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Selling a leasehold property

This content applies to England & Wales

Assignment of the lease to the purchaser when a leaseholder sells a leasehold property, including how it affects the original leaseholder's obligations, and restrictions on assignment.

The effect of an assignment is to transfer the legal estate from the assignor (leaseholder) to the assignee (purchaser), who takes over the rights and obligations under the lease.

Responsibility for breaches following sale

It was formerly the case that the assignment of a lease did not relieve the original leaseholder of the contractual obligations of the lease. The original leaseholder named in the lease could always be held responsible for any later breaches. However, this has changed and there are different rules depending on whether the lease was granted before or after 1 January 1996.[1] In relation to arrears of rent or service charges on old leases (ie those granted before 1 January 1996), the original leaseholder is now only liable if s/he has been notified, on a prescribed form, within six months of the amount being due. For new leases, the original leaseholder is no longer liable for any future obligations of the lease unless it is an unlawful assignment or s/he has acted as a guarantor for the new leaseholder.

Where a lease has been assigned on or after 1 January 1996, the new leaseholder is not liable for breaches of the lease that occurred before the lease was assigned to her/him.[2] However, a new leaseholder should be careful to check what liabilities remain outstanding at the point of assignment because the legislation does not absolutely protect an assignee from liabilities incurred before s/he takes over the lease. In a case where the assignee of her father's lease covenanted to pay service charges, the Upper Tribunal held that, because the freeholder landlord used a two-stage process to recover service charge debt - an interim demand followed by a final demand based on the final account of the works - the liability to pay was also a two-stage process, where the second stage of liability arose on receipt of the final demand. Thus the new leaseholder was liable for a service charge debt relating to works that had been the subject of an interim demand made before she took over the lease, because the final demand (along with a balancing credit payment) was made post-assignment. [3]

Restrictions on sale

Any restrictions on assignment must be included in the lease.

Many leases contain a covenant requiring that the freeholder’s consent is obtained before an assignment is allowed. The freeholder’s consent must not be unreasonably withheld.[4] In addition these requirements will be inferred into any lease that has a qualified covenant on assignment, however it is worded.[5]

It would be highly unusual for a lease to place an absolute prohibition on assignment.

Assignment by deed

An assignment must be by deed,[6] which is a legal document executed with certain formalities.[7] Without such a deed, only an equitable assignment can be made.

[1] Landlord and Tenant (Covenants) Act 1995.

[2] s.23 Landlord and Tenant (Covenants) Act 1995.

[3] Southwark LBC v Clark [2015] UKUT 597 (LC).

[4] s.1 Landlord and Tenant Act 1988; No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2018] EWCA Civ 250.

[5] s.19 Landlord and Tenant Act 1927.

[6] s.52 Law of Property Act 1925 and Crago v Julian (1991) 24 HLR 306.

[7] s.1 Law of Property (Miscellaneous Provisions) Act 1989.

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