Learning Outcomes
After reading this article, you will be able to explain the meaning and function of licences to assign and underlet in leasehold law, distinguish between assignment and underletting, identify the landlord’s duties and statutory requirements in granting consent, analyse the enforceability of related covenants, and apply these principles to typical SQE2 scenarios involving consent, conditions, and remedies.
SQE2 Syllabus
For SQE2, you are required to understand the practical and legal framework for assignments and underlettings of leasehold estates. Revision should concentrate on:
- Key procedures for assignment and underletting of a lease.
- The role and function of landlord’s consent, including the legal and statutory framework.
- The practical and statutory requirements for a valid licence to assign or underlet.
- How disputes arise and are resolved over assignment and underletting.
- Drafting, reviewing, and advising on conditions commonly found in licences to assign or underlet.
- Comparing the enforceability of covenants relating to assignment and underletting.
- Advising clients—landlord or tenant—on consent disputes and remedies for breach.
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 legal effect of a landlord granting a licence to assign?
- True or false? A tenant may assign or underlet their lease without landlord consent unless the lease expressly restricts this.
- What statutory duties must a landlord comply with when considering a request for assignment or underletting?
- What are the legal consequences if a tenant assigns without obtaining a required licence to assign?
Introduction
When a tenant wishes to transfer their lease (assignment) or grant a new lease out of their existing lease (underletting or subletting), the terms of the head lease will generally dictate what is required for the transaction to be lawful. In most modern leases, assignment and underletting are subject to restrictions, the most common being that the tenant must obtain the landlord’s consent—usually by securing a formal licence to assign or underlet. In practice and for SQE2, understanding the requirements for these licences, their enforceability, statutory overlay, and practical drafting or advice points is essential.
Key Term: licence to assign
A landlord’s formal written consent, usually by deed, authorising the tenant to transfer (assign) their leasehold interest to a third party.Key Term: licence to underlet
The landlord’s formal consent allowing the tenant to grant a further lease out of their original lease, usually for a part or all of the property, to a subtenant.
The Structure and Purpose of Licence to Assign and Underlet
Restrictive Covenants—Assignment and Underletting
Most commercial leases include covenants limiting the tenant’s rights to dispose of or share possession of the leasehold property. These covenants are typically:
- Absolute (prohibiting assignment or underletting under any circumstance).
- Qualified (allowing assignment or underletting only with the landlord’s consent, not to be unreasonably withheld).
- Fully qualified (as above, and expressly requiring that consent not be unreasonably withheld or delayed).
Why Are Licences Needed?
A licence to assign or underlet is required when the lease restricts dealings to cases where the landlord’s consent has been granted in writing. Granting or refusing such a licence has major implications for both parties:
- The tenant needs to ensure their transaction is valid and does not risk forfeiture.
- The landlord retains control over incoming tenants and the use of the property, protecting the investment.
Legal and Statutory Framework
The legal relationship for assignment or underletting is first set by the lease terms, and then overlaid with statutory duties:
- Section 19 of the Landlord and Tenant Act 1927 upgrades most qualified covenants to require that consent to assign or underlet “is not to be unreasonably withheld.”
- The Landlord and Tenant Act 1988 imposes statutory duties:
- The landlord must give consent within a reasonable time, unless it is reasonable to refuse.
- The decision must be notified to the tenant in writing, along with any reasons or conditions.
If the lease is silent on alienation, the tenant may freely assign or underlet, but this is rare in modern practice.
Key Term: assignment
The transfer of a tenant’s existing leasehold interest to a third party (the assignee), who takes over the tenant’s obligations for the remainder of the term.Key Term: underletting (subletting)
Grant by a tenant of a new lease out of their own lease, to a subtenant, for a term shorter than the original lease.
Worked Example 1.1
Question: Nina is a tenant under a fifteen-year commercial lease. The lease says, “The tenant shall not assign or underlet the whole or any part of the premises without the prior written consent of the landlord, which is not to be unreasonably withheld.” Nina wishes to assign the lease to Rachel, a new business owner. What must Nina do?
Answer:
Nina must request written consent from the landlord before assigning. The landlord must consider the request and communicate consent or reasonable refusal—in writing—within a reasonable time. If the landlord refuses consent, reasons must be given, and refusal cannot be arbitrary. Without the licence to assign, any transfer would breach the lease, risking forfeiture.
