Assigning a business lease: the landlord’s consent, the authorised guarantee agreement and SDLT

Does a tenant need the landlord’s consent to assign?

Usually, yes, if the lease requires it. Section 19(1)(a) of the Landlord and Tenant Act 1927 provides that where a lease requires “licence or consent” to an assignment, that requirement is subject to a proviso that the licence or consent “is not to be unreasonably withheld”. The landlord may still require payment of “a reasonable sum” for its legal or other expenses in connection with the licence or consent (section 19(1)(a)).

The statutory duty is set out in section 1 of the Landlord and Tenant Act 1988, which applies to covenants against assigning, underletting, charging or parting with possession of the premises that are qualified, that is, where the tenant needs consent. Both section 19 of the 1927 Act and section 1 of the 1988 Act apply only to qualified covenants. If the lease forbids assignment absolutely, with no route to consent, neither statute makes the landlord give it (section 1(1), section 19(1)).

Can the landlord refuse, and what must it do?

A landlord may refuse, but only reasonably. Once the tenant serves a written application, the landlord owes a duty to the tenant to decide within a reasonable time, and to serve written notice of its decision (section 1(3)). The statute sets no fixed period for “a reasonable time”. The burden of showing that consent was given, that any condition was reasonable, or that a refusal was reasonable, is on the landlord (section 1(6)). The table summarises the duty.

What if the lease already agrees the grounds for refusal?

For a qualifying lease, the landlord and tenant can agree in the lease the circumstances in which the landlord may withhold consent, and any conditions on which consent may be given. If the landlord withholds consent on a ground in that agreement, and the ground exists, it is not treated as unreasonable. The same applies to conditions agreed in the lease (section 19(1A)). Section 19(1A) also limits the 1988 Act duty for a qualifying lease, because the agreed grounds and conditions are treated as reasonable.

A “qualifying lease” is a new tenancy for the purposes of section 1 of the Landlord and Tenant (Covenants) Act 1995, other than a residential lease (section 19(1E)). Check whether your lease is one, and read the agreed grounds, before you rely on them.

Can the landlord require an authorised guarantee agreement?

Yes, if the condition is lawfully imposed. Section 16(3) of the Landlord and Tenant (Covenants) Act 1995 describes an AGA given where consent is given subject to a lawfully imposed condition that the tenant enters into it, but it does not itself say when a condition is lawful. For a qualifying lease, the parties can agree the condition in advance under section 19(1A) of the 1927 Act. That agreement is an authorised guarantee agreement (AGA) if the tenant guarantees the performance of the covenant by the assignee and the agreement meets the requirements of section 16(2), (4) and (5).

An outgoing tenant who signs an AGA stays liable for the assignee’s obligations. For what that means in practice, see our guide on the authorised guarantee agreement.

Is Stamp Duty Land Tax payable on an assignment?

On an ordinary assignment, any capital sum paid for the lease is chargeable, and the assignment is not treated as a new grant (HMRC SDLT manual, SDLTM17090, example 2). The assignee taking on the rent and the tenant’s other undertakings does not count as chargeable consideration (Finance Act 2003, Schedule 17A, paragraph 17).

The exception: if the original grant was exempt (for example group relief or charities relief), the first assignment that is not exempt under those reliefs is treated as the grant of a lease for the unexpired term, and any capital sum paid for the assignment is also chargeable (Finance Act 2003, Schedule 17A, paragraph 11; SDLTM17090).

Whether SDLT is due depends on the terms and the current rates, which this page does not cover. Check them on GOV.UK before completion. An independent solicitor you instruct can confirm the figure for your transaction.