Common lease clauses - disposals of a tenant's leasehold interest
Leases often permit Tenants to 'dispose' of their interest in the lease in specified circumstances and under certain conditions. These clauses are commonly known as 'alienation' provisions.
We set out the ways in which a tenant can dispose of their interest in a lease and what this means.
Assignment
An assignment is a transaction whereby a tenant can transfer their interest in a lease to another person. An assignment is not the termination of the lease and regranting to a new tenant, instead the lease continues as it was originally drafted but the role of the tenant vests in another person.
In general, leases permit tenants to assign the whole of the leased premises with the prior consent of the landlord and assignments of part of the leased premises are prohibited. Where landlord's consent is required, this will be subject to a condition that such consent must not to be unreasonably withheld or delayed.
A landlord can impose conditions on the grant of their consent to an assignment and these conditions will need to be agreed with the tenant. One of the most common conditions is the provision of an authorised guarantee agreement (AGA). This is an agreement under which the current tenant will guarantee the performance of the incoming tenant. If the incoming tenant fails to perform any of its obligations under the lease the landlord will have the ability to pursue the former tenant under the AGA. These obligations include maintaining the premises and paying the rent.
On assignment a landlord should not be put in a worse position that it was under the original lease i.e. by having to accept a tenant of worse covenant strength. It should equally though not use the assignment of a lease to obtain an artificially stronger position by imposing unreasonable conditions on the grant of their consent to the assignment.
We recently covered the conditions which may be imposed when a landlord receives a request for consent to a lease assignment.
It is common for leases of GP premises to contain provisions which allow the lease to be assigned to continuing partners of the tenant partnership without the prior consent of the landlord. This is usually subject to conditions such as the continuation of rent reimbursement and there continuing to be a minimum number (usually between 2-4) of GPs named as tenant of the lease.
Underletting
Underletting involves the tenant granting a sub-lease of the leased premises to an undertenant (or subtenant). It sometimes helps to think of the tenancies as layers; when a tenant underlets their property there is another "layer" of lease created.
The landlord becomes known as the superior landlord, and the tenant of the superior lease is the landlord for the subtenant.
Generally underletting of whole of the leased premises is permitted with landlord's consent. As with assignments, the landlord must not unreasonably withhold or delay their consent. Depending on the nature of the property it may be that a tenant is also able to underlet a permitted part of the leased premises, although underletting of part is often prohibited.
Generally there will be conditions on the terms of the underlease including that the underlease must expire prior to the end of the lease, that it must be excluded from the security of tenure provisions of the Landlord and Tenant Act 1954 and that it should contain similar covenants and conditions as those contained in the superior lease.
Sharing occupation
A lease will generally allow a tenant to share occupation of the premises with a group company provided that no relationship of landlord and tenant is created and such sharing will end at any time the occupant ceases to be a group company.
Arrangements enabling tenants to share occupation of the leased premises with other healthcare bodies and providers of ancillary healthcare services are likely to be present in leases of GP premises. Such arrangements may be documented on the basis of flexible licences to occupy or tenancies at will.
If you are considering granting a licence to occupy at your premises, we have recently launched a self-service licence to occupy which is available to download.
Pre-emption
When granting a lease, a landlord should consider whether they require the tenant, prior to assigning or underletting the whole of the property, to first offer the premises back to the landlord. This gives the landlord greater control over who occupies the premises as it would allow the landlord to take back the premises and agree its own lease directly with a new tenant.