Leasehold — grant & assignment

PP.06 Leasehold — Grant & Assignment

Two transactions. Grant = landlord creates a new lease out of its estate. Assignment = an existing leaseholder transfers the residue of the term to a buyer. Different docs, different searches, different liability rules.

Grant of a new lease

• Documents: the lease itself (and often an agreement for lease where works/conditions precede completion). Term, rent, repair, alienation, user, service charge and forfeiture clauses are the core checks.
• Formalities: a lease for more than 3 years must be by deed (LPA 1925 ss.52, 54(2)). A lease over 7 years must be registered with its own title number (LRA 2002 s.27) — failure means it takes effect only in equity. Leases of 7 years or under are overriding interests (Sch 3 para 1).
• SDLT is charged on premium and on the net present value of the rent; file and pay within 14 days of completion.

Assignment of an existing lease

• Title: check whether registered (assignment of residue of a registrable lease must itself be registered). Investigate the lease, any licences, and consents already given.
• Consent to assign: most leases are qualified ("not to assign without consent"). Statute implies that consent must not be unreasonably withheld (LTA 1927 s.19(1)) and the landlord must give a decision and reasons within a reasonable time (LTA 1988) — delay/silence can itself be a breach (Go West v Spigarolo).

Covenant liability — the dividing line (get this right)

• "New" leases granted on/after 1 January 1996 (LT(C)A 1995): the outgoing tenant is automatically released on a lawful assignment (s.5). Landlords protect themselves with an AGA (authorised guarantee agreement, s.16) — outgoing tenant guarantees the immediate assignee only.
• "Old" leases (pre-1996): original tenant remains liable for the whole term under privity of contract (City of London Corp v Fell), subject to relief mechanisms.

Common traps

• AGA guarantees only the next assignee, not the whole chain.
• Anti-avoidance: agreements frustrating the 1995 Act release are void (s.25).
• Don't confuse the 7-year registration trigger with the 3-year deed/legal-lease threshold.
• A breach of a qualified covenant by assigning without consent is a breach even if consent would have been reasonable.