In November 1994 the British Property Federation and the British Retail Consortium reached agreement on the possible reform of privity of contract.

The Lord Chancellor's Department has now issued a consultation paper seeking views on the terms of the agreement reached.

It is understood that if there is broad industry support for the proposals, the government will actively support their implementation.

If the 'trade off' envisaged in the consultation paper (greater control by the landlord over assignments in return for the abolition of privity of contract) were to form the basis for legislation, there would be significant implications for both landlords and tenants.In place of s.19 of the Landlord and Tenant Act 1927 and the current test of 'reasonableness', the landlord could set out in the lease a number of pre-conditions to be met before an assignment is permitted.

These might include the following:-- A profits/assets test.

The prospective assignee would be required to demonstrate net profits and/or assets over a period of time equivalent to a stated multiple of the rent.

It may be difficult for the landlord to prescribe at the outset a satisfactory test as it will not know the nature of the incoming tenant's business.

In addition, the tenant's liabilities should not be overlooked and, for example, it has been suggested that in the case of premises to be occupied by a multiple retailer, the landlord should ask for many times the rent to be covered because the retailer will have dozens, hundreds or even thousands of similar commitments.-- Diminution in investment value.

The landlord could prescribe that consent will not be given if the investment value of the property is adversely affected by the proposed assignment.

Currently, this is not regarded as a reasonable ground on which to withhold consent unless the landlord intends to sell its interest.-- Equivalent status.

The landlord could insist that the assignee is of equivalent financial status to the assignor.

This could make it virtually impossible for, say, a government department to assign.These are purely financial tests but landlords, with the abolition of s.19, could seek further pre-conditions.

One possibility is requiring the outgoing tenant to make good all breaches of covenant under the lease before the assignment takes place.

Breach of the repairing obligation is of particular interest as the Leasehold Property (Repairs) Act 1938 may not apply to a pre-condition for an assignment.

However, if the landlord accepted a sum in settlement of its claim, there would be obvious difficulties in assessing the landlord's entitlement to damages subsequently for breach of the same covenant.Payment of a premium as a pre-condition could become common, either by way of a fixed amount, index linked, or a proportion of the premium payable by the assignee.

S.144 of the Law of Property Act 1925, which prohibits premiums on an assignment or underletting, can be excluded by agreement between the parties, but such payments could be outlawed by the new legislation.The consultation paper also contemplates the reasonableness test applying alongside the landlord's specified pre-conditions.

However, what is not clear is whether the landlord could reasonably withhold consent on, say, the ground of the poor financial status of the tenant when the pre-condition setting out the financial test is satisfied.

Careful drafting may ensure that in putting forward certain tests, the landlord is not precluded from reasonably withholding consent on the same general ground.Very stringent pre-conditions might have an impact on rental value.

Take the situation of the letting of a small office block t o a government department.

If the lease contains an 'equivalent status' pre-condition to assignment, the tenant could argue at rent review that there is no assignee of equivalent status, so effectively the lease is unassignable, reducing the rental value.

The rent review provisions could ignore the pre-condition, but at the price of artificiality.There are other considerations in addition to those discussed above.

For example, how will underlettings be treated? Will s.19 continue to apply to them? If so, it may be easier for a tenant to underlet than to assign.

In practice, an original tenant with a strong covenant may find that it is difficult to assign the lease but it is able to underlet.

It remains, however, stuck with the lease - and so stuck with privity.As mentioned above, restrictions against assignment introduced into a lease can make it more difficult for a tenant with a stronger covenant to assign, leaving that tenant with the actual liabilities under the lease, rather than the contingent liability with which it would be burdened were it able to assign the lease.If legislation along the lines of the 'trade off' is enacted, then initially it is inevitable that lease negotiations will take longer.

There will certainly be much poring over the alienation provisions.

However, the likelihood is that the industry will settle upon certain fairly standard norms (although if rent review clauses are taken as an analogy, there is still plenty of scope for argument).The 20 or 25-year lease is less commonplace than it used to be and shorter leases are becoming usual.

Attempts by landlords to make leases harder to assign may reinforce this trend.Any legislation will, presumably, prohibit contracting out and include anti-avoidance provisions.

For example, it would be all too easy for a landlord to keep the original tenant on the hook by providing as part of its control on alienation that the original tenant should guarantee the liabilities of any future tenant.

Similarly, a tenant could be required to maintain a rent deposit throughout the term but, depending upon the legislation, this requirement may fall foul of the anti-avoidance provisions.