land registry assignment of lease

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Leases: determination (PG26)

Practice guide 26: leases – determination

Updated 14 November 2022

Applies to England and Wales

This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected] .

Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.

This publication is available at https://www.gov.uk/government/publications/leases-determination/practice-guide-26-leases-determination

Please note that HM Land Registry’s practice guides are aimed primarily at solicitors and other conveyancers. They often deal with complex matters and use legal terms.

1. Introduction

There are various ways in which a leasehold estate in land may come to an end and affect either a registered title or a title that is the subject of first registration. For example:

merger of lease – when the leasehold estate is registered and the reversionary estate is either registered, or is the subject of an application for first registration
cancellation of notice of an unregistered lease from a registered reversionary title
determination of a registered lease into a reversionary estate , which is neither registered nor the subject of an application for first registration

More specifically the lease itself can determine on:

surrender by deed
surrender by operation of law
effluxion of time
an order of the court
determination by notice
frustration
enlargement

2. How to apply the Land Registration Act 2002 and Land Registration Rules 2003 and make substantive applications to HM Land Registry

2.1 points to consider on all applications.

You will need to consider and take any appropriate action on the following points.

Original documents are normally required only if your application is a first registration.

A conveyancer may, however, make an application for first registration on the basis of certified copy deeds and documents only. For information about this see practice guide 1: first registrations – Applications lodged by conveyancers – acceptance of certified copy deeds .

If your application is not a first registration, we only need certified copies of deeds or documents you send to us with HM Land Registry applications. Once we have made a scanned copy of the documents you send to us, they will be destroyed. This applies to both originals and certified copies.

However, any original copies of death certificates or grants of probate will continue to be returned.

2.1.1 Documents required

In addition to any documents that may be specified in the sections relating to the method by which the lease has been determined, the following documents will be required, depending on whether the leasehold estate and/or the reversionary estate are registered.

2.1.1.1 Both interests registered

To close a registered leasehold title on determination and cancel the notice of that lease in the registered reversionary title (s), you will need to lodge:

a) form AP1 for closure of the registered leasehold title (unless the lease has determined on enlargement – see Determination: on enlargement ) and for removal of notice of the lease from the reversionary title (see also Notes 2 and 3 below)

b) a certified copy of the original lease and/or counterpart lease, if in your possession, or account for its absence

Note 1: This will also apply if the reversionary estate is the subject of an application for first registration.

Note 2: If the AP1 does not refer to the reversionary title we will remove the notice of the lease to bring the register up to date, but we will not issue an official copy of the register for that title.

Note 3: If the determining lease is a concurrent lease you will need to investigate which leases it is concurrent with and refer to those titles in the AP1.

2.1.1.2 Cancellation of notice of an unregistered lease – reversionary estate registered

A registered reversionary title may be subject to a lease, although this lease is not itself substantively registered. The lease will be noted either in the charges register or in a schedule of notice of leases in the registered reversionary title . You may apply for cancellation of the noted lease if you can lodge appropriate documentary evidence to prove that the unregistered leasehold estate has determined. You will need to lodge:

a) form CN1 – see rule 87(1) of the Land Registration Rules 2003 (unless the lease has determined on enlargement – see Determination: on enlargement )

Note 1: You will need to complete panels 9 and 10 appropriately.

Note 2: You will also need to lodge a form AP1 if you are applying for the registration of additional deeds affecting the registered reversionary title .

Note 3: If the lease is noted in the registered reversionary title by way of a unilateral notice (rather than by way of an agreed notice or a notice entered by the registrar in the course of an application for first registration), an application either to cancel or remove the unilateral notice must be made in form UN4 or form UN2 respectively – see practice guide 19: notices, restrictions and protection of third party interests – Cancelling and removing notices from the register for further information).

b) documents of title to the determining leasehold estate, listed on a form DL (in duplicate), showing satisfactory evidence of title to the unregistered lease similar to that required on first registration – see rule 87(1) of the Land Registration Rules 2003. Where the application is made by the landlord, satisfactory evidence of title may be shown by the counterpart lease and copies of any assignments

Note: This will also apply if the reversionary estate is the subject of an application for first registration.

c) a certified copy of the original lease and/or counterpart lease, if in your possession, or account for its absence

Note: You must lodge current Land Charges searches against the name(s) of the owner (s) of the leasehold estate being determined and account for any entries revealed.

2.1.1.3 Closure of registered leasehold title – reversionary estate unregistered

A registered leasehold title may determine into an unregistered reversionary estate in the land, without triggering the first registration of the reversionary estate . To close the registered leasehold title, you will need to lodge:

a) form AP1 (unless the lease has determined on enlargement into a new freehold estate – see Determination: on enlargement )

c) an examined abstract of the landlord’s title

2.1.2 Incumbrances affecting the determined lease

You will need to consider any incumbrances affecting the leasehold estate being determined and take any necessary action in respect of them.

If a lease is determined by notice, forfeiture or frustration, all incumbrances will normally end automatically with the determination of the lease and can therefore be ignored.

If a lease is determined by effluxion of time, all incumbrances other than any inferior leases will normally end automatically and can be ignored. An inferior lease will continue to subsist if its term is extended by the Landlord and Tenant Act 1954 or Local Government Housing Act 1989.

If a lease is being enlarged, any incumbrances affecting the leasehold estate will normally be carried forward to the new registered freehold title.

If a lease is being determined by merger, surrender or disclaimer, all incumbrances affecting the leasehold estate which is being determined must be dealt with as appropriate:

in the case of incumbrances affecting a registered leasehold title, such as registered or noted charges, restrictions and cautions, these should be either discharged, withdrawn or cancelled, and the appropriate documentation lodged to effect this
similarly, if the leasehold estate is unregistered, any incumbrances, such as a legal charge, which would prevent determination must be either discharged, withdrawn or cancelled, and the appropriate documentation lodged to effect this
where there is a Form A restriction on a registered leasehold title and/or on a registered reversionary title , it will not be possible to determine the registered leasehold title by merger unless you are able to lodge satisfactory evidence that the applicant holds both estates upon the same trusts. Similarly, if the leasehold estate and/or the reversionary estate are unregistered and there is an indication of a trust, you must lodge satisfactory evidence that the applicant holds both estates upon the same trusts
where there is a Form A restriction in the registered leasehold title and the lease is being determined by surrender, the surrender is a ‘disposition’ for the purposes of the restriction. If capital money arises from a premium being paid by the landlord to the tenant and the surrender is by a sole registered proprietor, the disposition is caught by the terms of the restriction and the registered leasehold title cannot be closed
other incumbrances such as subjective easements and restrictive covenants will normally be carried forward to any registered reversionary title , unless they are already substantially repeated on that title

Note 1: Where a lease has been determined by notice, forfeiture or frustration, any inferior leases (meaning any under-leases derived from that lease and any sub-leases derived from such under-leases) will also determine. Where a lease has been determined by disclaimer, see practice guide 35: corporate insolvency . In other cases, an inferior lease which affects the reversionary estate will be noted against any registered reversionary title unless evidence is produced that the inferior lease has also determined and, if the inferior lease is registered, an application is made to close that registered title.

Note 2: Where a leasehold estate is registered with a possessory leasehold class of title, it will not be possible to determine that registered leasehold title unless you lodge form UT1 , or the title is otherwise capable of being upgraded to absolute leasehold title. This requirement arises from the fact that a lease registered with a possessory leasehold class of title may be subject to other unregistered interests which might prevent determination.

Note 3: Where an incumbrance consists of a legal charge, it may be possible to deal with the matter by way of a deed of substituted security, and an application made to register it against a registered reversionary title , as appropriate.

2.1.3 Application fee

Your application should be accompanied by the appropriate fee payable under the current Land Registration Fee Order , see HM Land Registry: Registration Services fees .

2.1.4 Notices

It may be necessary for HM Land Registry to serve notice of the application on any person appearing to be affected by it. HM Land Registry will decide whether such notice is necessary and, if so, will arrange for the requisite notice to be served.

2.2 Method of determination

You will need to consider which method of determination applies to the lease which is being determined. The following sections provide details of the various situations you may encounter on dealing with the determination of a lease, together with details of how you should lodge your application in each situation.

