Where the property being purchased is leasehold, that is the buyer is to take an assignment of an existing lease, a number of additional considerations arise, of which the most significant are set out below.

Title

There are two separate aspects of the title, namely the seller’s title to the leasehold property and his landlord’s title to the reversion immediately expectant upon the determination of the lease (and if this reversionary title is not also the freehold interest in the property, the superior reversionary title(s) may also be relevant).

Where the leasehold title is registered with title absolute, deduction and investigation of title will be identical to that in relation to a freehold property, except that in addition to the entries on the registers of title, the lease itself (together with any documents supplemental to it, such as deeds of variation, licences to assign, licences for alterations, etc.) will form part of the title. There is no need to investigate any superior title – the fact that the property is registered with leasehold title absolute means that the landlord’s title (and that of any superior landlord) has been checked and is guaranteed by the Land Registry, and any relevant entries on the registers of the superior title(s) will be set out in the registers of the leasehold title.

Where, however, the leasehold title is registered with good leasehold title, the buyer, although able to rely on the ownership of the leasehold property by the person registered as proprietor of the property at the Land Registry, cannot rely on the title to the immediate or, if relevant, any more distant reversion. Accordingly, the buyer will want to see title deduced to the immediate reversion and, if that is not the freehold interest in the property, to any superior reversions up to and including the freehold reversion, in order to ensure that the lease was properly granted by the person entitled to grant it and also in order to find out what matters affect the property (such as restrictive covenants, easements, etc.) since these will be binding on the buyer even though they are not noted on the leasehold title to the property.

Where the leasehold title is unregistered, the buyer will need to investigate both the seller’s title to the lease (which will normally be very straight-forward, consisting simply of the lease itself, together with any assignments, licences to assign and notices of assignment) and the title to the reversion (as in a case where the leasehold title is registered with good leasehold title) .

Where the leasehold title is unregistered, but will be subject to compulsory registration on completion of the assignment to the buyer, the buyer should ensure that he will be able to comply with any requirements of the Land Registry on first registration. In particular, the Land Registry have stringent requirements in relation to plans of the property, and if the original lease plan does not satisfy those requirements, it may need to be substituted, which will require the co-operation of the landlord as well as the seller and the buyer.

Landlord’s Consent

If the lease contains a covenant prohibiting assignment, or requiring the landlord’s consent to be obtained before an assignment takes place, the seller will need to obtain the landlord’s consent before assigning to the buyer. If he does not, the assignment of the lease will (subject to what is said below in relation to the landlord unreasonably withholding consent to assign) be a breach of a tenant’s covenant, entitling the landlord to forfeit the lease, and accordingly it will be very much in the interests of the buyer that the necessary consent is obtained.

It is normal in a commercial lease for the landlord’s consent to be required to any assignment of the lease, except in a very long lease. However, it is relatively unusual in a long residential lease for the landlord’s consent to be required to assign the lease, except in the last few years of the term. In each case, the lease will need to be carefully checked and any specific obligations relating to assignment and consent for assignment carefully complied with.

Where the landlord’s consent is required for an assignment of the lease, but such consent must not be unreasonably withheld, the parties may consider proceeding with the assignment notwithstanding that the landlord’s consent has not been obtained. If the withholding of consent was indeed unreasonable, there will be no breach of the tenant’s covenant in relation to assignment, and accordingly the landlord will be unable to forfeit the lease. However, there is generally at least some uncertainty as to whether or not the landlord is acting unreasonably in withholding consent. For this reason, it would be most unwise for a buyer to proceed with the taking of the assignment without the landlord’s consent being given (or a declaration being made by the court that the landlord is indeed acting unreasonably), particularly where he is required to pay a premium for the assignment, since he runs the risk of the lease being forfeited (in which case he will not be able to recover his premium).

The conditions of sale normally provide for the seller to apply for landlord’s consent and for either party to be able to rescind the contract if the consent is not forthcoming after a specified period. This is generally acceptable in the context of a commercial lease, but when dealing with a residential lease where landlord’s consent is required for the assignment, it is generally preferable for exchange of contracts to be delayed until confirmation is forthcoming that the landlord is going to consent to the proposed assignment.