Transfers and assignment

The fundamental objective of the Land Registration Act 2002 (LRA 2002) is 'total registration', where the register of title provides a complete and accurate reflection of the state of the title to the land at any given time. To that end, LRA 2002 requires first registration on:

• 1

  the transfer (except by operation of law) of a qualifying freehold estate

• • for valuable or other consideration

  • by way of gift or under a court order, or

  • by means of an assent (including a vesting assent)

• 2

  the transfer of an unregistered legal estate in land in circumstances where there is a disposal by a landlord which leads to a person no longer being a secure tenant

• 3

  the grant out of a 'qualifying estate' of an estate in land (except to a mortgagee)

• • for a term of years absolute of more than seven years from the date of the grant, and

  • for valuable or other consideration, by way of gift or under a court order

• 4

  the grant out of a qualifying estate of an estate in land for a term of years absolute to take effect in possession more than three months after grant

• 5

  the grant of a lease under Part V of the Housing Act 1985 out of an unregistered legal estate in land

• 6

  the creation of a protected first legal mortgage of a qualifying estate

In April 2009, amended Land Registration Rules added two new triggers for compulsory first registration:

• the appointment of a new trustee of unregistered land held in trust where the land vests in the new trustee by deed or by a vesting order under the Trustee Act 1925, s 44, and

• the partitioning of unregistered land held in trust amongst the beneficiaries of the trust

The Land Registry prescribes a range of forms for use when transferring registered land. Although 'old form' conveyances can still be used for a transaction that will trigger compulsory first registration, best practice is to use the Land Registry forms on a voluntary basis for those transactions.

The buyer of an unregistered freehold has a statutory duty to apply for registration. Failure to register means that the buyer receives only an equitable title. Legal title goes back to the seller and is held on bare trust for the buyer. The buyer's risk is that a fraudulent seller could transfer the land elsewhere, leaving only an action for breach of trust.

Lease assignments

Unless the lease contains specific restrictions a tenant is free to assign or deal with it in any way. Some leases absolutely prohibit assignment. Most restrict the tenant's ability to assign without the landlord's consent. Where landlord's consent is required, statute provides that it must not be unreasonably withheld and imposes a duty to give consent within a reasonable time unless the landlord can give good written reasons for refusing. If a landlord unreasonably withholds or delays consent he will be in breach of statutory duty and may be required to pay exemplary damages.

Conditions and circumstances

For 'new' leases (granted after 1 January 1996) the Landlord and Tenant (Covenants) Act 1995 (LT(C)A 1995) allows the landlord to specify circumstances in which consent may be withheld or conditions subject to which consent will be given.

A landlord who relies on the specified circumstances or imposes the specified conditions is protected from any claim that consent has been unreasonably withheld or delayed.

Commonly specified circumstances include unsatisfactory financial strength of the assignee or registration outside the UK which could lead to difficulties in enforcing judgments. Consent is often given on the condition that the outgoing tenant provides an authorised guarantee agreement to secure performance of tenant covenants by its assignee. Where no circumstances or conditions are specified the landlord may still withhold consent if it is reasonable to do so.

A landlord can include a condition requiring the tenant to offer a surrender of its lease. While effective as a condition precedent to an application for consent, an 'offer back' clause contained in a business lease cannot be enforced unless the correct Landlord and Tenant Act 1954 procedures are followed.

Fines and 'collateral advantage'

Where the lease permits assignment with the consent of the landlord s 144 Law of Property Act 1925 prevents the landlord from demanding any payment over and above his reasonable costs as the 'price' of consent. Common law also prevents the landlord from obtaining a 'collateral advantage' in return for his consent. The landlord cannot demand payment of a 'fine' or 'premium', or variations to the lease such as the introduction of a landlord's break option.

Land registration

For registered leases legal assignment takes place only when registered at the Land Registry. Until registration occurs the assignment has effect only in equity. LT(C)A 1995 defines 'assignment' to include equitable assignment. This means that for 'new' leases, unless the assignment is in breach of the lease restrictions, the outgoing tenant will be released from tenant covenants, and the assignee will become bound by them, but legal title will remain with the outgoing tenant. To address this problem it is usual to oblige the outgoing tenant to ensure that the assignment is registered.

Under LRA 2002 the assignment of an unregistered lease with more than 7 years unexpired triggers compulsory first registration.

Unintended assignments

If a tenant grants an underlease the term of that underlease must be shorter than the headlease. If the underlease ends on or after the expiry date of the lease it will take effect as an assignment regardless of the parties' intentions.

The effect of assignment

For 'old' leases (granted or agreed to be granted before 1 January 1996) the original tenant remains liable to the landlord throughout the term, no matter how many assignments take place, and must rely on indemnity covenants from the assignee. The same is true of an assignee who gave direct covenants to the landlord.

For 'new' leases (granted on or since 1 January 1996) assignment automatically releases the tenant (and any guarantor) from all tenant covenants. The burden of those tenant covenants, and the benefit of landlord covenants, passes to the assignee.

Where a 'new' lease is assigned in breach of a valid restriction, the benefit and burden of covenants pass to the assignee but the former tenant is not released until the next permitted assignment.

For both 'old' and 'new' leases former tenants (and their guarantors) who remain on the hook will not be bound by variations made after their assignment which impose additional or greater liabilities.

Stamp duty land tax (SDLT)

Premiums are usually paid for the assignment of long leases, but not for shorter 'rack rent' leases. Where a premium is paid it is assessed for SDLT purposes in the same way as the sale price for a freehold transfer.

SDLT can become payable on the assignment of a lease even where no premium is paid. Finance Act 2003 includes 'clawback' provisions which apply where certain reliefs (such as group or charities relief) were claimed on grant of the lease. The subsequent assignment of those leases may be treated as the 'notional' grant of a new lease, requiring SDLT to be calculated on the rent payable for the remainder of the term.