Unapproved Assignments and Landlord’s Remedies

March 2010
Property Law Journal
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Desperate times call for desperate measures. Tenants under ever-increasing financial pressure are looking to off-load their lease liabilities to whoever will take them and quickly. What can a landlord do if it discovers that its tenant has made an unapproved assignment of its lease to an assignee of weaker covenant strength?

What is the legal effect of the unapproved assignment?
An assignment in breach of covenant is nevertheless effective to assign the lease.

An assignment must be made by deed and must pass the legal estate of the assignor: Where a lease is unregistrable (i.e. the term has less than 7 years to run), a deed of assignment alone will be effective to transfer the legal estate; there will be a breach of the covenant not to assign as soon as the transfer deed is completed.

Where a lease is already registered or the assignment triggers first registration (i.e. the term has 7 years or more to run), only a deed of assignment followed by registration will be effective to transfer the legal estate; an assignment of a registrable lease that has not yet been registered will result in an equitable assignment and will not be in breach of a covenant not to assign (although it will be in breach of a covenant not to hold on trust or part with possession).

There is no obligation at common law upon either the assignor or the assignee to give notice of the assignment to the landlord.