3. Determination: on merger

Merger occurs where a leasehold estate in land, together with the reversionary estate , come into the same ownership and are held in the same capacity. The lease is absorbed by the reversionary estate and thus determined. There must also be a clear intention to merge the estates which means an application should expressly be made for this by the tenant applying for (one of the below):

cancellation of the notice of the lease in form CN1
closure of the registered leasehold title in form AP1
merger of an unregistered leasehold estate as part of an application for first registration of the reversionary estate in form FR1 as applicable

If there is no express application on the application form but the intention to merge is stated in a deed, we will proceed with closure of the leasehold estate only if all the conditions for merger are satisfied. If, in this instance, merger is not possible, for example because there is an encumbrance affecting the leasehold estate but evidence of release has not been lodged, we will not proceed with the merger or seek that evidence.

3.1 Merger of a registered lease in a reversionary estate which is either registered or the subject of an application for first registration

A registered leasehold title may merge into a reversionary estate in the land which is either already registered or the subject of an application for first registration. You may apply for closure of the registered leasehold title if both the reversionary estate and the registered leasehold estate are held by the same owner in the same capacity.

3.2 Merger of an unregistered lease in a registered reversionary estate – cancellation of notice of an unregistered lease from the registered reversionary title

You may apply for cancellation of the noted lease if you can lodge appropriate documentary evidence to prove that both the registered reversionary estate and the unregistered leasehold estate are held by the same owner in the same capacity.

Note: You may also apply for merger on form FR1 if the reversionary estate is the subject of an application for first registration and is subject to an unregistered leasehold estate being determined by merger.

3.3 Merger of a registered lease in a reversionary estate which is neither registered nor the subject of an application for first registration

A registered leasehold title may merge into an unregistered reversionary estate in the land. You may apply for closure of the registered leasehold title if you can lodge appropriate documentary evidence to prove that both the unregistered reversionary estate and the registered leasehold estate are held by the same owner in the same capacity.

3.4 Beneficial easements affecting the leasehold estate

The Court of Appeal held in Wall v Collins [2007] EWCA Civ 444 that an easement must be appurtenant to a dominant tenement, but not necessarily to a particular interest in that dominant tenement. So when a lease is determined on merger, the tenant does not automatically lose any rights which were granted to them or to previous tenants for the benefit of the leasehold property; these easements may continue to exist and to be exercisable by the occupier of the reversionary estate for the period for which they were granted.

HM Land Registry will not automatically enter the benefit of such easements in the registered title to the reversionary estate (if registered). However, you may make an application to register the benefit of such easements in the registered title to the reversionary estate , either at the time of merger or subsequently. You will need to lodge:

form AP1 if the reversionary estate is registered or is the subject of a pending application for first registration
form FR1 referring in panel 5 to the benefit of the easements if application is made at the same time as an application for first registration of the reversionary estate
satisfactory evidence that the easement subsists for the benefit of the reversionary estate

Unless the determined lease to which the easements relate has been registered with title absolute and the easements have been entered without qualification in the register for that title, evidence must be lodged to prove the grantor’s power to have granted the easements – see practice guide 62: easements .

Note: Such an application in respect of an easement in the lease should be distinguished from an application in respect of an easement created for the benefit of the reversionary estate by virtue of the operation of section 62 of the Law of Property Act 1925. See practice guide 62: easements - Implied and prescriptive easements.

3.5 How to make the application

In addition to the documents required as stated in Points to consider on all applications , you should lodge any relevant documentation and make any necessary application to register a transfer or conveyance giving rise to the merger (for example, a conveyance of the reversionary estate triggering compulsory first registration).

4. Determination: on surrender by deed

When a tenant surrenders their lease to their immediate landlord, who accepts the surrender, their lease is absorbed by the reversionary estate and thus determined. A document effecting a surrender of a leasehold estate does not have to describe itself as a deed of surrender, but it must:

be by way of a deed (though if effected by way of another document, it may still take effect as a surrender by operation of law – see Determination: on surrender by operation of law )
contain wording which clearly shows that the tenant is surrendering the lease

Also, the landlord must consent to the surrender. This can be established by either:

the lodging of a letter of consent
the landlord applying to close the registered leasehold title and/or cancel notice of the lease from the registered reversionary title
the deed being executed by both the landlord and the tenant

4.1 How to make the application

In addition to the documents required, as stated in Points to consider on all applications , you must lodge a certified copy of the deed of surrender or other deed effecting the surrender.

4.2 Stamp Duty Land Tax

For the surrender of leases of property in Wales completed on or after 1 April 2018, see Land Transaction Tax .

A surrender of a lease will normally be a ‘transaction’ for the purposes of Stamp Duty Land Tax ( SDLT ). You will therefore need to take the appropriate action depending upon the circumstances of the surrender.

Under SDLT , land transactions fall into three categories:

transactions requiring notification to HM Revenue and Customs and the completion of a land transaction return. HM Revenue and Customs will issue a land transaction return certificate as evidence that SDLT has been accounted for on the transaction notified in the return. You must submit the original certificate or electronic submission receipt to HM Land Registry when registering the transaction
the lease was originally granted for a term of 7 years or more
the chargeable consideration for the assignment or surrender is less than £40,000
the surrender of a lease where the original term granted was less than 7 years and the chargeable consideration for the surrender does not exceed the zero-rate threshold
transactions that are exempt from SDLT

Where an application is made to register a deed of surrender falling within the ‘not notifiable’ criteria described in the second bullet point above, an explanation of the circumstances should be provided, as HM Land Registry may reject any application that fails to include a certificate where one appears to be necessary.

4.3 Land Transaction Tax

Land Transaction Tax (LTT) relates to transactions affecting land in Wales completed on or after 1 April 2018. For transactions affecting land in Wales completed before that date, see Stamp Duty Land Tax ( SDLT ) .

A surrender of a lease will normally be a ‘transaction’ for the purposes of LTT. You will therefore need to take the appropriate action depending upon the circumstances of the surrender.

Under LTT, land transactions fall into three categories:

transactions requiring notification to the Welsh Revenue Authority and the completion of a land transaction return. The Welsh Revenue Authority will issue an LTT certificate as evidence that LTT has been accounted for on the transaction notified in the return. You must submit the original LTT certificate to HM Land Registry when registering the transaction
transactions that are exempt from LTT

5. Determination: on surrender by operation of law

When a tenant surrenders their lease to their immediate landlord, who accepts the surrender, the lease is absorbed by the reversionary estate and thus determined. Sometimes a surrender of lease does not take place by deed but is effected by operation of law, as a result of the actions of the parties. In this instance you must supply satisfactory evidence of the acts which imply surrender – see rule 161(1) of the Land Registration Rules 2003. Note that a surrender by operation of law does not take effect following an action by the tenant alone. If the surrender is by deed, see Determination: on surrender by deed .

Examples of surrender by operation of law might be where either:

the landlord grants a new lease of the same premises to the existing tenant. If the new lease was granted pursuant to section 14 of the Leasehold Reform Act 1967, you must disclose this fact. In a prescribed clauses lease this should be disclosed in clause LR5.2 Note: The extension of the term of an existing lease by means of a deed of variation may take effect as a deemed surrender and re-grant
the tenant gives up possession of the premises to the landlord and possession is then accepted by the landlord
the tenant gives up possession of the premises to the landlord and the landlord then grants a new lease of the premises to a third party with the tenant’s consent

Where an application is based upon a surrender by operation of law, the application must be supported by a statutory declaration or statement of truth (see practice guide 73: statements of truth ) made by a reliable person with full knowledge of the facts. The declaration or statement must:

specify the amount of consideration paid for the surrender (if any)
confirm that no deed of surrender was entered into
if the tenant was occupying the property and has given vacant possession to the landlord, describe when and how the premises were vacated and the keys returned to the landlord
if an under-lessee was occupying the property, contain evidence that the landlord is receiving the rent directly from that under-lessee, such as by producing, as exhibits to the declaration, the counterpart under-lease and a copy of the authority requiring the under-lessee to pay the rent directly to the landlord

There are occasions when HM Land Registry will not require a statutory declaration or statement of truth in support of your application. This will be where either:

the leasehold estate and the reversionary estate are both registered and the application is made by or with the consent of the registered proprietors of both titles, provided the determined leasehold estate is registered with an absolute leasehold or a good leasehold class of title
the landlord grants a new lease of the same premises to the existing tenant

Note: Where a statutory declaration or statement of truth is not required, HM Land Registry will require a letter confirming that no deed of surrender was entered into. The letter can be from either party’s conveyancer .

