Legal Effects of Transferring a Lease
Most lease agreements dealing with property consists of a 'successors and assigns' clause which confers on the parties the right to transfer their rights and privileges under the lease to a third party. With the inclusion of this clause, it is oftentimes assumed that a transferee of a lease will 'stand in the shoes' of the original parties and be subject to the same rights and liabilities under the lease agreement as the original parties would have been subjected. However, as discussed below, in order for the transferee to be entitled to the same rights and privileges under the lease agreement, the transfer of the lease must be registered and endorsed on the Title for the property.
A standard 'successors and assigns' clause would read as follows:- "Subject to all provisions hereof dealing with assignments, the terms and provisions of this Lease, and the respective rights and obligations hereunder of the parties hereto shall be binding upon, and inure to the benefit of, the parties and their respective successors and assigns.' In many instances, parties to a lease agreement wrongly assume that once this clause is included in the lease agreement, all the rights and liabilities under the agreement will automatically pass to the transferee upon a transfer of the lease. This is however not the position for lease agreements concerning property as the law mandates that a transfer of a lease relating to property must be registered and endorsed on the Title for the property.
Section 88 of the Registration of Titles Act ("RTA") governs the transfer of leases and the legal effect of registering such transfers. Pursuant to section 88 of the RTA, upon the registration of a transfer of a lease on the Title, the estate and interest of the transferor shall pass to the transferee who shall be subject to all the rights and liabilities as the original parties to the lease. It is therefore not until the transfer of the lease has been registered and endorsed on the Title that the transferee will become subject to all the benefits and liabilities under the lease agreement.
In the event that the transfer of a lease has not been registered on the Title for the property, the applicable law would not be the RTA but the common law. Under the common law, the transferee of a lease will only be bound by those terms and conditions under the lease agreement which 'touch and concern' the land. The terms and conditions which 'touch and concern the land' are those which affect the nature, quality or value of the land or the mode of using or enjoying the land. For example, those terms which relate to the repair and maintenance of the property, paying rent or subleasing the property.