Landlord's Duties, Process, and Statutory Requirements
Landlord’s Decision-Making Responsibilities
When a tenant applies for consent to assign or underlet, the landlord must act as follows:
- Respond within a reasonable time (statute provides that twenty-eight days is generally the “reasonable time” unless circumstances justify longer).
- Consent must not be unreasonably withheld or delayed.
- If consent is refused, reasons must be specified. These must be genuine and relate to the landlord-tenant relationship or the intended use (not arbitrary or discriminatory).
- Consent may be granted subject to reasonable conditions (such as providing references or a rent deposit).
Failure to comply with these statutory requirements exposes the landlord to a damages claim.
Form of the Licence
Consent must be conveyed by a formal written licence—ideally by deed. It should specify:
- The transaction authorised (assignment or underletting).
- Any conditions imposed (e.g., requirement for subtenant to enter direct covenants, or for the outgoing tenant to enter an Authorised Guarantee Agreement in an assignment).
- If time-limited, the period during which the licence applies.
Key Term: Authorised Guarantee Agreement (AGA)
An agreement (usually by deed) in which the outgoing tenant guarantees the assignee’s performance of the lease covenants after an assignment, often required as a licence condition in leases granted since 1996.
Worked Example 1.2
Question: A landlord grants consent to underlet conditioned upon the tenant obtaining the landlord’s approval of the draft underlease, and upon the underlease excluding statutory “security of tenure.” The tenant later underlets without these conditions being met. Is the underletting valid?
Answer:
The underletting breaches the licence because the conditions were not complied with. The landlord may be entitled to treat this as an unlawful underletting (a breach), potentially leading to forfeiture or damages.
Drafting and Practice Points
Precedent Clauses
A licence to assign or underlet should set out:
- The parties and property.
- The precise transaction being consented to.
- Confirmation that the landlord’s consent is given (for a specified period or transaction).
- Conditions of the licence (such as provision of an AGA, deposit, or specific form of underlease).
- Covenants by the assignee or subtenant to comply with head lease covenants.
- Costs responsibility (often, tenants must pay the landlord's reasonable legal and professional fees for granting the licence).
Strategic Considerations
- Absolute prohibitions on assignment or underletting are rare—practically, they may be challengeable by negotiation.
- Always review the lease and conditions carefully before advising on assignment or underletting.
- If a transaction occurs without a required licence, it will usually be void or voidable and constitute a breach of covenant.
Remedies for Breach
- If a tenant assigns or underlets without required consent, the landlord may:
- Seek to forfeit the lease (subject to relief).
- Claim damages for breach.
- The tenant exposed in this way is likely to face significant commercial risks.
Exam Warning
For SQE2, always check if the consent requirement has statutory overlay. Never advise a client to proceed with assignment or underletting without landlord’s written consent if required by the lease—even if consent appears “automatic.” Failure to comply risks forfeiture and damages.
Revision Tip
In a scenario, always establish whether the lease restriction is absolute, qualified, or fully qualified, as this determines whether consent is required and if statutory duties apply.
Summary
A licence to assign or underlet is the landlord’s formal written consent—usually by deed—for the tenant to assign or sublet. In all modern commercial leases, such transactions are only allowed with landlord’s prior written consent, which the landlord cannot unreasonably withhold or delay. Statutory duties overlay lease provisions—requiring decisions, notices, and reasons in writing. Failure to observe these principles exposes the defaulting party to penalties, forfeiture, or damages.
Key Point Checklist
This article has covered the following key knowledge points:
- Assignment transfers an existing lease, while underletting creates a new lease out of the tenant’s own.
- Leases almost always require landlord’s prior written consent for assignment or underletting; this consent is formalised in a licence to assign or underlet.
- Statutory overlay (mainly Landlord and Tenant Acts) means landlords must give prompt, reasoned decisions in writing and cannot withhold consent unreasonably.
- Licences to assign and underlet typically stipulate precise transaction and conditions.
- Assigning or underletting without required consent is a serious breach; landlord remedies include forfeiture or damages.
- The form and content of the licence have commercial and legal significance—always check the lease and statutory regime.
Key Terms and Concepts
- licence to assign
- licence to underlet
- assignment
- underletting (subletting)
- Authorised Guarantee Agreement (AGA)