Leasehold real estate law and practice - Procedural steps fo...

Learning Outcomes

This article covers:

• Essential procedural steps necessary for the assignment of a lease in England and Wales;
• The legal and practical significance of reviewing the lease for preconditions and restrictions (including consent, user, and repair covenants);
• The requisite formalities for a valid assignment and the importance of properly executed documentation;
• The importance of registering and notifying relevant parties post-assignment;
• The obligations and risks assumed by both assignor and assignee, and the continuing impact of privity of contract, privity of estate, and the Landlord and Tenant (Covenants) Act 1995;
• When and why landlord’s consent may be required, and the legal basis on which consent might be refused or imposed with conditions;
• Documentary formalities, including the requirement for a deed, references, and indemnities;
• The distinction between old leases (pre-1996) and new leases (post-1996) as regards ongoing liability and the operation of authorised guarantee agreements (AGAs);
• Land registration and notification procedures, the implications of non-registration, and the differences between registered and unregistered titles;
• Procedural precautions to mitigate risk to both assignor and assignee;
• These points are critical to competent practice in leasehold assignments and directly support the key legal competences assessed at SQE2.

SQE2 Syllabus

For SQE2, you are required to understand the law and practice governing the assignment of leasehold real estate, with a focus on the following syllabus points:

• The statutory and contractual requirements for assignment of legal leases, including s.52 Law of Property Act 1925 and associated case law
• The necessity for landlord’s consent, absolute, qualified, and fully qualified covenants, and the effect of the Landlord and Tenant Act 1988 and s.1 thereof
• Pre-assignment checks on title, lease conditions, outstanding arrears and breaches, and the potential for waiving or enforcing these as a precondition to assignment
• Proper drafting, execution, and form of the assignment deed or transfer (TR1 or specific deed of assignment) and any relevant licences or side agreements
• The requirement for, and effect of, AGAs following assignment under post-1996 commercial leases
• The consequences for assignor and assignee in the context of privity of contract and privity of estate, and the application of release provisions under the Landlord and Tenant (Covenants) Act 1995
• Legal and practical steps following completion, including notice to landlord, delivery of documentation, registration (Form AP1, FR1, whatever is appropriate), and the impact of delay or non-registration
• The identification and management of indemnity and chain covenants, especially in the context of unregistered land and historical titles

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 usually must be obtained before a lease assignment can occur?

   • a) Landlord’s written consent (if required by covenant)
   • b) Consent of all previous assignees
   • c) Confirmation of local authority planning
   • d) A declaration from the subtenant

2. Which statement is most accurate regarding documentation for an assignment of a lease?

   • a) A simple email between assignor and assignee will always suffice
   • b) The assignment must be by deed for legal validity
   • c) Only oral agreement is required
   • d) Assignment is always automatic on sale of the business

3. On a lease granted after 1996, when is a former tenant normally released from ongoing liability after an assignment?

   • a) Never
   • b) Automatically on lawful assignment
   • c) Only after 12 months have passed
   • d) After the next rent review

Introduction

Assignment of a lease is the process by which a tenant (the assignor) transfers its remaining interest under a lease to another party (the assignee). This is a routine but technical transaction in both residential and commercial contexts, and it operates to substitute one party for another within the contractual framework of the lease. Effective execution of an assignment safeguards the interests of the outgoing tenant, incoming tenant, and landlord, and requires compliance with statutory formalities, the lease’s own requirements, and standard real estate practice.

A lease is a proprietary legal estate, usually for a fixed term or as a periodic tenancy, and may be assigned unless expressly prohibited or limited by the lease. Leasehold assignments are subject to close regulatory oversight because of the important rights and liabilities that may pass to successors. The process is complicated by the nuances of landlord and tenant law, especially around restrictions on alienation and the consequences of breach.

Key Term: assignment of a lease
The legal transfer of a tenant’s remaining interest in a lease to a new party (the assignee), with the assignee stepping into the leaseholder’s obligations.

Key Term: qualified covenant
A leasehold covenant stating that assignment is only allowed with the landlord’s consent, but without stating that such consent must not be unreasonably withheld.

Key Term: fully qualified covenant
A leasehold covenant allowing assignment with landlord’s consent, which explicitly must not be unreasonably withheld.

Key Term: s1 Landlord and Tenant Act 1988
A statutory provision imposing on landlords a duty to respond reasonably and promptly to written requests for consent to assign (or underlet) where applicable.

