Where a company director procures the grant of a lease to himself in breach of his duties to the company, the lease is void from the start under the Companies Act 2006.
The High Court has considered this issue in Chohan v Ved and others [2024] EWHC 739 (Ch); [2024] PLSCS 85.
In 2014, Sujata Chohan, a solicitor, and Jayendra Ved, an accountant, agreed that their families should buy the freehold of office premises at 5 Theobald Court, Elstree, Hertfordshire from which they ran their respective businesses.
The property was leased to Eutopia Ltd which had granted Ved a licence to occupy and he had allowed Chohan to operate from there.
The purchase was made via a company, Nexbell Ltd, with a bank loan and each family contributing to the balance.
Ved, the sole company director, and his wife each held 50 shares in the company and both declared a trust of 25 shares in favour of Paresh Chohan.
The parties recognised that there was an oral joint venture agreement concerning the property.
The company exchanged contracts to purchase the property in October 2015 and at the same time the lease to Eutopia was surrendered and an excluded lease for a five-year term granted to Ved who subsequently granted licences to occupy to Chohan.
The purchase was completed in November 2015.
The parties then fell out in the course of seeking to sublet parts of the property, for which an extension on Ved’s lease would be required.
Paresh Chohan brought proceedings to enforce the transfer of the shares held on trust for her.
At the same time, Ved procured that the company grant him a new six-year lease protected by the Landlord and Tenant Act 1954. Mrs Chohan alleged breaches of duties owed by Ved to the company under the Companies Act 2006.
The court decided that the terms of the joint venture agreement were intentionally susceptible to change to provide flexibility. Ved and Chohan each owed the other a duty to act in good faith.
By granting himself a lease within the 1954 Act, Ved knew he was procuring for himself a material advantage above what he currently had and was entitled to under the jv agreement.
This was a breach of his duty to exercise his powers for the purposes for which they were conferred and to act, in good faith, to promote the success of the company for the benefit of its members under sections 171 and 172 of the 2006 Act.
The new lease was void.
Louise Clark is a property law consultant and mediator
