent is granted, providing a rent deposit or guarantor, or entering into an AGA where appropriate.

Worked Example 1.1

A tenant wishes to assign their lease to a financially stable business, but the landlord refuses consent because the proposed assignee operates a different type of business than the current tenant, even though the lease allows such use.

Answer:
The landlord may only refuse consent if the proposed use would breach the lease or otherwise adversely affect the property. If the lease permits the proposed use, and the assignee is suitable, refusal based solely on business type may be unreasonable.

Worked Example 1.2

A lease contains a qualified covenant against subletting. The tenant applies for consent to sublet part of the premises. The landlord does not respond for two months.

Answer:
The landlord must respond to a request for consent within a reasonable time. Unreasonable delay may be treated as an unreasonable withholding of consent, entitling the tenant to claim damages under the Landlord and Tenant Act 1988, and to seek a court declaration that consent has been unreasonably withheld.

The landlord’s statutory duties when considering consent (Landlord and Tenant Act 1988)

The Landlord and Tenant Act 1988 imposes positive duties on landlords in relation to consent requests:

• the landlord must give consent, or refuse consent with written reasons, within a reasonable time after receiving a written application
• the landlord bears the burden of proving that any refusal, any conditions attached to consent, and any time taken were reasonable
• where a superior landlord’s consent is also needed, the immediate landlord must apply promptly and take reasonable steps to obtain it
• failure to comply can give rise to liability in damages for breach of statutory duty

Key Term: Landlord and Tenant Act 1988 duties
Statutory duties on the landlord to deal with a written request for consent within a reasonable time, to give written reasons for refusal, and to take reasonable steps to obtain any necessary superior consents; breach may lead to damages.

Key Term: damages for breach of statutory duty (consent)
Damages recoverable by a tenant where a landlord breaches duties under the Landlord and Tenant Act 1988 in handling consent requests.

What is a “reasonable time” depends on the complexity of the proposal and the information supplied. Routine assignments should usually be decided within weeks rather than months; longer may be reasonable where complex financial vetting or superior landlord consent is involved.

Operation and Effect of Alienation Covenants

Absolute Covenants

Absolute covenants are rare in modern commercial leases, as they are restrictive and may be subject to challenge. Courts will interpret such clauses strictly, but will not rewrite the lease to insert a reasonableness requirement unless required by statute. Where a covenant is truly absolute (for example, “no assignment whatsoever”), s 19(1) of the LTA 1927 does not convert it into a qualified or fully qualified covenant.

Absolute prohibitions may still be seen for particular disposals (e.g. subletting part of a small unit, or sharing occupation other than with group companies). In those instances, the landlord has an unfettered right to refuse.

Qualified and Fully Qualified Covenants

Most leases contain qualified or fully qualified covenants. Under s 19(1) of the Landlord and Tenant Act 1927, a qualified covenant is treated as fully qualified, so the landlord cannot unreasonably withhold consent. The landlord may impose reasonable conditions, such as requiring the outgoing tenant to pay legal costs, cure existing breaches, or provide an authorised guarantee agreement (AGA) in commercial leases.

Key Term: Authorised Guarantee Agreement (AGA)
A guarantee given by an outgoing tenant of the performance of covenants by its immediate assignee; permitted and often reasonable under s 19(1A) LTA 1927 in commercial leases.

Assignment vs Subletting vs Parting with Possession

An assignment transfers the leasehold interest to a new tenant, who takes privity of estate with the landlord. A sublease creates a new, subordinate tenancy; the original tenant remains liable and becomes the sublandlord. “Parting with possession” is broader; it covers giving possession to another person without creating a formal tenancy, and is commonly restricted to prevent informal occupation arrangements that bypass control.

Typical modern leases also control “sharing occupation” and “group sharing.” Some permit sharing with group companies without consent but require notification. Such carve-outs depend entirely on the lease wording.

Reasonable Grounds for Refusal

The landlord may reasonably refuse consent if, for example:

• the proposed assignee or subtenant is of doubtful financial standing
• the proposed use would breach the lease or cause significant management difficulties
• the assignment or subletting would likely lead to breaches of covenants (e.g. user, alterations, or nuisance)
• there are outstanding material breaches by the outgoing tenant that have not been remedied
• the proposed transaction would diminish the value or significantly harm the landlord’s interest in the reversion

However, refusal based on personal dislike, discrimination, or to extract a premium or other collateral advantage is not reasonable. Conditions must be linked to legitimate lease-related aims (e.g. requiring an AGA, rent deposit, or guarantor; ensuring subletting terms are consistent with headlease covenants; or obtaining references).

Procedure for Seeking Consent

The tenant must apply in writing for consent and provide sufficient information to allow the landlord to make a decision: details of the proposed assignee/subtenant, financials, references, proposed documentation, and confirmation of continued compliance with user and other covenants. If a superior landlord’s consent is required (e.g. in a subletting under a headlease), the immediate landlord should promptly seek it.

Under the Landlord and Tenant Act 1988, the landlord must respond within a reasonable time, stating any conditions or reasons for refusal in writing. The landlord should confine reasons to those relevant to the lease and its proper management.

Worked Example 1.3

A lease contains a qualified covenant against assignment “without the landlord’s consent.” The landlord replies that consent will be given only if the outgoing tenant pays a lump-sum “consent fee” equal to three months’ rent, and also agrees to a rent increase in the last year of the term.

Answer:
Demanding a “fine” or premium for consent is prohibited by statute where s 19(1) is implied. Reasonable legal and professional costs can be recovered, but a lump-sum fee or a rent increase as a condition of consent would be an unreasonable collateral advantage. The landlord should instead confine conditions to reasonable measures (e.g. an AGA, rent deposit, or guarantor) where appropriate.