5.1 How to make the application

In addition to the documents required, as stated in Points to consider on all applications , you must lodge:

a statutory declaration or statement of truth (when required)
any other evidence relating to the surrender, if available, such as a receipt for money paid for the surrender, or an instrument of release of personal liability

5.2 Stamp Duty Land Tax and Land Transaction Tax

See Stamp duty land tax ( SDLT ) and Land Transaction Tax (LTT) .

Additionally, a surrender by operation of law will not require SDLT or LTT evidence where it occurs in the circumstances of:

a new lease of the same property has been granted in consideration of the surrender
a deed of variation of lease takes effect as a surrender and regrant

Note: By virtue of section 43(3)(b) of the Finance Act 2003 a surrender by operation of law is a land transaction for the purposes of SDLT . By virtue of sections 3 and 6(1) of the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 a surrender by operation of law is a land transaction for the purposes of LTT.

6. Determination: by disclaimer

When a person becomes bankrupt or a company becomes insolvent, either a trustee in bankruptcy or a liquidator respectively may, by giving the prescribed notice, disclaim certain onerous property, including leases. This has the effect of determining the leases.

Note: Where the disclaimer is a crown disclaimer of a lease which is bona vacantia, see practice guide 35: corporate insolvency - Crown disclaimer of bona vacantia.

6.1 How to make the application

evidence of either bankruptcy or liquidation (see either practice guide 34: personal insolvency – Registration of the Official Receiver or the trustee in bankruptcy as proprietor or practice guide 35: corporate insolvency – Evidence of liquidation), as applicable
an official copy of the notice of disclaimer

7. Determination: by effluxion of time

A lease for a fixed period or term will automatically determine when the fixed period expires. However, this rule is subject to the Landlord and Tenant Act 1954 and the Local Government Housing Act 1989, which may prolong the term beyond the date it would otherwise end.

Landlord and Tenant Act 1954 applies to most business leases (and Part 1 of this Act may still apply to a long residential lease at a low rent).

Local Government Housing Act 1989 now applies to most residential tenancies (in place of Part 1 of the Landlord and Tenant Act 1954).

Where an application is based on determination by effluxion of time, the application cannot be completed unless it takes account of this legislation (see How to make the application ).

7.1 How to make the application

In addition to the documents required, as stated in Points to consider on all applications , you must lodge the following.

Confirmation that neither the Landlord and Tenant Act 1954 nor the Local Government Housing Act 1989 affect the lease or that it has determined in accordance with their provisions - where determined by notice, a copy of the notice must be enclosed.

Note: Completion of panel 9 of the form CN1 provides this information.

If the tenant of the leasehold estate has an option to renew the lease (which may, for example, be the subject of a notice in the register of a registered reversionary title ), satisfactory evidence that the option has not been, and cannot now be, exercised.

If the lease is in respect of electronic communications apparatus, you should lodge confirmation either that the lease has determined in accordance with the provisions of the Electronic Communications Code (and where determined by notice, a copy of the notice must be lodged) or that the provisions do not apply to the lease.

8. Determination: on forfeiture

A lease containing a proviso for re-entry or ‘forfeiture clause’ may enable a landlord to re-enter the premises and forfeit the lease, either:

because the tenant has not paid the rent

because the tenant has breached some other covenant(s) in the lease, or

on the insolvency of the tenant

The landlord may forfeit the lease by taking court proceedings or by peaceable re-entry.

An interested person may apply to the court for relief from forfeiture. However, this is not in itself a valid ground for objection to an application to HM Land Registry based upon determination on forfeiture.

Note 1: An assured tenancy (including an assured shorthold tenancy) cannot be determined by forfeiture.

Note 2: Before proceeding with an application to give effect to a determination of a lease by forfeiture we will usually serve notice on the tenant and on any chargee. This will mean that there will be a delay before the application can be completed.

Note 3: Section 82 of the Coronavirus Act 2020 contains provisions protecting business tenants from enforcement of rights of re-entry or forfeiture during the relevant periods as set out in the Act. Those periods may be amended by regulations. Therefore, applications where the evidence shows that a right of re-entry or forfeiture for non-payment of rent was enforced during the relevant period will not be accepted. For business tenancies the “relevant period”, as amended, runs from 26 March 2020 until 25 March 2022 for both England and Wales (pursuant to the Business Tenancies (Protection from Forfeiture: Relevant Period) (Coronavirus) (England) (No. 2) Regulations 2021) and the Business Tenancies (Extension of Protection from Forfeiture etc) (Wales) (Coronavirus) (No. 3) Regulations 2021 respectively).

8.1 How to make the application

In addition to the documents required, as stated in Points to consider on all applications , you must lodge the following documents.

If the forfeiture is based on a court order: a certified copy of an unconditional order for possession.

Note: The issue of proceedings does not amount to re-entry for these purposes.

If the forfeiture is based on peaceable re-entry:

evidence by way of a statutory declaration or statement of truth by a reliable person with full knowledge of the facts, proving the facts which, it is claimed, amount to a lawful re-entry on a specified date. This should include details of how re-entry was effected and by whom
if the tenant is a company in administration, the consent of the administrator or the court
whether a formal demand was required and, if so, whether such a demand was made
the amount of rent arrears, how long the rent has been unpaid and confirmation that this was sufficient to trigger the proviso for re-entry
that the landlord served the requisite notice under section 146(1) of the Law of Property Act 1925 upon the tenant on a stated date. If the leasehold estate is not registered, satisfactory evidence that the person served was the tenant must be lodged
in the case of a breach of a repairing covenant, that the service of the notice was known to the tenant, or to an under-lessee where the tenant has only a nominal reversion, or to the person who last paid the rent due under the lease, either on their own behalf or as agent for the tenant or under-lessee, and that a time reasonably sufficient to enable the repairs to be executed had subsequently elapsed – see section 18(2) of the Landlord and Tenant Act 1927
in the case of a breach of a repairing covenant contained in a lease of which three years or more remained unexpired at the date of the notice served under section 146 of the Law of Property Act 1925, that the notice contained the required statement that the tenant was entitled to serve a counter-notice claiming the benefit of the Leasehold Property (Repairs) Act 1938 and did not do so
that the tenant failed to comply with the notice served under section 146 of the Law of Property Act 1925
that no one was residing in the premises or any part of them
if someone was, that they were not lawfully residing there
if the lease is a residential lease, the statutory declaration or statement of truth must establish that the following provisions either do not apply or have been complied with
the end of the time for bringing an appeal against the decision
if the decision is appealed against, the determination of the appeal and the expiry of the time for bringing a subsequent appeal, or the appeal being abandoned or otherwise ceasing to have effect
section 166 of the Commonhold and Leasehold Reform Act 2002 provides that a tenant under a long lease of a dwelling is not liable to make a payment of rent under the lease unless the landlord has given the tenant a notice relating to the payment and the date on which they are liable to make the payment is specified in the notice. The notice must comply with the requirements set out in s.166
section 167 of the Commonhold and Leasehold Reform Act 2002 provides that a landlord under a long lease of a dwelling may not forfeit the lease for failure by the tenant to pay rent, service charge or administration charges unless the amount exceeds a prescribed sum (currently £350), or has been unpaid for a period in excess of a prescribed period (currently three years)
section 168 of the Commonhold and Leasehold Reform Act 2002 provides that a landlord under a long lease of a dwelling may not serve a notice under section 146 of the Law of Property Act 1925 for breach of covenant by the tenant unless the tenant has admitted the breach, or a period of 14 days has elapsed after the appropriate tribunal or a court has determined that the breach has occurred.