Key Term: authorised guarantee agreement (AGA)
An agreement by which an outgoing tenant guarantees performance of the lease covenants by their immediate assignee, permitted in some post-1996 commercial leases as a condition of assignment.

Assignments and Types of Lease Covenants

Leases may prohibit or restrict assignment in one of three forms: an absolute prohibition, a qualified covenant (where landlord’s consent is needed but nothing is said about the reasonableness of the refusal), or a fully qualified covenant (consent not to be unreasonably withheld). Statutory modification under s.19(1)(a) Landlord and Tenant Act 1927 converts a qualified covenant into a fully qualified one for assignment of whole, so that the landlord’s consent cannot be unreasonably withheld. The Landlord and Tenant Act 1988 imposes further duties on landlords to respond within a reasonable time to requests for consent, to give written reasons if consent is refused, and to exercise their rights fairly.

Landlords may set requirements for assignment, including information about the incoming tenant, references, payment of costs, or guarantees. However, demands must be reasonable, and a landlord cannot attach conditions that go beyond what is permitted in the lease or statute.

Key Term: deed of assignment
A formal document executed as a deed transferring the tenant’s residue of the lease to a new proprietor.

Worked Example 1.1

A tenant under a 15-year commercial lease wishes to assign the last 6 years to a third party. There is a clause requiring landlord’s consent, “not to be unreasonably withheld.” What is the first step the tenant should take?

Answer:
The tenant should formally request the landlord’s consent in writing, providing details of the proposed assignee, relevant references, and any other information reasonably required under the lease. Until consent is granted, the assignment cannot proceed lawfully.

Procedural Steps for Assignment of a Lease

Assignment of a lease is a process governed by both the terms of the lease and legal principles regulating property in England and Wales. The principal stages must be performed in order, and compliance at each stage is necessary to avoid unenforceable transfers, unlawful occupation, or ongoing liabilities.

Step 1: Review the Lease and Identify Preconditions

Before proceeding, the assignor’s solicitor must undertake a comprehensive review of the relevant lease and—where applicable—the superior title (freehold or headlease). Key issues include:

• Are there restrictions or conditions on assignment (e.g., absolute, qualified, or fully qualified covenants)?
• Does the lease specify required information, procedural requirements, or landlord costs upon application for consent?
• Are there any conditions precedent, such as required references, up-to-date payment of rent, no subsisting breaches, or specific undertakings?
• Is landlord’s consent expressly required, and if so, are there stated grounds on which consent may be refused?
• Is the right of assignment limited to the whole, or permitted as to part?
• Does the lease require the outgoing tenant to enter into an AGA, provide a rent deposit, or obtain assignee’s guarantee?
• Does the lease incorporate statutory requirements relating to assignment (including s.19 LTA 1927, s.1 LTA 1988, or s.16 LTA 1995)?

In practice, any ongoing breaches of covenant (e.g., rent arrears, property disrepair, or insurance non-compliance) must be remedied prior to assignment unless the lease expressly waives these as preconditions. Assignments in breach can expose the assignor to forfeiture or claims and leave the assignee without valid title.

As part of the due diligence, the assignor’s solicitor must also consider whether incidental third party consents are required—such as mortgagee, superior landlord, or lender approval where the landlord’s title is subject to a charge.

Step 2: Obtain Landlord’s Consent (If Required)

Where the lease contains a qualified or fully qualified covenant, the tenant (assignor) must:

• Submit a formal written application for the landlord’s consent to assign, referencing s.1 Landlord and Tenant Act 1988 for procedural protection.
• Provide all information reasonably required by the landlord, such as the assignee's financial standing, trade or personal references, and business history.
• Offer undertakings to pay the landlord’s reasonable legal and administrative costs (unless otherwise limited in the lease).
• Cooperate with the landlord’s additional requests, provided they are reasonable and relevant to the assignment decision.

Under s.19(1)(a) LTA 1927 (on qualified covenants) and under most leases, the landlord’s consent cannot be withheld unreasonably as to assignment of the whole. The landlord is required to respond within a reasonable period and to give written reasons for any refusal (s.1 LTA 1988). Failure to do so can result in an order for damages or a declaration that consent has been unreasonably withheld.

Typical lawful conditions for withholding consent (where stated in the lease) include the financial standing or relevant experience of the proposed assignee, absence of persistent breaches by assignor, and/or the requirement for an AGA, rent deposit, or personal guarantee in favour of the landlord.

