What is alienation?

Alienation is the term given to dealing with a lease. The most common types of alienation are assignments (selling the lease) and underletting. However any sort of dealing falls within this term, so it also captures sharing occupation with another party, granting a licence to occupy or a concession and charging the lease to a lender.

Restrictions on alienation.

Leases frequently contain restrictions on alienation. Typically, the shorter the lease, the tighter the restrictions. A lease of 1 year might prohibit all alienation, while a lease of 200 years might only prohibit assigning part of the premises. A lease of, e.g., between 5 and 15 years will often contain the following restrictions:

• An absolute prohibition on assigning, underletting or charging part of the premises.
• An absolute prohibition on sharing possession or occupation of the whole or any part of the premises with a third party.
• A condition that assigning, underletting or charging the whole of the premises requires landlord's consent.
• Sharing occupation with a group company is permitted without consent, with certain restrictions.

Particular issues with different types of alienation

Assignment

• Where a lease permits assignment at all, it will usually require landlord's consent as a precondition. Tenants will always want that consent 'not to be unreasonably withheld or delayed'. But what if there is no reference to unreasonable delay? What if the lease simply states that landlord's consent is required?

Help is at hand for tenants from two pieces of legislation the Landlord and Tenant Act 1927 (LTA 1927) and the Landlord and Tenant Act 1988 (LTA 1988).

Section 19(1) of the LTA 1927 provides that where a lease specifies that landlord's consent is required to an assignment, the landlord is not permitted to unreasonably withhold that consent.

The LTA 1988 further provides that where landlord's consent cannot be unreasonably withheld, the landlord must give consent unless it is reasonable not to do so and must give consent within a reasonable time. 'Reasonable time' depends on the circumstances in each case, but is accepted as being days or weeks, not months.

• If the tenant is a traditional partnership (as opposed to an LLP) then care needs to be taken in considering the assignment provisions, particularly for longer leases. In traditional partnerships, up to four partners will sign the lease as tenant on behalf of the partnership. Those partners will be personally responsible for complying with the tenant's covenants in the lease.

If one of those partners retires, they will nevertheless remain bound by the lease until the lease is assigned to new tenants. The tenant will therefore want the lease to be drafted so that in these circumstances landlord's consent is not required for an assignment between partners. A landlord will want protection in these circumstances, e.g. requiring there to be a minimum number of partners who are signed up as tenants.

Underletting

If a tenant wishes to dispose of their lease, particularly if the tenant is of very good financial standing, a landlord might be more willing to consent to an underlease than an assignment. This is because the tenant remains liable to landlord under the terms of the tenant's original lease, even after the underlease is granted.

The provisions of the LTA 1927 and the LTA 1988 mentioned above relating to consents to assign also apply to consents to underlet.

Group Sharing

Leases often permit the tenant to share occupation of the premises with another member of that tenant's group. There are different definitions of 'Group Company' that can be used but generally they restrict such sharing to other companies or (possibly) LLPs. If your group is more complex, e.g. including a mixture of companies and traditional partnerships, bespoke drafting will be required.

Other types of alienation

In leases of larger premises, particularly department stores or other large shops, the tenant may want to share occupation with concessionaires. In property legal terms, a concession will be documented by way of a licence to occupy. The landlord will almost certainly require various controls over the identity of concessionaires and how the concession is documented. Any such requirements should be discussed by the landlord and tenant at heads of terms stage.

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