Note: Any relevant documentation should be produced as exhibits to the declaration or attachments to the statement of truth

9. Determination of assured tenancies: following a court order

An assured tenancy (including an assured shorthold tenancy) is a tenancy of a home created after 15 January 1989 which meets the conditions of section 1 of the Housing Act 1988. Schedule 1 to the Housing Act 1988 contains exceptions which prevent a tenancy becoming an assured tenancy.

A landlord can determine an assured tenancy only by getting a court order for possession under section 7 of the Housing Act 1988 or, in the case of a fixed-term tenancy, by notice under a ‘break-clause’; it cannot be determined by forfeiture. Because the tenancy is not determined by forfeiture it is not possible to claim relief against forfeiture. Any incumbrances against the leasehold interest will fall when the lease determines.

An assured tenancy will determine when the court order is executed (see section 5(1A) of the Housing Act 1988).

An application to determine a lease by an order for possession made under section 7 of the Housing Act 1988 should be accompanied by:

a certified copy of the court order
the sheriff’s return, or a statutory declaration or statement of truth (see practice guide 73: statements of truth ) confirming that the order has been executed

10. Determination: by notice

A lease for a fixed term may contain an option, usually called a ‘break clause’, allowing either one or both parties to the lease to determine the lease before the expiry of the fixed term. The clause is usually only exercisable by written notice.

10.1 How to make the application

In addition to the documents required, as stated in Points to consider on all applications , you must lodge evidence of the determination of the lease by notice in accordance with the terms of the lease. This can take the form of either:

a copy of the notice receipted by the landlord/tenant to whom it was sent
a certificate by the applicant’s conveyancer stating that a particular notice was served on the landlord/tenant detailing the method and date of service. You should enclose a copy of any notice with the certificate
a statutory declaration by the applicant, exhibiting a copy of the notice served and detailing the method and date of service

11. Determination: on frustration

A lease may be determined by frustration, that is, the occurrence of an unforeseen event that makes performance impracticable. However, the instances in which the doctrine of frustration can apply to determine a lease will be rare. Any application based upon determination on frustration will be considered on its individual facts.

Note: This section relates to the automatic determination of a lease by the doctrine of frustration, and not to the determination of a lease by notice on the occurrence of an event (such as the damage of the premises by fire beyond repair) referred to in a ‘frustration clause’ in the lease.

12. Determination: on enlargement

A tenant who holds the residue of a long lease of land may, under certain conditions, ‘enlarge’ it into a freehold.

To be capable of enlargement, the lease must satisfy all of the following requirements (see section 153 of the Law of Property Act 1925):

the unexpired residue of the term of the lease must have at least 200 years left to run
the original term must have been for at least 300 years
there must be no trust or right of redemption in favour of the freeholder or other reversioner
there must be no rent, or merely a peppercorn or other rent having no money value, or any rent must have ceased to be payable
there must be no right of re-entry for condition broken
the lease must not be a sub-lease out of a lease which is itself incapable of enlargement

Note: A rent of no more than £1 a year, which has not been collected or paid for 20 years or more, is deemed to have ceased to be payable. Evidence by way of statutory declaration should be lodged if this provision is relied on.

On enlargement, the land remains subject to the same trusts and covenants that affected the original lease.

The effect of enlargement on the former landlord’s legal estate is unclear. Accordingly, if the landlord’s title is registered it will not be closed. This means there will be more than one registered freehold estate in the same piece of land.

12.1 How to make the application

In addition to the documents required, as stated in Points to consider on all applications, you must lodge:

form FR1 – whether the lease being enlarged is registered or unregistered (and whether or not there is an existing registered freehold title)

Note: No additional fee is payable on first registration, in respect of the enlargement itself

a certified copy of the original lease, or an examined abstract of the lease, if the original lease is not available

Note: If neither the original lease nor full evidence of its contents is lodged, HM Land Registry may only be in able to grant a qualified freehold class of title, to reflect the possibility that the lease may not be capable of being enlarged

the deed of enlargement (which may have been endorsed on one of the unregistered title deeds relating to an unregistered lease which is being enlarged)
a statutory declaration or statement of truth as to non payment of rent, if applicable

Note: No separate application is required in form AP1 to close the existing registered leasehold title and no separate application is required in form CN1 to cancel notice of the unregistered lease if the reversionary estate is registered.

As enlargement might not be possible, for example, if we are not satisfied on our examination that the requirements of section 153 of the Law of Property Act 1925 have been met, you may wish to consider applying to register any registrable disposition in respect of the existing leasehold estate first before applying separately for enlargement. This could help ensure the registrable disposition is at least completed by registration.

13. Things to remember

Always check that you have:

requested merger, where appropriate, either on form AP1 , form FR1 or form CN1
sent in the correct application form – either form AP1, FR1 and/or CN1
checked if both estates currently are held in the same ownership and same capacity, on an application based on merger
lodged appropriate documentary evidence, such as an abstract of title, where a leasehold estate or a reversionary estate is unregistered, to prove title
dealt with the appropriate SDLT or LTT provisions relating to a determination by surrender
lodged any necessary HM Revenue & Customs or Welsh Revenue Authority forms
ensured all the incumbrances on a leasehold estate being determined by merger, surrender or disclaimer are suitably discharged, withdrawn or cancelled and you have lodged appropriate documentary evidence with your application to account for this
lodged a certified copy and/or counterpart lease
lodged a statutory declaration (where applicable), and enclosed any exhibits referred to
lodged all supporting evidence required
enclosed the appropriate fee (see HM Land Registry: Registration Services fees
Important: please check clerical details in all forms and deeds (especially charges and mortgages) and pay particular attention to all dates, property descriptions, title numbers, and full names of parties, especially where they appear in more than one deed

We only provide factual information and impartial advice about our procedures. Read more about the advice we give .

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What happens if a tenant fails to register a lease at the Land Registry?

What are your obligations when registering a lease?

There are certain circumstances where it is necessary to register a lease at the Land Registry; this includes the following situations:-

The lease has a term of more than seven years
The assignment of an existing lease with more than seven years to run
The grant of a lease that takes effect more than three months after the grant

The obligation to register the lease usually falls on the tenant and such an application for registration must be made within two months of the date of the lease. The lease is there to help protect all parties and if the tenant fails to register a lease, it can leave both in a vulnerable position.

What are the consequences of non-registration of leases?

There are various consequences if a tenant fails to register a lease at HM Land Registry. These consequences include:

The lease will have no effect in law. However, there is an argument that there is an equitable lease. An equitable lease does not have the same security as a registered lease. As a result, any Landlord or Tenant will find it difficult to dispose of their interests in the property, given the insecure position.
There is also a risk that a landlord may be unable to recover any unpaid rent from the guarantor in the event that the tenant fails to pay.
If the landlord wants to sell the property, delays are inevitable if the buyer wants the position to be regularised before they complete.
The landlord may not be able to gain finance on the property as there is no evidence of a steady income stream.

What should a tenant/landlord do to avoid this?

Following completion of the lease, the tenant should ensure that they promptly submit their application to the Land Registry to register the lease.

Any landlord should ensure that the lease puts the tenant under an obligation to register the lease and forward a copy of the title document following registration. It is important for all landlords to make enquiries with tenants to ensure that the lease has been registered accordingly.

We’re here to help with commercial property matters

If you would like advice about tenants who fail to register a lease at the Land Registry or about any commercial property matter, call Beswicks Legal on 01782 205000 or email [email protected] .

Assignment of Lease Explained

December 1, 2023

Understanding the complexities surrounding the assignment of a lease is crucial for both tenants and landlords. Within the UK, various situations might compel a tenant to transfer their lease to another party. In this guide we will delve into the essentials, helping you understand every facet of a lease assignment.

What is an Assignment of Lease?

In the world of property management and real estate, the concept of an “assignment of lease” is fundamental. It involves a tenant, known as the assignor, transferring their entire legal interest in a property to another individual or entity, called the assignee. This process is common in both residential and commercial contexts and plays a significant role in maintaining the fluidity of property interests, especially in a dynamic market.

When a tenant signs a lease, they agree to specific commitments, including paying rent and maintaining the property, which are enforceable for a set period. However, various circumstances may prompt a tenant to vacate the property before the lease term expires. Herein lies the importance of the assignment of lease.