Key Term: s1 Landlord and Tenant Act 1988
Section 1 of the Landlord and Tenant Act 1988 imposes on landlords the duty to give or refuse consent within a reasonable time after a written application, to give written reasons for refusal, and to exercise their rights reasonably.

If consent is improperly given or not properly executed in writing, the landlord may inadvertently waive their right to enforce future breaches or to control occupation, as demonstrated by the Aubergine v Lakewood decision, where informal indications of consent were held to be binding. Therefore, consent should always be properly documented by a formal licence to assign, executed by all relevant parties.

Worked Example 1.2

A shop tenant applies for landlord’s consent to assign the lease to a solvent business. The landlord requests a business plan and evidence of the assignee’s financial position, which are provided. The landlord withholds consent due to a “general preference for existing tenants.” Is this lawful?

Answer:
No. Where a fully qualified covenant applies, consent can only be refused on reasonable grounds related to the landlord-tenant relationship or the performance of the lease. General preferences or arbitrary refusals are not reasonable or permitted by law.

Costs of Assignment

Landlords are generally entitled to recover their reasonable legal and administrative costs in dealing with an assignment request, provided those costs are for the work required to reach an informed decision. The lease may cap or otherwise limit the amount claimable. Recovery of costs should not be conditioned upon actual consent but rather upon the consideration of the application.

AGAs and Requirements to Provide Security

Where the lease was granted on or after 1 January 1996, the landlord may, as a condition of consenting to assignment, require the outgoing tenant (assignor) to enter into an AGA if explicitly permitted by the lease, or otherwise if reasonable in the circumstances (Landlord and Tenant (Covenants) Act 1995 s.16, Wallis Fashion v CGU). The assignor’s continuing guarantee is strictly limited to the performance by their immediate assignee, and the assignor will be released once the lease is assigned again, unless new obligations are agreed.

A landlord may legitimately require additional security such as a rent deposit or personal guarantee from the assignee or their directors, provided such requirements are within the bounds of reasonableness.

Step 3: Prepare and Execute the Assignment Documentation

Assignment of a lease (other than for a very short term) must be effected by deed—to comply with s.52 LPA 1925 and s.1 Law of Property (Miscellaneous Provisions) Act 1989. The documentation generally includes:

• The deed of assignment (or TR1 for registered leases), identifying all parties, the property, and the date
• Any executed licence to assign (providing the necessary landlord’s consent and setting out any preconditions or required guarantees)
• Relevant undertakings for indemnities, covenants for title (often full or limited title guarantee), and, for old leases, any appropriate chain of indemnities

The assignee’s solicitor should coordinate review and engrossment of the assignment deed. The assignor’s solicitor should ensure that the documentation does not give warranties relating to covenant compliance for matters outside their knowledge or control—especially as regards the physical state of repair.

Key Term: deed of assignment
A formal document by which the outgoing tenant assigns all their interest under the lease to the new tenant (assignee), typically executed as a deed.

Title guarantee is typically limited on assignment to relieve the assignor of implied covenants relating to the state and condition of the property (see s.4 Law of Property [Miscellaneous Provisions] Act 1994), and the assignment deed should expressly exclude liability for breaches of that kind. For old leases, a chain of indemnities will protect the assignor; for new leases, express indemnity may only be necessary if an AGA is entered.

Worked Example 1.3

A business lease granted in 1994 is assigned three times in succession, the latest assignee is in default. The assignor had required each new tenant to provide an express indemnity to their predecessor. The landlord now sues the original tenant for arrears. What is the effect of the chain of indemnities?

Answer:
The original tenant is liable to the landlord under privity of contract but can claim an indemnity from their assignee, and so on. The effectiveness of recovery depends on the solvency and existence of the parties throughout the chain. If the chain is broken (e.g., a missing indemnity or an insolvent former assignee), recovery may be undermined.

Licences to Assign

The landlord’s consent ought to be recorded in a formal, carefully drafted licence to assign, executed by all parties (landlord, assignor, and assignee). This ensures that consent is expressly limited to the named transaction (not future assignments) and that any security (such as an AGA) is properly documented. The licence will also set out the parties’ respective liabilities and reiterate that consent is conditional upon payment of costs, compliance with the lease, and registration of the assignment where appropriate.

If the lease predates 1 January 1996 (an old lease), the landlord should also request a direct covenant from the assignee to observe and perform the covenants of the lease for the remainder of the term.

