16.2 Assignment, Covenants and Remedies

Assignment as a conveyancing file

The September 2026 FLK2 specification added drafting the contract for the assignment of a lease to the leasehold practice list. That is a signal. Do not treat assignment as "get a licence and sign a TR1". There is usually a sale contract between assignor (seller) and assignee (buyer), then a licence to assign from the landlord, then a deed of assignment or Land Registry transfer, then post-completion tax and registration. Independent OpenExamPrep questions will test whether you put the right condition in the contract, not whether you can name the form number.

Drafting the assignment contract

Use a structure that will be familiar from freehold work, then add leasehold machinery.

Parties and property. Name the seller and buyer. Describe the lease by date, original parties, term, premises, and title number if registered. State whether vacant possession is given or whether occupational underleases will remain.

Incorporation of conditions. Commercial assignments commonly incorporate the Standard Commercial Property Conditions; residential long-lease assignments may use the Standard Conditions of Sale. Special conditions then do the leasehold work.

Title. The seller deduces the leasehold title: official copies, the registered lease or a certified copy, any superior titles the lease requires the tenant to deduce, charges, and restrictions. The contract should state whether title is deduced with full title guarantee or limited title guarantee. Full title guarantee includes a covenant that the seller has the right to dispose and will at its own cost do what it can to give that title, plus a covenant that the lease is still subsisting and the seller has complied with the tenant covenants so far as it is aware (subject to the statutory framework in the Law of Property (Miscellaneous Provisions) Act 1994). Limited title guarantee is weaker on unknown breaches.

Landlord's consent as a condition. If the lease requires consent to assign, the contract should make completion conditional on the landlord granting a licence in agreed form, often including an AGA and a direct covenant from the buyer. Build in a long-stop date. If consent is refused, or not issued by the long-stop, either party should be able to rescind without being in breach, with the deposit returned. Do not leave consent as a mere "best endeavours" recital with a fixed completion date that the seller cannot meet.

Apportionments and outgoings. Principal rent, service charge, insurance rent, and any sinking fund should be apportioned on completion. The contract should say who pursues outstanding service-charge reconciliation and who retains a retention if accounts are open.

Indemnity. From completion the buyer should covenant to pay the rents and observe the tenant covenants and to indemnify the seller. On a new tenancy that indemnity sits alongside the 1995 Act release; on an old tenancy it is part of the indemnity chain that the original tenant will care about.

VAT. Ask whether the landlord has opted to tax. An assignment of a lease can be a taxable supply if an option to tax is in play, or it may be capable of being treated as a transfer of a going concern if the seller is selling a property rental business and the conditions are met. The contract must state the VAT treatment and prevent a last-minute option that inflates the price.

Completion. Completion is usually the same day as, or immediately after, completion of the licence. Keys, original lease, and any rent-deposit deed (or a new deed with the landlord) pass on completion.

Searches and enquiries

The buyer's solicitor repeats, in leasehold form, the investigation you already know from freehold files: local search and optional environmental searches, OS1 or OS2 Land Registry priority search against the leasehold title, a company search if the seller or landlord is a company, bankruptcy search against an individual seller, and enquiries of the seller about disputes, notices (including 1954 Act notices), service-charge history, insurance claims, and unauthorised alterations. Raise enquiries of the landlord where the licence process allows it: whether the landlord intends to oppose renewal, whether there are outstanding breaches, and the status of any service-charge account. Do not assume the seller's management pack is complete.

Landlord's consent and the licence

Where the covenant is qualified, section 19(1) of the Landlord and Tenant Act 1927 implies that consent is not to be unreasonably withheld. The Landlord and Tenant Act 1988 then imposes a duty, where that implication applies, to give consent except where it is reasonable not to, to give a written decision within a reasonable time, and to specify reasons for any refusal or conditions. The burden of proving reasonableness is on the landlord. Unreasonable delay or refusal can sound in damages.

Who drafts the licence? The landlord's solicitor usually prepares the licence to assign (and a licence to underlet on an underletting). The tenant commonly pays the landlord's reasonable legal costs. Key provisions include: the landlord's consent, conditions (AGA, rent-deposit top-up, guarantor of the assignee), a direct covenant by the assignee to the landlord to observe the tenant covenants, and a statement that the licence does not waive existing breaches. On underletting, the licence often requires the underlease to be in a specified form, contracted out if the headlease is, and not to grant a term longer than the headlease minus a few days.

Privity and the licence. The licence is how the landlord keeps a contractual hook on the new party. On a new tenancy the assignee becomes bound by the tenant covenants while it is the tenant; the licence's direct covenant confirms that relationship with the landlord. On an old tenancy, the original tenant remains liable by privity of contract anyway; the licence still brings the assignee into a direct covenant and may require an indemnity.

Deed of assignment or transfer, and covenants for title

If the lease is registered, assignment of the whole is by TR1 (or TP1 if part is carved out, which many leases forbid). If the lease is unregistered, assignment is by a deed of assignment. A legal assignment of a legal term must be by deed. Covenants for title travel with the transfer: choose full or limited title guarantee in the contract and repeat it in the deed. On completion of a registrable disposition, apply to HM Land Registry within the priority period. Serve notice of assignment on the landlord even if a licence has just been completed; leases often require notice and a registration fee, and failure can be a breach.

