What is Alienation?

Jul 14, 2020

‘Alienation’ is the right granted in a lease for a tenant to assign, sublet, or share occupation of their property. This is an important factor for tenants when negotiating leases and so this guide will discuss the main alienation provisions in a lease from a tenant’s viewpoint.

Assignment

Assigning (or transferring) a lease is the method by which a tenant disposes of the remainder of their leasehold interest in the property to a purchaser. This will often arise where a lease is no longer suitable for their needs or if the tenant is looking to sell their business.

The landlord will exercise close control over the assignment and their formal consent will be needed. The Landlord’s consent will be granted via a Licence to Assign and they can also impose conditions on assignment. For example, the outgoing tenant may be required to provide an authorised guarantee agreement (“AGA”), guaranteeing the purchaser’s performance of the obligations in the lease.

Subletting

Subletting allows the tenant to grant a sublease of either the whole or part of the property to a new tenant. The tenant may either stay in occupation (a sublease of part) or will give up occupation of the whole property to the undertenant (sublease of whole). Again, the landlord may impose conditions on the underletting, such as the existing tenant giving a guarantee for the sub-tenant or the sub-tenant providing their own guarantor to the landlord.

The sublease must be for a term shorter than the lease (usually a couple of days less) and incorporate all the terms of the head lease. The head lease will set out all the conditions which must be complied with and often prescribes the form the underlease should take.

The Tenant should be aware that they will remain liable for terms of their existing lease throughout the term of the underlease.

Sharing occupation

A lease will typically prohibit sharing of the property except where expressly permitted. One of these permissions is the ability to share occupation with group companies. A group company will usually a subsidiary or parent of the original tenant.

Leases will require that there is no landlord and tenant relationship created by the sharing relationship and if one ceases to be a group company then the sharing must end.

Key considerations

Landlord’s consent

The Landlord and Tenant Act 1927 restricts provisions in a lease where the landlord requires consent to assign or sub-let. The landlord is bound such that their consent should not be unreasonably withheld.

Negotiation

As many leases will prevent alienation except in the certain listed circumstances, tenants should consider alienation provisions at the outset of negotiations and ensure their choices for the future are as flexible as possible. The aim being to avoid situations where tenants are unable to dispose of their leasehold interests.

If you require further advice regarding assignment, subletting, sharing occupation or any other Real Estate matter, please contact Daniel York in our Real Estate department. You can also email your query to realestate@herrington-carmichael.com, call 01276 686222 or visit https://www.herrington-carmichael.com/.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

By Daniel York

Partner, Property Law

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