Through lease assignment, the original tenant can exit the property and pass on the responsibility to a third party, who then assumes the role of the tenant with all its incumbent responsibilities. It’s important to note that while the new tenant steps into the shoes of the original tenant, the lease terms remain unchanged.

For instance, if an individual rents a flat and later decides to move out before the lease’s expiration due to reasons such as relocating for a job or changing living situations, they may opt for an assignment of the lease. This strategy allows another person to take over the living space and adhere to the responsibilities under the original lease, ensuring that the flat does not remain unoccupied and the landlord continues to receive rent payments. This seamless transition can be especially beneficial in residential areas with high demand for housing, as it minimises financial instability for the landlord and provides immediate accommodation for those in need of a home.

Key Components of Lease Assignment

Assignor and Assignee: The existing tenant (assignor) and the new tenant (assignee) are the primary parties in this agreement. Their willingness to transfer and assume the lease’s obligations, respectively, drives the assignment process.
Landlord’s Role: While not a direct party to the assignment, the landlord plays a pivotal role. Most lease agreements stipulate that landlords must provide consent before any assignment takes place. This clause protects the landlord’s interests, ensuring the new tenant is reliable and meets the required standards.
Legal Documentation: The process requires several legal documents, including the initial lease agreement and a deed of assignment. The latter must clearly articulate that all rights and responsibilities have been transferred to the new tenant. This precision prevents future disputes regarding the terms of the lease.
Liabilities: The assignment of lease doesn’t inherently absolve the original tenant of responsibilities. Depending on the agreement’s terms, the assignor might remain liable if the assignee fails to fulfil the lease obligations. This potential continued liability underscores the importance of thorough assignee vetting.

The Legal Ground

The legality surrounding the assignment of a lease is rooted in UK property law. It necessitates compliance with various statutory requirements and often involves complex legal procedures. Consequently, parties usually engage solicitors to ensure that the assignment aligns with legal protocols, protecting the interests of all involved parties.

The assignment of a lease is a nuanced process, influenced by factors unique to each situation. Whether prompted by personal, business, or financial changes, lease assignments facilitate flexibility in property occupancy and use. Understanding this concept is crucial for tenants seeking an early exit from a lease, individuals looking for established lease properties, and landlords wishing to maintain continuous tenancy and income streams.

Understanding the Deed of Assignment of Tenancy

A “deed of assignment tenancy” is a legal document that evidences the transfer of lease obligations from the current tenant to another. It is an essential part of the lease assignment process, binding the new tenant to the terms stated in the original lease.

Landlord’s Checks Before Permitting Assignment of a Lease

The assignment of a lease, while beneficial in maintaining continuous occupancy and consistent rent payments, necessitates thorough due diligence on the part of the landlord. Before consenting to an assignment, it’s imperative for landlords to conduct comprehensive checks, mirroring the depth of evaluation done during the initial tenant screening process. These checks are crucial in mitigating potential risks and safeguarding the landlord’s investment.

Detailed Assessment of the Prospective Assignee

Landlords should ascertain the financial stability and reliability of the assignee. This assessment often involves:

Credit Checks: This allows landlords to have a clearer understanding of the prospective assignee’s credit history, highlighting their ability to keep up with regular rent payments and financial commitments.
Employment Verification: Landlords typically require proof of ongoing, stable employment. This verification helps ensure that the new tenant has a consistent income stream capable of covering the rent and other associated costs.
References: Previous landlords or property managers can provide insights into the assignee’s behaviour, paying habits, and overall reliability. Personal references might also be necessary to form a more comprehensive view of the prospective tenant.

Review of the Assignee’s Intent

Understanding the prospective tenant’s reasons for seeking the property and their long-term intentions can provide reassurance. For instance, landlords should feel more comfortable knowing that the assignee plans to reside in the property for an extended period and doesn’t intend to sublet without permission or engage in unlawful activities.

Examination of Financial Documentation

Landlords may request documentation such as bank statements or savings accounts to further verify the assignee’s ability to afford the property. This scrutiny is particularly pertinent in higher-rent areas or for properties with higher maintenance costs.

Ensuring Contractual Compliance

It’s important for the landlord to confirm that the assignee understands and agrees to the terms set out in the original lease. The assignee must comply with all existing conditions, and any deviation needs to be negotiated with and approved by the landlord.

Legal Considerations

Given the legal complexities surrounding lease assignments, landlords often seek legal advice during this process. Lawyers can help ensure that the assignment adheres to local property laws, the original lease’s terms, and that the landlord’s interests are thoroughly protected throughout the transition.

By conducting these comprehensive checks, a landlord exercises due diligence, significantly reducing the likelihood of issues arising from the assignment of the lease. This meticulous approach helps maintain the property’s revenue stream, upholds community standards, and ensures the continued preservation and value of the property investment. It’s a proactive measure, providing the landlord with peace of mind that they are handing over their property to a reliable and responsible assignee.

Costs Involved in Lease Assignment

The process of lease assignment, while a practical solution for tenants looking to transfer their lease obligations, does entail various costs that both the assignor (original tenant) and assignee (new tenant) need to consider. These expenses contribute to a seamless transfer process, ensuring all legalities are properly managed, and all parties are adequately protected. Understanding these costs is essential as it prevents unexpected surprises and allows for a more transparent transaction.

Costs for the Assignor

Advertising Costs: If the landlord does not immediately have a new tenant, the original tenant may need to advertise the property. This could involve online listings, printed materials, or hiring an estate agent to expedite the process, all of which incur costs.
Tenant Screening Costs: The assignor might opt to conduct preliminary screenings of potential assignees, which include credit checks, reference checks, and other background investigations to ensure they’re presenting a reliable tenant to the landlord.
Legal Fees: The legal intricacies of transferring a lease require the involvement of legal professionals. The assignor typically bears the cost for legal consultations, drafting the deed of assignment, and any related legal documentation.
Landlord’s Administrative Fees: Some landlords charge an administrative fee for processing a lease assignment, covering the time and resources they expend to conduct their checks and modify their records.
Potential Liability Costs: If the assignee fails to meet the lease obligations, and depending on the terms of the assignment, the original tenant may remain partially liable. This contingent liability could lead to future costs.

Costs for the Assignee

Security Deposit: It’s standard practice for the new tenant to provide a security deposit before moving in. In some cases, the assignee reimburses the original tenant for the initial deposit, depending on its condition and any agreement between the parties.
Advance Rent: The assignee may need to pay the first month’s rent in advance, similar to standard leasing arrangements.
Legal Fees: Assignees also incur legal fees. They need legal counsel to review the terms of the lease, ensure the assignment is conducted correctly, and understand their new responsibilities and liabilities.
Stamp Duty: Depending on the property’s value and the lease’s remaining duration, the assignee might need to pay Stamp Duty Land Tax (SDLT) on the premium or the rent of the lease.

Shared Costs

In some instances, both parties negotiate and equally share specific costs, such as those for legal consultations, to ensure fairness and mutual satisfaction in proceeding with the transaction.

Both assignors and assignees must factor in these expenses to accurately assess whether a lease assignment is a financially viable option. It is advisable to consult with real estate professionals and legal advisors to understand all potential charges fully. Having a clear, upfront understanding of these costs allows both parties to make informed decisions, ensuring a smooth, transparent, and fair transition process.

Does Assignment Create a New Tenancy?

No, an assignment does not create a new tenancy. It merely transfers the existing tenant’s rights and obligations to the new tenant, who then steps into the shoes of the original tenant under the same lease terms.

The Necessity of Legal Assistance

It is highly advisable to engage a solicitor during the assignment of a lease. A solicitor can provide necessary legal advice, prepare the deed of assignment of lease, and ensure compliance with various property and contract laws.

Deed of Assignment vs Tenancy Agreement

While they might sound similar, a deed of assignment is not the same as a tenancy agreement. The former refers to the document transferring existing lease rights to a new tenant, while the latter is a contract outlining the terms between a landlord and tenant for new occupancy.

Parties Involved in Signing the Deed of Assignment

The deed of assignment of lease is typically signed by the outgoing tenant, the incoming tenant, and sometimes, the landlord, especially when their consent is a prerequisite for the lease transfer.