Authorised guarantee agreements

On a tenancy granted on or after 1 January 1996, section 16 of the Landlord and Tenant (Covenants) Act 1995 allows an authorised guarantee agreement. The outgoing tenant guarantees the immediate assignee's performance of the tenant covenants until that assignee is itself released by a lawful assignment. The AGA must not purport to guarantee later assignees. Conditions in the lease may require an AGA as a condition of consent; whether that condition is reasonable can still be tested under the 1988 Act if the assignee is plainly as strong as the outgoing tenant. The Code's recommended practice is that an AGA should not be demanded where the assignee is of equivalent or stronger covenant strength, but the executed lease still has to be read first.

Liability on covenants: the 1 January 1996 line

Overriding leases (section 19 of the 1995 Act) can put a former tenant who has been forced to pay arrears back into the relationship as landlord of the defaulting assignee. Section 17 notices must be served on a former tenant or guarantor before recovering fixed charges (rent, service charge, liquidated sums) that fell due more than six months earlier.

Remedies for breach of a leasehold covenant

Match the remedy to the breach. SQE1 will expect you to know when damages are a poor substitute and when self-help is better than forfeiture.

Action in debt. Rent and other liquidated sums (insurance rent, a quantified service charge, a Jervis v Harris cost) can be claimed as a debt. Interest and costs depend on the lease.

Forfeiture. The lease must contain a forfeiture (re-entry) clause. For rent, many leases waive formal demand; the landlord may peaceably re-enter commercial premises or issue possession proceedings. For other covenants, section 146 of the Law of Property Act 1925 requires a notice specifying the breach, requiring remedy if it is capable of remedy, and requiring compensation. The tenant (and often subtenants and mortgagees) may seek relief from forfeiture. Accepting rent with knowledge of the breach can waive the right to forfeit for that breach. Peaceable re-entry is not available in the same way against residential occupiers protected by the Protection from Eviction Act 1977.

Commercial Rent Arrears Recovery (CRAR). CRAR, under the Tribunals, Courts and Enforcement Act 2007 and the Taking Control of Goods Regulations 2013, lets a landlord instruct an enforcement agent to take control of the tenant's goods for principal rent arrears on commercial premises. It does not apply where the premises are let as a dwelling. A notice of enforcement must be given before goods are taken. CRAR is narrower than the old common-law distress: it is for rent, not a mixed bag of service charge, unless the lease has reserved those sums as rent and the statutory conditions are still met — on the exam, treat CRAR as a rent tool for commercial premises and do not use it as a general debt collector.

Guarantors and rent deposits. Pursue the guarantor on the guarantee deed (and watch 1995 Act limits on guaranteeing future assignees). Draw down a rent deposit in accordance with the rent-deposit deed, then require a top-up. These are often faster than forfeiture if the landlord wants the tenant to stay.

Specific performance. Equity may compel performance of a keep-open covenant or, occasionally, a repairing obligation, but courts are cautious about supervising ongoing works. It is more likely where damages are inadequate and the act is clearly defined.

Damages. Available for past breaches. Repairing damages hit the section 18 of the Landlord and Tenant Act 1927 cap (diminution in value of the reversion).

Self-help / Jervis v Harris. In Jervis v Harris [1996] Ch 195 the Court of Appeal held that where the lease lets the landlord enter, carry out repairs, and recover the cost as a debt, the claim is not a claim for damages for disrepair. The section 18 cap does not apply. That is why well-drafted landlord leases include a Jervis v Harris clause, and why tenant solicitors try to limit it (notice, reasonableness, exclusion of improvements).

Ending the lease without the 1954 Act overlay

Effluxion of time. The contractual term expires on the last day. If Part II of the 1954 Act applies and has not been excluded, the tenancy does not simply die; it continues until terminated in accordance with that Act. If the tenancy is contracted out, or is outside the Act, effluxion ends the estate and the tenant must vacate (subject to any other right to stay).

Surrender. The tenant yields up the term to the landlord. An express surrender of a legal lease must be by deed. Surrender by operation of law can occur where the parties' conduct is inconsistent with the lease continuing (for example, the tenant gives up possession and the landlord accepts it by reletting on its own account). Surrender releases future obligations but not accrued liabilities unless the surrender document says so. Subtenants may be destroyed by surrender unless the landlord agrees to keep them (or statute protects them).

Merger. If the tenant acquires the reversion, or the landlord acquires the lease, and the same person holds both with no intermediate estate, the lease may merge into the reversion and end. Merger is not automatic in equity if that would be against the party's interest; intention matters. Do not assume merger has occurred just because a company in a group holds both interests on trust for different beneficial owners.

Exam trap: a landlord who wants the tenant out at term end on a protected business tenancy cannot rely on effluxion alone. Use a section 25 notice (next section). A landlord who wants money, not vacant possession, should think about debt, CRAR, deposit, and guarantors before pulling the forfeiture trigger.