LAW6011 Property Practice Coursework

The Lease Covenant on Assignment

The covenant given under the lease requires landlord consent before initiating the assignment and it is the standard provision that aims to make protection of the freeholder interest. There are a number of covenants which are legal and enforceable. It has been observed that the tenant requires landlord consent before moving the lease to another party.

 

Figure 1: Lease Covenants

In Denzil's case, the covenant clearly states that he cannot able to assign the lease and property possession without the prior consent of the landlord. This restriction is not considered to be unusual in commercial leases where the landlord is required to ensure that the tenant who will occupy the property later should be capable enough and reliable.

Section 19 of the Landlord and Tenant Act 1927, is the provision which provides the application of this law at the time of the assignment of leases in the context of commercial properties. It is important for the landlord to provide their prior consent to the assignment until and unless they have a specific reason to refuse the same. It also provides Denzil with some legal protections, it is important to consider various conditions and restrictions on the given assignment and address the given concerns related to the financial stability of the given assignee.

Bryony’s Concerns:

Bryony's major concern was the potential risk related to the non-payment and property damage. However, Eric Cotton was the interested buyer who has a history of asking for inconsistent payments and that is why Bryony's concern was valid and understandable. In case Denzil starts selling the lease to Eric without Bryony’s consent. It can be said that he was breaching the lease agreement and the landlord can take legal action against the same. However, a lease contains a provision related to obtaining consent from the landlord for assigning the lease. It has been observed that Denzil is required to obtain written consent from Bryony for the assignment to Eric. According to the covenant which clearly mandates that taking landlord consent before an assignment takes place. It is important to observe that Bryony has not withheld the consent to the direct assignment. She is entitled to make conditions based on the major concerns such as financial security and guaranteeing the rent payment.

Options available for Denzil in Light of Bryony’s Concerns:

Requesting consent from Bryony: The main course of action in context to Denzil and it needs to request formal consent from Bryony for the assignment of the lease in relation to Eric Cotton and Potential Buyer. The request should be made in writing and required to add relevant details of the potential assignee such as financial information which shows the buyer's ability to meet the lease obligations including proof of income, and references of previous landlord. Denzil if want then they can reassure Bryony by providing more security measures comprised of a higher deposit from the purchaser. These given provisions provide Bryony with rent assurance and reassure them about paying the rent amount on time along with the timely maintenance of the property. In the relevant case, it is important for Denzil to ask Bryony for the proposal which can address the major concerns while fulfilling the lease selling. It includes offering the personal guarantee while proposing higher security while minimising the risk to Bryony.

Negotiating the terms with Bryony: If Bryony and their major concern are related to financial stability then in that case Denzil can offer to increase the rental deposit by including a personal guarantee from Eric Cotton and it also provides an additional form related to the financial security. These are the measures which can help in addressing Bryony’s concern related to the non-payment and provide them with peace of mind in the context of the financial stability of the new tenant. Also, if Bryony is actually concerned about the property damage then Denzil could reasonably agree to undertake the repairs of the property before the assignment takes place. However, the lease requires Denzil to maintain the property in specific conditions in that case they must carry out different repairs related to the shopfronts in order to ensure that the property meets Bryony’s expectations. 

Exploring the other potential tenants: In case Bryony refuses to grant the consent or the assignment to Eric Cotton due to the historical reason for making inconsistent payments, Denzil also need to explore the potential tenants who are more acceptable to Bryony. In the case, where Flora the local artist gas expresses their interest in the premises. However, it has been observed that Flora wants to make use of the workshop space at the property's back and does not want the front shop area. Denzil also needs to consider the workshop space with Flora and it also requires to take Bryony's consent.

Considering the Alternative Options to Selling the Lease: Obtaining consent for the assignment contains difficulty or in case Denzil is unable to find any suitable assignee then they can explore other options to sell their lease. For example; Denzil can rent out their shop and workshop spaces for the different tenants by making separate agreements.

Financial security measures: In case Denzil decides that they will proceed with the assignment related to Eric Cotton o with another buyer then they must negotiate with the rent guarantee or insurance policy which will cover different possible arrears.

Next Steps:

In this case, Denzil is required to ask for consent from Bryony to initiate the assignment related to the lease to Eric. Other than this, If Bryony makes a refusal and delays the consent then in that case Denzil can explore other options. The other options include negotiations on the terms which can also address Bryony’s concerns comprising of asking for a higher deposit from the buyer and a rent guarantee.

