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Question of the week

Assignment of Leases

Property Law and Practice · SQE1-style single best answer

A buyer is to take an assignment of a lease of a laboratory unit. The landlord has approved the buyer, but its licence to assign, which requires the seller to guarantee the buyer's performance, has been agreed in draft only and has not been executed by anyone. The deed of assignment has been executed by both the seller and the buyer, and the completion money is in the buyer's solicitor's client account. The seller is pressing for completion this afternoon.

What must the buyer's solicitor have in place before releasing the completion money this afternoon?

  1. Option A. Incorrect answer. The executed deed of assignment is by itself enough to pass the lease to the buyer, whatever the landlord has done.
  2. Option B. Incorrect answer. The deed may be completed now, provided notice of the assignment is given to the landlord immediately afterwards.
  3. Option C. Incorrect answer. The buyer must first be registered as proprietor of the lease at the Land Registry.
  4. Option D. Correct answer. The licence to assign, and the guarantee it requires, must be executed before the money is released.Correct
  5. Option E. Incorrect answer. The landlord must first confirm in writing that the seller's rent account is clear.

Why

The correct answer is D. Completing before the licence to assign has been executed would give the buyer a lease acquired in breach of the alienation covenant, exposing it to forfeiture and depriving the seller of its statutory release, because an assignment in breach of covenant is an excluded assignment (Landlord and Tenant (Covenants) Act 1995, s.11). The licence is the landlord's consent in documentary form and, where it makes consent conditional on a guarantee from the seller, that guarantee must be executed at the same time, as must any rent deposit deed. Only when those documents and the deed of assignment are executed and dated should the money be released. Registration, notice to the landlord and any land transaction return follow completion; they are not conditions of it.

A is incorrect because a duly executed deed does pass the term, but doing so without the consent the lease requires is a breach, which is the very risk the solicitor is retained to avoid. B is incorrect because notice after the event does not cure an assignment made without consent. C is incorrect because registration is a post-completion step, although for a registered lease the transfer does not operate at law until it is made. E is incorrect because confirmation of the rent account is part of the pre-completion investigation and is no substitute for the landlord's consent.

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