- Licence to Assign: An Overview
Legal Assistant Olivia Foster, in our Commercial Property team, provides an overview of Licence to Assign.
A licence to assign is a Landlord’s permission for a tenant (the Assignor) in occupation under a lease to assign the lease to a new incoming tenant (the Assignee). It should be noted that this permission does not necessarily need to be in a formal deed. Therefore, Landlords and Agents should be mindful of falling into the trap of granting permission through correspondence, thereby inadvertently granting consent without the Assignor and Assignee having to comply with the required conditions such as providing a guarantee or rent deposit. In Aubergine Enterprises Ltd v Lakewood International Ltd (2002) it was held that consent to assignment was contained in correspondence even if was stated to be “subject to licence”.
Landlords are provided with some comfort in that if the lease contains a provision that consent must be given by deed, then this is the only way in which permission to assign can be granted. In this instance, the Landlord, Assignor and Assignee (and Guarantor if required) will be a party to the licence, which will usually be prepared in triplicate and a copy provided to each party on completion.
The licence will contain several covenants, for example a covenant between the Assignee and Landlord to observe and perform the covenants contained in the lease. The Assignor may covenant to pay the landlord’s legal costs in connection with the licence and covenant not to allow the Assignee to take occupation of the premises until completion of the assignment.
Under Section 19(A) of the Landlord and Tenant Act 1927 the Landlord should not unreasonably withhold consent to the assignment of the lease. If however, the lease contains provisions such as that the Assignor must not be in arrears and/or in breach of any covenants of the lease then the Landlord is entitled to withhold consent until these obligations have been complied with. The licence should incorporate a right of re-entry clause allowing the Landlord to forfeit the lease owing to a Tenant’s breach of covenants in the licence.
A Landlord will often want the licence to include an indemnity clause whereby the Assignor and the Assignee will indemnify the Landlord against all liabilities, losses, costs incurred and damages arising out of the licence. An Assignor however is likely to want to limit the indemnity to reasonable costs and expenses, properly incurred and to their own breaches.
Finally, the permission under a licence to assign typically remains valid for 3 months following completion of the licence, during which time the Assignor and Assignee will assign the lease. If assignment does not take place within the specified time then the licence will cease to be valid and the Assignor will have to start over again.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.