Assignment and underletting

In the absence of any provision in the lease to the contrary, a tenant has the right to assign its interest in the lease and to create underleases. It is, however, a rare lease which does not restrict the tenant’s freedom in this respect. Restrictions on alienation generally take the form of covenants on the part of the tenant prohibiting certain types of dealing. Those prohibitions may be ‘absolute’, ‘qualified’ or ‘fully qualified’ in form.

An absolute covenant (one that prohibits an action without allowing for landlord’s consent) is a complete bar if it covers the proposed transaction. Covenants that restrict the tenant's ability to assign or underlet are construed against the landlord. Key principles to emerge from case law are:

1. •

   a covenant against assignment does not prohibit underletting

2. •

   a covenant against assignment or underletting of 'any part' of the premises prohibits assignment or underletting of the whole as well as part only

3. •

   a covenant 'not to underlet the premises' does not prohibit an underletting of part (Wilson v Rosenthal (1906) 22 TLR 233 (not reported by LexisNexis®))

4. •

   a covenant not to part