Landlord’s Consent to Lease Assignment

A landlord can refuse to consent to assign a lease, but this refusal must be reasonable. Scenarios for justifiable refusal might include the prospective tenant’s inability to meet financial commitments or proposed use of the property that violates lease terms.

Lease Assignment vs Subletting

Lease assignment involves the complete transfer of the tenant’s rights to another party.
Subletting occurs when the tenant temporarily hands over the property rights to another party but retains some rights or eventually plans to return.

Financial Responsibilities in Lease Assignment

Typically, the outgoing tenant or the incoming tenant covers the costs related to the assignment of lease, such as legal fees, administrative charges, and any leasehold improvements. The specific arrangements may vary based on mutual agreements.

Assigning a Lease Without a Deed: Is It Possible?

No, a lease assignment must be evidenced by a deed to be legally binding. The deed of assignment tenancy is crucial as it protects the interests of all parties involved and provides legal clarity.

The Meaning of ‘Assignment’ in Rent Context

In the context of renting, ‘assignment’ refers to transferring the existing tenant’s lease obligations and rights to another party. The assignee assumes responsibility for rent payments and adherence to the lease terms.

Advantages of Assigning a Lease

There are several benefits associated with the assignment of a lease, including:

Flexibility for the tenant needing to vacate the property before lease termination.
Minimal interruption in rent payments for the landlord.
Opportunity for another tenant to occupy the premises without having to negotiate a new lease.

Stamp Duty and Lease Assignment

Stamp duty on assignment of lease may apply depending on the premium paid and the lease’s yearly rent. It’s important to consult a solicitor to understand any potential tax implications.

Post-Assignment Liabilities for Tenants

After the assignment of a lease, the original tenant is generally released from future liabilities. However, they may remain liable if the new tenant defaults, depending on specific lease terms or if guarantees were provided.

Essential Documents for Lease Assignment

In the process of a lease assignment, several critical documents must be prepared, reviewed, and signed to ensure a legally binding transfer of rights and responsibilities from the original tenant (assignor) to the new tenant (assignee). These documents are crucial in defining the terms of the assignment, protecting the interests of all parties involved, and complying with legal standards. Here are the essential documents required for a successful lease assignment:

1. The Original Lease Agreement

Before any transfer, all parties must review the original lease. It’s vital to understand any clauses or terms that could impact the assignment, such as conditions requiring the landlord’s consent for any lease transfer.
The original lease agreement serves as the foundation for the assignment, outlining the terms and obligations that the assignee will need to adhere to.

2. Deed of Assignment of Lease

This legal document formally transfers the lease obligations from the assignor to the assignee. It must clearly state the terms under which the lease is assigned, including any continuing liabilities of the assignor, if applicable.
It should be comprehensive, detailing the rights and responsibilities of all parties and any guarantees provided by the assignor.
The deed is usually drafted by a solicitor to ensure that it complies with legal standards and adequately protects everyone’s interests.

3. Landlord’s Consent to Assignment

Most leases require the landlord’s formal approval for any assignment to occur. This document is the landlord’s written agreement, permitting the transfer from the current tenant to the new one.
It may come with conditions the assignee must satisfy, which should be clearly outlined in the consent form.

4. Assignee’s Letter of Acceptance

This document is proof that the assignee understands and agrees to the terms set out in the original lease and the deed of assignment.
The letter may restate key lease terms for clarity and will affirm the assignee’s commitment to abide by all the lease conditions and responsibilities.

5. Legal Advisories

Though not a formal part of the lease assignment, documentation of legal advice received by both the assignor and assignee (and possibly the landlord) is crucial.
These advisories ensure each party has been informed of their legal rights and obligations, potentially offering protection in the event of future disputes.

6. Inventory List

If relevant, an inventory list detailing the condition of the property, especially for furnished rentals, would be necessary. This document helps manage expectations and responsibilities concerning the property’s state and contents at the time of the assignment.

7. Proof of Assignee’s Financial Stability

While not always formally part of the assignment documentation, evidence of the assignee’s ability to meet financial commitments (like bank statements or employment confirmation) often needs to be submitted to the landlord during the assignment process.

The process of assigning a lease is a complex legal transaction that requires strict adherence to procedural standards. These essential documents ensure that the assignment progresses smoothly, with clear understanding and agreement from all parties involved. Both assignor and assignee should seek legal counsel to ensure their interests are protected, and all documents are in order, further underscoring the importance of each document’s role in this pivotal real estate process.

Energy Performance Certificate (EPC) Requirements

Yes, an EPC is generally required for a lease assignment, especially if the building is to be sold or rented out. This certificate ensures that the property meets the necessary energy efficiency standards.

Registering an Assignment of Lease

Registration of an assignment of lease is crucial. It validates the change of tenant under the lease, making it legally binding and enforceable. This process usually involves submitting the deed of assignment to the appropriate land registry.

Timeframe for Assigning a Lease

Assigning a lease can take anywhere from a few weeks to several months, depending on factors like obtaining the landlord’s consent, the new tenant’s credibility, and the speed of legal processes.

Embracing the Benefits of Lease Assignment

Whether you’re a tenant seeking flexibility or a landlord desiring continued occupancy, lease assignment offers solutions that can cater to your individual needs, promoting ease and continuity in the leasing process.

If you’re considering a lease assignment, it’s paramount to seek professional advice to navigate the complexities involved. The information contained in this article should be used for information purposes only and should not be relied upon in place of specific legal advice.

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The Importance of Registering a Lease Assignment in the UK

By Paul Loccisano Senior Associate

Updated on 25 September 2023 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

Assignment

Registering a Lease Assignment

Key takeaways, frequently asked questions.

A cornerstone provision in commercial lease agreements is the lease term. The lease term refers to the time period in which the commercial tenant agrees to occupy commercial premises. Commercial tenants, for a host of reasons, may need to exit their commercial lease sooner than they anticipated. Lease assignment is one of the most common ways for commercial tenants to exit their lease early . Commercial tenants, via this method, obtain their landlord’s consent to transfer the existing lease to another business owner. This article will explain the importance of registering a lease assignment in the UK.

Assignment

Commercial lease assignment is when a tenant transfers their existing lease to a new tenant. The existing tenant is the outgoing tenant or assignor, and the incoming tenant is the assignee. Lease assignment means that the commercial lease does not end but the tenant is merely substituted. The assignee takes on all the outgoing tenant’s lease obligations and enjoys the tenant’s rights in the lease agreement. Ultimately, the incoming tenant will enjoy sole possession of the commercial property as their commercial premises. The incoming tenant will also start making rent payments for the commercial property.

The assignor starts the process of lease assignment. Leases between the outgoing tenant and the landlord which have less than several years before the conclusion of the lease term will need to go through a formal process of assignment. The assignor will need to execute a deed of assignment to transfer the lease to the incoming tenant.

The assignor or the assignee may need to register a lease assignment. The assignor or assignee may be required to register the lease assignment instead of using a deed of assignment. A lease assignment will generally need to be registered in two instances. The assignor will need to register the lease assignment if the commercial lease has seven years or more left on the lease term.

Also, the assignor is required to register the lease assignment if the lease has already been registered with the HM Land Registry Office . They must complete and submit a TR1 form to the HM Land Registry Office for a lease assignment to be valid. Once the Land Registry receives this, they will process the lease assignment and place the incoming tenant’s name as the titleholder to the lease in the Land Register.

Importance of Registering a Lease Assignment

When you enter or exit a commercial lease through assignment, the process of registering the lease assignment is a crucial part of assigning a lease. This is because until this is complete, the assignee is not legally the new tenant for the commercial lease. Therefore, the lease assignment process is not fully complete. The assignor’s failure to register the lease assignment with the Land Registry Office adversely impacts the assignee. Due to the lease assignment process not being legally complete, the assignee has none of the rights usually granted to them in a commercial lease. The assignee will not have the right to sole occupation of the commercial premises. The assignor will also continue to be responsible for all the lease obligations in the commercial lease agreement. Had the lease assignment been validly registered, the assignee would be responsible for the lease obligations thereafter.

It is essential to have a solicitor to see you through the lease assignment process. The outgoing tenant’s solicitor will usually draft the transfer for the Land Registry Office. However, you as the assignee will want your solicitor to confirm the lease assignment is correct and complete.