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2. Other Options Open to Denzil:

Other than selling the lease, Denzil has several other alternatives to address their different problems such as facing financial challenges while maintaining handling and controlling the business operations. The different options available consist of leasing alternatives, negotiation with the landlords and restricting the business model. There are a number of alternatives available for Denzil to consider:

Rent the workshop: One of the viable options available for Denzil is that they put their workshop at the of the property to Flora, it is the local artist who shows interest in the property. It helps Denzil generate and earn extra income from the property without any need for the full lease assignment and selling the lease. However, there are a few points which need to be considered by Denzil: 

• Legal Consideration: The Leaseagreement set out between Denzil and Bryony comprises the prohibited covenant which prohibited Denzil from assigning and parting the possession of the property without taking Bryony's consent. It has been observed that Denzil does not require to take Bryony's written approval.According to the legal standpoint, Bryony cannot unreasonably withhold the consent for subletting the approval from the landlord. In this case, Denzil assures that the use of the workshop will not affect the overall condition of the property and interfere with her own interest. There is a chance that Bryony will approve the subletting arrangements. Denzil May also considered making a rent guarantee and can also increase the security deposit to address Bryony’s concern about the major risk of non-payment and damaging the property.
• Practical Consideration:If Flora requires a workshop and is not interested in the shopfront area. Then, in that case, Denzil can make arrangements according to her needs. It has been observed that subletting the workshop can be simpler and use another alternative rather than giving the entire property on lease. In this case, Denzil can negotiate on a short-term lease and make a flexible agreement with Flora which ultimately allows them to retain the option for selling and providing the entire shop floor on rent in case if financial situation improves. Additionally, providing Denzil with the additional income subletting the workshops can take assistance for helping Bryony in ensuring that the property remains occupied which later addresses some of the concerns related to the security of the premises and the property condition. In this case, Denzil requires and ensures that the property needs to be well maintained and Flora makes use of the workshop as it ultimately neither affects the building nor the present option can be beneficial for both parties.

Lease Extension and Rent Reduction: In case the major concern of Denzil is the financial instability and difficulty regarding controlling the business operations then in that case they can start exploring negotiating with Bryony for making a lease extension and reducing the overall rent. The different alternatives provide Denzil with more time to address a number of financial difficulties and stabilise its business operations without requiring it to sell the entire lease.

Lease Extension: The Lease Extension could reasonably offer Denzil the immense opportunity to run the business operations from the same location and for a longer period. It helps in improving the overall financial position for the longer term. It has been observed that extending the lease can increase the property's overall value to future tenants as it has been determined that a longer lease can provide more security. For Denzil, the lease extension can offer the time when they are required to focus on revitalizing the business. For Denzil, the lease extension can offer more time which they need to develop more revenues. It has been observed that implementing a long-term strategy helps in improving the financial situation. Extending the lease cannot be the sole solution for the financial difficulties and it requires negotiation between Denzil and Bryony.

 

Figure 2: Lease Extension Process

Rent Reduction: Another option for Denzil in order to consider the negotiations related to rent reductions with Bryony. There are many challenging economic conditions and Denzil financial struggles. They can make a compelling case for reducing the rent in the specified time period. This reduction can able to provide immediate relief which can allow Denzil to maintain the business without putting additional pressure on the high overhead cost. It has been observed that Rent reductions are generally subject to negotiation and there might be chances the willingness of the landlord to accommodate the tenant's financial difficulty. Bryony feels hesitant about lowering the rent but Denzil shows a genuine need for relief and makes reassurance about the well-maintained property.

Business Restructuring: In case Denzil Business is under problem, it becomes important for them to consider restructuring the business operations. It involves the shifting business model, making diversification of the product offering and exploring outside financial support. The main aim of restructuring the business operations is to increase the financial sustainability of the business, reduce the operational cost and lastly improve the overall profitability of the business.

 

Figure 3: Process of Corporate Restructuring

Shifting Business Model: One option for Denzil is to consider the shifting of the business model by aligning along with the changing market conditions and considering the changes in consumer preferences. For instance, they can be considered to make expansion of the business by including online and delivery services which will allow them to access a larger customer base outside their local area. The help of E-commerce trends and home delivery to doorstep helps them to grab large audience attention in the market and due to COVID-19 many businesses have switched their operations to online mediums by meeting consumer demands along with decreasing the operating cost of the business. In context to Denzil, they offer their goods and prepared meals for online delivery which helps them to attract a larger customer base who prefers the home delivery convenience. This shift in businesses helps Denzil to generate extra revenue and also workshop space can also be used for online orders and making larger goods storage. These steps help in increasing the overall utility and profitability of the business.

Financial Assistance: In case Denzil is unable to restructure the business by his own capability then they might focus on exploring a number of ways to take financial assistance. There are a number of government grants, loans and supporting programmes which are available for businesses that are facing hardships and economic downturns. 

3. Liabilities after the sale or disposition of the lease

According to the sale and lease assignment, Denzil has some continuous liabilities in cases where the assignment is conditional and involves a number of responsibilities.

Potential Liability for Rent Arrears: In case Eric Cotton fails to pay the rental amount and damages the property. Then in that case Denzil can be held liable under the lease covenant however it is important to depend on the terms of the assignment. For example; in case if the lease includes any guarantee of the payment, then in that case also Denzil could be held liable for making assignee defaults.

Liability for property condition: It has been observed that Denzil can remain responsible for maintaining the condition of the property under the lease covenant by making non-structural repairs. In case the property condition is poor then Denzil should ensure that the new tenant takes the responsibility of ensuring the repairs prior to making further assignments.