Step 4: Completion and Delivery

On completion day, the parties exchange and date the executed documentation. The assignor delivers the original lease and any title deeds (unless retained by the landlord or lender), keys, and documentation to the assignee. The assignee pays the balance due and undertakes to register the assignment. The assignor’s and assignee’s solicitors effect legal completion by dating the assignment deed and closing relevant undertakings.

Where landlord’s consent has been formalised by a separate licence, the assignment must not proceed until the signed licence has been executed (or other written evidence of consent is available). Waiver of this procedural requirement is never advisable, as it would undermine the proper functioning of the assignment and could expose the parties to avoidable risk.

For commercial deals, completion takes place under a completion protocol or standard undertakings, setting out post-completion tasks, documentation handover, and financial settlement.

Step 5: Post-Completion Notices and Registration

Following completion, a series of administrative and statutory steps are required to ensure that the assignment is effective against third parties and to avoid future disputes:

• Notify the landlord in writing of the assignment (compliance with any lease condition to register the assignment with the landlord, which may attract a fee)
• Serve notice on any superior landlord or head landlord where required by the headlease
• If the lease is registered (as all leases for more than 7 years must be), lodge an application for registration of the assignment at HM Land Registry on form AP1 for registered leases, or FR1 for first registration of unregistered leases, within the relevant priority period (generally 30 working days for OS1 pre-completion search)
• Provide to the Land Registry the assignment deed (or TR1), original lease, evidence of consent (if required), and appropriate fees
• Where an assignment of an unregistered lease with more than seven years remaining is being registered, submit the documentation for first registration; for assignments of less than seven years, no registration is required but the landlord should still be notified

Key Term: TR1
The statutory form of transfer for registered land, used for assignment of registered leases.

Failure to register the assignment within the required timescale (typically two months for unregistered land or within the priority period for registered land) risks rendering the transfer void as against third parties, leaving the assignor potentially liable and the assignee exposed.

Notifying the landlord is essential not only for compliance but also to ensure the correct party is billed for rent, insurance, and service charge, and to ensure any future lawful dealings.

Registration also protects the interests of any new mortgagee or lender, ensures SDLT compliance (if any premium is payable), and updates the public register.

Step 6: Legal Consequences for Assignor and Assignee

The effect of assignment depends crucially on whether the lease is an "old" lease (granted before 1 January 1996), or a "new" lease (on or after that date). The different rules regarding continuing liability, indemnity, and AGAs must be carefully observed.

• For new leases (post-1996), the outgoing tenant (assignor) is generally released from ongoing liability on lawful assignment (s.5 LT(C)A 1995), unless an AGA or separate guarantee is required as a lawful condition for consent.
• For old leases, the assignor remains liable for the whole term under privity of contract, regardless of assignment, but indemnities may pass risk back where implemented, and a chain of indemnities is the standard protection where successive assignments occur.
• The assignee always becomes liable for the performance of covenants "touching and concerning" the land (as defined in Spencer’s Case and s.141 and s.142 LPA 1925), for so long as the assignee holds the lease.

Key Term: privity of contract
The legal relationship that exists between the original contracting parties (landlord and tenant), binding them for the duration of the lease unless expressly released or assigned.

Key Term: privity of estate
The relationship attaching between landlords and current tenants (assignees), holding the tenanted estate, so that they are liable to each other for covenants that touch and concern the land during their time as landlord and tenant.

Typical modern commercial leases will incorporate all necessary provisions for legal release, indemnity, and AGA conditions, but the practitioner must always confirm compliance with the lease, the statutory regime, and contractual arrangements.

Where an AGA is entered, the assignor remains liable as surety for the immediate assignee, but will be released when the lease is further assigned, unless a further agreement is signed.

Remedies for Breach and Continuing Liability

After assignment, the assignee is liable for breaches of covenant accruing while they are tenant; the assignor remains exposed under privity of contract (old lease) or as AGA surety (new lease with AGA). For landlords, common remedies for breach include action for arrears as a debt, forfeiture (subject to preconditions as above), CRAR for rent, use of any rent deposit, or action against any guarantor—including the assignor under an AGA.

Landlords must serve a written s.17 default notice (LT(C)A 1995) within six months of arrears falling due if they wish to pursue a former tenant or guarantor (including one under an AGA).

Worked Example 1.4

A tenant assigns a 12-year lease in its third year (granted in May 1997). The lease contains a standard clause requiring an AGA on assignment, and the outgoing tenant enters into this at the landlord’s request. Two years later, the new assignee goes into liquidation and defaults. What is the outgoing tenant’s liability?