Land registration is time-consuming. The assignor should register the lease assignment as soon as possible. Legal rules concerning the timeframe for registration of a lease assignment also impact the expediency of registering land. As the assignor, you can only register the lease assignment for up to two months from the lease completion date. The law will deem the lease to be void if not registered within this timeframe. You are then reliant on a discretionary agreement with the Land Registrar. The Land Registrar may extend the timeframe for you to register the lease with the use of an order.

Break Clause Within a Commercial Lease

It is important for the assignor to register the lease assignment with the Land Registry Office. The assignor’s act of registering the lease assignment ensures the law considers the lease assignment process to be complete. Further, the assignor registering the lease assignment protects the incoming tenant’s ability to rely on a break notice provision in the commercial lease agreement. A break clause simply allows the incoming commercial tenant to terminate the lease agreement before the lease term ends. The assignor typically needs to register the commercial lease assignment for the incoming tenant to rely on the break clause.

If the assignor has not registered the lease assignment with the Land Registry Office, the incoming tenant will be left in a precarious position. The assignee may need to end the lease early but cannot rely on the break clause.

This cheat sheet outlines what you should be aware of in your lease agreement.

Lease assignment is where commercial lease transfers from the existing commercial tenant to a new tenant. The assignor must register the lease assignment with the Land Registry Office in two situations. Where the commercial lease being assigned has seven years or more left on the lease term, the lease assignment will need to be registered. Likewise, registration of a lease assignment is required if the commercial lease is registered. Registration of a lease assignment is essential for assigning a commercial lease. Without it, the assignment is not legal, and it is crucial that registering the lease assignment is done within the correct time frame. Registering a lease assignment may also allow the assignee to exercise the break clause in the lease agreement if necessary.

If you need help understanding the importance of registering a lease assignment in the UK, contact our experienced leasing lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page .

Lease assignment is where the existing tenant to a commercial lease, the assignor, transfers it to a new tenant, the assignee. The lease continues between the assignee and the current commercial landlord.

Registering a lease assignment is often part of the lease assignment process and requires a TR1 form to be completed with the Land Registry Office.

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Benefits of Engaging a Property Solicitor When Leasing Commercial Property in the UK

4 Ways to End Your Commercial Lease Early in the UK

Assigning vs Subletting Your Commercial Lease in the UK

Five Key Points a UK Commercial Tenant Should Look Out for When Signing a Lease Agreement

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UK: The importance of registering a lease assignment in the UK

A cornerstone provision in commercial lease agreements is the lease term. The lease term refers to the time period in which the commercial tenant agrees to occupy commercial premises. Commercial tenants, for a host of reasons, may need to exit their commercial lease sooner than they anticipated. Lease assignment is one of the most common ways for commercial tenants to exit their lease early . Commercial tenants, via this method, obtain their landlord's consent to transfer the existing lease to another business owner. This article will explain the importance of registering a lease assignment in the UK.

Commercial lease assignment is when a tenant transfers their existing lease to a new tenant. The existing tenant is the outgoing tenant or assignor, and the incoming tenant is the assignee. Lease assignment means that the commercial lease does not end but the tenant is merely substituted. The assignee takes on all the outgoing tenant's lease obligations and enjoys the tenant's rights in the lease agreement. Ultimately, the incoming tenant will enjoy sole possession of the commercial property as their commercial premises. The incoming tenant will also start making rent payments for the commercial property.

Registering a Lease Assignment

Also, the assignor is required to register the lease assignment if the lease has already been registered with the HM Land Registry Office . They must complete and submit a TR1 form to the HM Land Registry Office for a lease assignment to be valid. Once the Land Registry receives this, they will process the lease assignment and place the incoming tenant's name as the titleholder to the lease in the Land Register.

Importance of Registering a Lease Assignment

When you enter or exit a commercial lease through assignment, the process of registering the lease assignment is a crucial part of assigning a lease. This is because until this is complete, the assignee is not legally the new tenant for the commercial lease. Therefore, the lease assignment process is not fully complete. The assignor's failure to register the lease assignment with the Land Registry Office adversely impacts the assignee. Due to the lease assignment process not being legally complete, the assignee has none of the rights usually granted to them in a commercial lease. The assignee will not have the right to sole occupation of the commercial premises. The assignor will also continue to be responsible for all the lease obligations in the commercial lease agreement. Had the lease assignment been validly registered, the assignee would be responsible for the lease obligations thereafter.

It is essential to have a solicitor to see you through the lease assignment process. The outgoing tenant's solicitor will usually draft the transfer for the Land Registry Office. However, you as the assignee will want your solicitor to confirm the lease assignment is correct and complete.

Break Clause Within a Commercial Lease

It is important for the assignor to register the lease assignment with the Land Registry Office. The assignor's act of registering the lease assignment ensures the law considers the lease assignment process to be complete. Further, the assignor registering the lease assignment protects the incoming tenant's ability to rely on a break notice provision in the commercial lease agreement. A break clause simply allows the incoming commercial tenant to terminate the lease agreement before the lease term ends. The assignor typically needs to register the commercial lease assignment for the incoming tenant to rely on the break clause.

Key Takeaways

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Registering a Lease at the Land Registry

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Assigning a commercial property lease to another business.

In order to grow or react to market conditions your business may need to quickly leave its current premises. If your business rents the premises but there is still time left to run on the lease, what can you do?

A common solution is to transfer your lease to someone else. This process is called ‘assigning a lease’. In this article, we describe how this process operates and what potential problems you may need to overcome. If you need help in this area, our friendly commercial property experts can help.

Traps for the Unwary

How to assign a lease.

‘Assigning’ a lease simply means transferring your lease to another person so that they become the new tenant. Once the assignment has taken place the lease continues to exist and the new tenant becomes liable for all of the tenant’s obligations in the lease.

The first step is to find someone who may want to take over the lease (they are known as ‘the assignee’). Aside from being happy with the rent that is being charged, the assignee will want to review the lease to ensure that it does not contain any onerous or unacceptable terms. This process will be very similar to the one your solicitor carried out when you negotiated the lease in the first place, except that as the assignee will be taking over the existing lease they will have little or no opportunity to change its terms and will therefore have to be happy with it as it stands.

If the lease contains terms which are generally unacceptable in commercial property leases or specifically adversely affect the ability of the new tenant to use the property as they wish, you may have problems in assigning the property. It is therefore worth knowing before you start marketing your lease just what it does or does not allow. For example, it is no good marketing a warehouse to factory owners if it specifically forbids industrial use.

In addition, most tenants will want to carry out the same due diligence process as if it were purchasing a commercial property or negotiating the lease at outset. This usually involves raising queries with the local authority and utility companies as well as finding out about environmental and similar issues. This takes time so do not expect to be able to transfer the lease instantly.

The second step, once an assignee is found and they are happy to take on the lease, is to actually transfer (‘assign’) the lease. Generally this will be done using a Land Registry form known as a TR1 . If the lease is for less than 7 years, then the lease can be assigned by using a deed of assignment. Both these documents have the same effect and will generally be executed by both you as the current tenant and the assignee.

In theory, you can assign your lease to whoever and whenever you like. However, most landlords are not willing to allow the tenant such freedom and therefore write into the lease restrictions on to whom a lease can be assigned and on what basis. In most cases, the landlord will be required to consent to the assignment before it can go ahead. This is where most of the practical problems arise as we explore in more detail below.

When and why to assign a lease

A tenant will generally look to assign its lease when it no longer requires use of the property but there is still some time before the lease comes to an end. For example, your business may have taken a five-year lease, but after two years you need to move. Unless the lease includes break clauses , you would have to continue to pay the rents and comply with the lease terms for the remaining three years of the lease term. By assigning the lease you can dispose or at the very least reduce that liability.

If there is less than a year remaining of the lease to run, it may be more difficult to find someone who wants to take the lease for a short period of time, so in those circumstances it may be worth continuing to trade from the existing property until the lease comes to an end itself.

