Subsidiary company transferring lease to holding company – Transfer not registered – Lease containing clause preventing assignment of right to terminate – Subsidiary company giving notice to landlord purporting to terminate lease – Whether assignment valid – Whether subsidiary company entitled to serve notice terminating lease – High Court holding notice not valid – Appeal allowed
Judgment delivered December 19 1996.
In July 1989 the defendant granted a lease of offices in Wimbledon for a term of 25 years to the first plaintiff, a partly owned subsidiary of the second plaintiff. The first plaintiff was duly registered as the proprietor of the lease. Clause 8.1 of the lease entitled the first plaintiff as lessee to terminate the lease by giving not less that 12 months notice to take effect at the end of the seventh year. In 1993 the first plaintiff became wholly-owned by the second plaintiff and the first plaintiff was instructed to transfer its business assets, including the lease, to the second plaintiff. The defendant granted a licence to assign. The necessary documents were executed on 10 December 1993. Thereafter the defendant’s records were altered so that the second plaintiff replaced the first plaintiff as the recorded tenant and rent was invoiced to and paid by the second plaintiff. However the transfer of the lease was not registered.
In September 1994 the first plaintiff served a notice on the defendant purporting to terminate the lease at the expiry of the seventh year. The defendant refused to accept that the notice was valid and effective on the grounds that the lease had been assigned to the second defendant and therefore clause 8.4 of the lease, which provided that the terminating provision of clause 8.1 ceased to have effect on the assignment of the lease, applied. The plaintiffs denied that the lease had been assigned effectively and brought proceedings for a declaration that the lease would determine in consequence of the notice. The plaintiff contended that by virtue of section 22(1) of the Land Registration Act 1925 the transferor of a leasehold interest was deemed to remain proprietor of the registered estate until the transfer was registered and therefore the lease had not effectively been assigned.
The judge refused to make the declaration sought and held that the date on which the assignment had taken place was the date upon which it was completed, since the first defendant as assignor gave up the property on that date and had no control over the stamping of the transfer or its submission to the Land Registry. Since there had been an assignment of the lease, it could not therefore have been terminated by a notice served by the first plaintiff. The plaintiffs appealed.
Held The appeal was allowed
1. The transfer of beneficial ownership between the first and second plaintiff was not relevant to the issue of assignment because, although it effected the equitable rights between the plaintiffs, it did not effect the legal rights of the defendant, as a third party, against the first plaintiff. The critical question was whether there had been an assignment of the lease and therefore of legal title. It was not a matter of intention to assign but whether the lease had effectively been transferred so as to create a legal relationship between the defendant and the second plaintiff. It was registration not completion that caused an effective transfer because that was when the legal title to the lease was transferred. Accordingly the lease had not been validly assigned and the notice to terminate had been validly served.
2. There had been no detrimental reliance by the defendant such as to make it inequitable for the first plaintiff to assert, contrary to any representation or shared assumption prior to the notice of termination, that there had been no assignment of the lease within the meaning of clause 8.4.
Kim Lewison QC (instructed by Vanderpump & Sykes, Enfield) appeared for the plaintiffs; Nicholas Dowding (instructed by Bates & Partners) appeared for the defendant.