Indemnity and Guarantees: Denzil can safeguard themselves by requesting an indemnity and personal guarantee from the buyer. It states that Denzil cannot be held liable for assignee defaults. In case the assignment is not started and absolves him from such responsibilities.

Liability for property condition: Denzil remains responsible for maintaining the condition of the property under the lease covenant. It also ensures making non-structural repairs which means if the property is in poor condition then Denzil must take responsibility for checking it and make necessary repairs in the building.

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4. Professional Conduct Issues: 

In this case, where Denzil being a legal advisor must be required to maintain high ethical standards during this entire process by:

• Ensure the full disclosure:It becomes important for Denzil to ensure that they make full and honest disclosure regarding the landlord so that the postponement assignment could not be affected in future. It is also important to ensure that some of the conditions cannot affect the decisions of the landlord. While making negotiations with Bryony requires transparent consent for initiating the assignment.
• Conflict of interest: As Denzil's Son, Archie previously worked for this firm, it is important to ensure that there will be no potential conflict of interest available in advising Denzil. In case if required, there is a need to consider the change in solicitor by avoiding the appearance of partiality and undue influence.
• Duty to protect Denzil's Interest:Bryony’s rights as the landlord have been respected, it is also a duty to ensure that Denzil's rights are been protected. It is important to advise them regarding the best course of action and ensure that each agreements are framed in the best interest.
  

Recommendations:

In this regard, Denzil should first need to request formal consent from Bryony for the assignment of the lease to Eric Cotton and other potential buyer available. It is important to address the Bryony concerns by providing guarantees and other security measures. In case the assignment is not feasible than in that case Denzil should be required to explore renting the workshops to Flora and also negotiate about the lease extension and rent reduction so that financial stability affects them. In case the liabilities come out from the sale and fixed assignment need to be carefully considered and it becomes important for Denzil to advise them about indemnity and personal guarantee in order to protect their personal interest. It is important to maintain full transparency and compliance with the ethical obligations while attempting the entire process. This process includes managing the potential conflicts and handling interest related to the Denzil sons as it was employed with the firm in past.

Best regards,
Solicitor
Arden LLP

REFERENCES

Books and Journals

• Bray J, Unlocking Land Law (2014) https://doi.org/10.4324/9780203781661
• Clarke A, Principles of Property Law (2020) https://doi.org/10.1017/9781316106891
• Crabb BSL, Leases: Covenants and Consents. 2nd Edition (2008) https://centaur.reading.ac.uk/6744/
• Crabb L and Seitler J, Leases : Covenants and Consents (2008) http://ci.nii.ac.jp/ncid/BA91311710
• Desai P and Purohit D, “Leasing and Selling: Optimal Marketing Strategies for a Durable Goods Firm” (1998) 44 Management Science S19 https://doi.org/10.1287/mnsc.44.11.s19
• Frye DD, “Leasing, Law, and Land Tenure: Understanding the Impact of the Long-Term Leasing Act of 1955 on Indian Land Holdings” [2012] SSRN Electronic Journal https://doi.org/10.2139/ssrn.2181724
• Katz L, “EXCLUSION AND EXCLUSIVITY IN PROPERTY LAW” (2008) 58 University of Toronto Law Journal 275 https://doi.org/10.3138/utlj.58.3.275
• McAuslan P, Bringing the Law Back In: Essays in Land, Law and Development (2003) http://ci.nii.ac.jp/ncid/BA62374003
• McDonough LR, “Then and Now: The Uniform Residential Landlord and Tenant Act and the Revised Residential Landlord and Tenant Act - Still Bold and Relevant?” (2013) 35 University of Arkansas at Little Rock Law Review 975 https://lawrepository.ualr.edu/cgi/viewcontent.cgi?article=1058&context=lawreview
• McDowell CM, “Land Law and Registration” (1977) 16 Public Administration and Development 43 https://doi.org/10.1002/j.1099-162x.1977.tb00438.x
• Megarry RES and Wade HWR, The Law of Real Property (1984) http://ci.nii.ac.jp/ncid/BA11520753 
• Pottier J, “Land Reform for Peace? Rwanda’s 2005 Land Law in Context” (2006) 6 Journal of Agrarian Change 509 https://doi.org/10.1111/j.1471-0366.2006.00133.x
• Priest GL and Klein B, “The Selection of Disputes for Litigation” (1984) 13 The Journal of Legal Studies 1 https://doi.org/10.1086/467732 
• Simpson AWB, A History of the Land Law (1986) https://doi.org/10.1093/acprof:oso/9780198255376.001.0001

TABLE OF FIGURES

• Figure 1 - Leasehold Covenants, 2015, ONLINE AVAILABLE AT < https://lawexplores.com/leasehold-covenants/ >
• Figure 2 - The Lease Extension Process, 2024, ONLINE AVAILABLE AT < https://lease-extensions.org.uk/process >
• Figure 3 – Process of Corporate Restructuring, 2024, ONLINE AVAILABLE AT < https://ecapital.com/blog/corporate-restructuring-can-save-your-business-whether-in-decline-or-growth/ >

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