Worked Example 1.4

A tenant seeks consent to sublet part of a floor. The landlord refuses because the proposed subletting rent is below the passing rent under the headlease. The headlease permits subletting of part with landlord’s consent and requires only that subleases contain similar covenants and not materially compromise the landlord’s interests.

Answer:
A refusal based solely on the sublease rent being lower than the passing rent may be unreasonable if the lease does not stipulate a minimum rent or open market rent requirement. The landlord’s focus should be on the subtenant’s covenant strength, compliance with headlease covenants, and management concerns. Unless the lease specifies rent thresholds or the lower rent creates a real risk to the landlord’s reversion (for example, affecting recovery of service charges or management), refusal is likely unreasonable.

Worked Example 1.5

In a commercial lease granted after 1 January 1996, the landlord’s consent to assignment is requested. The lease provides that consent “may be conditional upon the outgoing tenant entering into an AGA and the provision of a rent deposit by the assignee.” The proposed assignee is newly formed but backed by a parent company and offers a rent deposit.

Answer:
Under s 19(1A) LTA 1927, it is generally reasonable in commercial leases to require an outgoing tenant to enter an AGA for its immediate assignee. A rent deposit from a new company may also be a reasonable condition. If the assignee’s backing or guarantees remove concern, the landlord should tailor conditions accordingly (e.g. accept a parent company guarantee rather than a deposit). Conditions should be proportionate to the risk profile.

Interaction with the Landlord and Tenant (Covenants) Act 1995

The LT(C)A 1995 governs liability on covenants in leases granted on or after 1 January 1996. On assignment, the outgoing tenant is automatically released from tenant covenants, subject to any AGA it gives for the performance of the covenants by its immediate assignee. Only the immediate assignee is guaranteed; if the lease is further assigned, the AGA falls away (s 16(4)).

For landlords, liability on landlord covenants can continue unless formally released or restricted by the lease, but this sits outside alienation consent. In practice, consent conditions often address ongoing covenant performance via AGAs, guarantors, or deposits.

Remedies for Unreasonable Refusal or Delay

If the landlord unreasonably withholds consent or delays, the tenant may:

• claim damages for breach of the implied term under s 19(1) LTA 1927 and breach of statutory duty under the LTA 1988
• seek a court declaration that consent has been unreasonably withheld
• pursue an order requiring the landlord to consider the request properly

In most cases, there is no automatic “deemed consent,” and unilaterally assigning without consent can still be a breach. The safer course is to seek a declaration or damages; if a court finds refusal unreasonable, the landlord may be ordered to consent or the tenant may be permitted to proceed without being in breach.

Practical considerations when preparing a consent request

• supply complete information upfront (identity, financials, business plan, references)
• demonstrate compliance with existing covenants and remedy any breaches
• address management concerns (fit-out details, alterations consents, permitted use)
• anticipate reasonable conditions (AGA, deposit, guarantor, superior landlord consent, costs) and propose solutions

Worked Example 1.6

A tenant applies to assign to a company operating a permitted use. There are outstanding service charge arrears and a minor unauthorized partitioning. The landlord refuses consent citing the arrears and the breach.

Answer:
It is usually reasonable to refuse consent until material breaches are remedied. The landlord should indicate that consent will be granted once arrears are paid and the unauthorized works regularized (e.g. retrospective consent and reinstatement if required). Conditional consent requiring cure of breaches is more likely to be reasonable than outright refusal once breaches are addressed.

Exam Warning

If a lease contains an absolute covenant, s 19(1) of the Landlord and Tenant Act 1927 does not convert it into a qualified or fully qualified covenant. The landlord may still prohibit assignment or subletting entirely unless the lease or statute provides otherwise.

Proceeding with assignment or subletting without consent remains risky even if you believe the landlord’s refusal is unreasonable. The usual remedies are damages and declarations; seek the court’s determination rather than assuming consent is “deemed.”

Revision Tip

When answering SQE1 questions, always identify the type of alienation covenant, check whether s 19(1) LTA 1927 applies, consider s 19(1A) for commercial leases, and analyse the landlord’s reasons and conditions against the test of reasonableness. Do not forget the LTA 1988 procedural duties.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• Alienation covenants restrict or regulate a tenant’s ability to assign, sublet, or part with possession of a lease.
• There are three main types: absolute, qualified, and fully qualified covenants.
• Section 19(1) of the Landlord and Tenant Act 1927 implies a reasonableness requirement into qualified covenants and prohibits premiums for consent.
• Section 19(1A) LTA 1927 allows commercial leases to specify reasonable preconditions to consent (e.g. AGAs, deposits).
• The landlord must not unreasonably withhold consent to assignment or subletting where required; reasons must be lease-related and proportionate.
• The Landlord and Tenant Act 1988 imposes duties to respond within a reasonable time, give written reasons, and take necessary steps to obtain superior consents; breach can lead to damages.
• The Landlord and Tenant (Covenants) Act 1995 affects post-1995 leases: outgoing tenants are released on assignment but may be required to give an AGA for their immediate assignee.
• Typical reasonable conditions include curing existing breaches, providing an AGA or guarantor, supplying a rent deposit, and paying reasonable legal costs.
• Remedies for unreasonable refusal or delay include damages and declarations; do not assume consent is “deemed” without court determination.
• Distinguish assignment, subletting, and parting with possession; ensure the proposed transaction complies with user, alterations, and other covenants.

Key Terms and Concepts

• alienation covenant
• absolute covenant
• qualified covenant
• fully qualified covenant
• landlord’s consent
• parting with possession
• reasonableness (in landlord’s consent)
• s 19(1) LTA 1927
• s 19(1A) LTA 1927
• Landlord and Tenant Act 1988 duties
• damages for breach of statutory duty (consent)
• Authorised Guarantee Agreement (AGA)