Answer:
As the lease was granted after 1996, the assignor is normally released on assignment. However, since the lease grants the landlord a right to require an AGA, and an AGA was entered, the assignor is liable under the AGA as surety for their immediate assignee’s performance—so long as that party remains tenant. Once the lease is assigned again, the assignor is released from the AGA as well.

Additional Remedies and Assignments

Landlords may also rely on rent deposits, or require replacement guarantees as a precondition to onward assignment, either by explicit contractual provision or by law. Where a rent deposit is used, ensure that the deposit deed entitles recovery and that prescribed procedures are followed.

Where breach or incomplete compliance with assignment formalities arises, landlords may have grounds for forfeiture (subject to Section 146 LPA 1925 where applicable) or seek damages against assignor or assignee as circumstances permit.

Step 7: Additional Considerations in Unregistered Land and Co-Ownership

For leases comprised wholly or partly in unregistered land, additional due diligence is necessary:

• Ensure a good root of title is established, with deduction of title spanning at least 15 years prior to the assignment; request original leases and assignment deeds for inspection
• Updated land charges searches must be performed against all estate owners since the relevant root of title
• If the property is subject to a trust, ensure that overreaching is effected by payment to two or more legal owners (trustees); otherwise, the purchaser/assignee may be bound by equitable interests (see s.2 and s.27 LPA 1925)
• For co-owned leasehold property, confirm the status of joint tenancy or tenancy in common for both legal and equitable interests, and ensure correct execution and receipt of proceeds

SDLT, VAT, and Lender Consent

Where applicable, ensure SDLT returns and payment are made on any assignment for a premium over threshold values, and check whether VAT applies to the assignment as part of the transfer or on acquisition of commercial property (if the option to tax has been exercised).

If the landlord’s title is subject to a charge, consent from the superior lender may be a precondition to a valid assignment. Equally, subletting or assignment of part may invoke additional requirements under the headlease.

Revision Tip

Carefully check the entire chain of title on any assignment, especially in older leases or properties in unregistered land, and keep a detailed record of all undertakings, notices, and documents delivered and received. Ensure that SDLT, VAT, or other taxes do not go unaddressed in the transfer process. Non-compliance or omissions can create defects in title, affect landlord-tenant relations, and present professional liability risks.

Exam Warning

Assignment by deed without necessary landlord’s consent will usually be ineffective and constitute a breach, even if registered at HM Land Registry. The landlord might be able to forfeit the lease or claim damages, and the assignor may remain liable to perform lease covenants or indemnify successors and landlord for resulting loss.

Summary

Assignment of a lease is a technical and procedural process, not the simple transfer of occupation. Legal validity relies on compliance with preconditions in the lease, obtaining any necessary consents, payment of outstanding obligations, and execution of a deed of assignment. Registration and correct notification procedures are necessary to ensure good title and effective release or assumption of liabilities. The parties’ ongoing obligations will differ depending on the date of the lease, the presence of AGAs or indemnities, and the strict compliance with contractual and statutory rules.

Key Point Checklist

This article has covered the following key knowledge points:

• Assignment of a lease requires compliance with all lease preconditions, including landlord’s consent if required by absolute, qualified or fully qualified covenants.
• Written application for consent must comply with s.1 Landlord and Tenant Act 1988 where applicable, and the landlord must give or refuse consent promptly, with written reasons if refused.
• Assignment must usually be executed by deed to transfer legal title, and appropriate formalities differ depending on whether the lease is registered or unregistered.
• The assignee is bound by all covenants in the lease which touch and concern the land during its term, and the assignor may only be released from future liability for new leases if valid assignment with AGA is completed.
• Indemnities and AGAs are essential protections for assignors in old and new leases respectively. Chains of indemnity should be in place for old leases.
• Timely notification of the assignment to landlord and registration at HM Land Registry are necessary to secure legal title and effectively transfer liability.
• SDLT, VAT, and lender/superior landlord consents must be considered as part of the transaction.
• For unregistered leases or land, especial care is required in deduction of title, updating land charges searches, and effecting overreaching where a trust is present.

Key Terms and Concepts

• assignment of a lease
• qualified covenant
• fully qualified covenant
• s1 landlord and tenant act 1988
• authorised guarantee agreement (AGA)
• deed of assignment
• TR1
• privity of contract
• privity of estate