A few common examples of why you may wish to assign your lease are that:

You may have agreed to sell your business and the structure of the transaction requires the lease to be assigned to the purchasers;
Your business may not be trading as well as hoped and you are unable to keep up with rent payments or you may simply need smaller premises;
You may find that the property is no longer situated in a convenient place and may wish therefore to relocate the business; or
Your business may have grown faster than anticipated and requires bigger premises from which to trade.

Is a licence to assign needed?

Most landlords are primarily concerned with the income they earn from the properties they rent out. It is important to them that the tenants they rent to:

Are able to pay the rent in full and on time;
Keep the property in a good state of repair so that the property can be easily relet when the tenant leaves; and
Behave in such a way as not to adversely affect the landlord’s ability to rent other properties it may own nearby.

It is for this reason that most landlords will seek to control who you can assign your lease to and prevent you from assigning your lease without your landlord’s consent.

Whether your landlord’s consent to an assignment (by way of a licence to assign) is required depends on the terms of the lease you are seeking to assign. Most leases will have some restrictions. It is only if the lease does not include any restriction on assignment, or includes restrictions but no requirement to obtain the landlord’s consent to an assignment, that no licence to assign will be required.

Although the detailed provisions can look intimidating, most assignment clauses simply require the landlord to agree that it believes the assignee to be able to meet its obligations and if it does so to formally consent to the assignment. The landlord is also usually required by statute not to unreasonably withhold or delay giving that consent. A licence to assign is the document used to evidence that the landlord has granted its consent to an assignment as required.

Note: if you feel your landlord is not co-operating, you should explore the options for tenants in our article on landlords unreasonably withholding consent .

You should ask for the landlord’s consent as soon as possible so as not to delay matters, as the landlord only has to deal with your request within a reasonable time and even then only once you have provided all the information the landlord needs in order to reach its decision on whether or not to give its consent. This may evidence of your assignee’s good standing such as bank and previous landlord references, and copies of audited accounts and bank statements.

If your proposed assignee is not of sufficient standing to satisfy the landlord consent may be granted if the assignee agrees to provide a guarantor for its liabilities or a rent deposit that can then be used if it fails to pay. What the landlord is permitted to insist on will depend on the specific wording of the lease and the specific set of circumstances.

You should also be aware that most landlords will insist that whatever the financial state of the assignee, you, as the outgoing tenant, will be required to guarantee the assignee’s obligations under the lease by what is called an authorised guarantee agreement. You should not make the error of assuming that by assigning your lease you can just walk away from any responsibility. The one thing that the law requires you to is to find someone who can pay the rent and comply with the lease terms. If you do not do this, then the landlord will most probably be able to recover any arrears from you.

If your lease expressly prohibits assignments without containing a requirement for consent to be given by the Landlord, then the starting point is that you cannot assign it at all. However, the landlord may still agree to an assignment taking place. This would still be documented by way of a licence to assign but in this case, the landlord would be under no obligation to grant its consent even if it would be reasonable to do so or to act promptly when considering your request to give that consent.

Actual assignments and virtual assignments

Most transfers of the ownership of a lease are carried out by an ‘actual assignment’ where the tenant assigns its interest in the lease to an assignee as explained above.

In a few cases you may seek to use a virtual assignment whereby you remain liable under the terms of the lease, but enter into a contract with a third-party transferring the economic benefits and burdens of the lease, without actually assigning the lease itself. These can be used when the lease contains overly restrictive assignment clauses. You could, for example, declare a trust or enter into a contract in favour of a third-party, effectively transferring the economic benefits and burdens of the lease to them. However, beware of clauses in the lease which prevent this sort of arrangement.

If a tenant is a company and the shares in that company are transferred to someone else, then the lease would remain unaffected and the tenant would still be the company. Although not strictly a virtual assignment this change of ownership can be a concern to some landlords and as a result, some leases include express provisions restricting changes in the shareholding of the tenant company. However, they are unusual and arguably onerous.

Registering an assignment

If the lease is registered at the Land Registry or has more than 7 years of its term remaining, and you are the assignee, you must register the assignment at the Land Registry. The Land Registry will then process the application and update the title register for the lease so that it is in your name.

It is very important that the assignee does indeed register the lease as, until it does, the assignment is not fully complete and legally you have not yet become the tenant. This has practical implications as, depending on the wording of the lease, you may not be able to serve a valid break notice until it is registered at the Land Registry. As registration can in some circumstances take a long time, you may find yourself unable to end the lease when you expected. If you forget to register you are unlikely to complete your registration in time to take the steps you need to take.

If you do not apply for registration within 2 months of the date of completion of the lease, the lease becomes void and can only be registered is the Land Registrar agrees to make an order extending the 2 month period.

In addition to registering the lease with the Land Registry most leases include an obligation to notify the landlord that an assignment has taken place and to send them a copy of the assignment document and pay them a fee for noting the transaction. Sometimes the lease sets out the specific notice fee, but more often than not the lease merely sets out a minimum fee. In theat case, you should ask the landlord to confirm the notice fee before completing the assignment.

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The effect of an assignment on a lease

In most cases, once a lease has been assigned, the assignee steps into the shoes of the tenant and all the rights and duties that the previous tenant had pass over to the new tenant. Occasionally there are rights in the lease which are personal to the original tenant. Again, this often affects the break clause. If the right to end the lease early is personal to the original tenant, you cannot do so if the lease is assigned. In such circumstances it may be better to sublet the property rather than assign the lease itself.

As most leases require the previous tenant to guarantee the performance of the new tenant, the assignment also has the effect of rearranging the liabilities for payment of the rent. Any previous guarantor under an authorised guarantee agreement will have been automatically released by the assignment and rent deposits may become repayable by the landlord.

Assignment v sub-letting

Is it preferable to assign a lease or sub-let it (retain your lease but grant a lease of the property for a slightly shorter term to another party)? The answer very much depends on your specific requirements and the particular circumstances.

Assigning the lease means that you no longer have any interest in the property. It is quite common that a tenant will still remain ‘on the hook’ for the lease obligations after an assignment, as the landlord will likely have insisted that they enter into an authorised guarantee agreement to guarantee the assignee complies with the lease. However, a landlord will not always insist on an authorised guarantee agreement and, even if one is in place, the obligations on it cease if/when the assignee assigns the lease itself to another party. Therefore, most tenants regard an assignment as the best option where they have no current use or interest in the property and do not think they will do at any point in the future.

As already noted you may have to keep the lease in your name if you wish to rely on any personal rights in the lease by granting a sub-lease. This will allow you to retain your interest in the lease, but it also means that you are still liable to pay the rents due under the lease and comply with all of the lease obligations. As the sub-tenant is likely to be in occupation of all or part of the property, you must manage them to ensure that the sub-tenant does not place you in breach of your duties under the lease.

Other reasons for sub-letting include:

Using the sub-lease as an income stream.
If you think you may wish to use the property later.
If you want to dispose of only part of the property and keep the rest for your own use (most landlords are extremely unlikely to allow you to assign part only of your lease).

Transfer of the landlord’s interest in the building

Only a tenant can assign the lease. If the landlord wishes to dispose of its interest in the lease it does so by selling the freehold interest in the building to a new party who then automatically becomes the landlord. Subject to your receiving proper notification you are then required to pay the rent to the new building owner. If you intend to serve a notice (e.g. bringing the lease to an end or requesting a new lease) make sure that you serve the title on the legal owner otherwise you may find your notice to be of no effect. Beware the registration gap mentioned above. You may think that your apparent landlord is the legal owner but legally he may not be.

In addition to the points set out above that relate to the terms of the lease, there are other issues which can cause difficulties when trying to assign it. These include:

In any circumstance where the landlord is required to consent to a transaction, make sure that all your rent and similar payments are up to date as often leases state that no consent will be given if payments are outstanding.
The Minimum Energy Efficiency Standards (MEES) Regulations mean that you cannot assign your lease (or sublet it) if the Energy Performance Certificate (EPC) (most likely provided by your landlord when you took the lease) has expired. You cannot even market the property without providing an EPC.
While they may not actually prevent an assignment, breaches of health and safety law or fire safety regulations or the rules around monitoring and managing asbestos may cause delays or scare your assignee away. If compliance with the rules is your responsibility under the lease, your landlord may refuse to consent to the assignment until you do so.

About our expert

Samantha Paxton

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