Lease of commercial premises – Assignment – Licence to assign – Defendant assigning sublease without consent of claimant landlord – Arrears of rent accruing – Claimant claiming arrears from defendant – Whether consent to assignment required on proper construction of sublease – Whether defendant continuing to be liable on tenant’s covenants – Whether recovery limited to amounts specified in notices served under section 17 of Landlord and Tenant (Covenants) Act 1995 – Claim allowed
The claimant’s predecessor in title held a headlease of shop premises in Nuneaton on terms that prohibited assignment or underletting without the previous written consent of the landlord, not to be unreasonably withheld. The defendant held a sublease of the same property, dating from 1998, in terms that required it to observe and perform the covenants in the headlease “so far as the same are not inconsistent with the terms hereof as if the same had been herein repeated and set out in full mutatis mutandis”. The sublease expressly incorporated the provisions of section 196 of the Law of Property Act 1925 regarding the service of notices.
In 2007, the defendant’s parent company agreed to transfer the defendant’s lease to a purchaser as part of a company sale. Licence to assign was requested by email in early May 2008; however, the assignment was completed later that month before any licence to assign had yet been granted and without the headlessee’s knowledge. The assignee later went into administration leaving arrears of rent.
When the headlessee learned of the assignment, it served notices on the defendant, under section 17 of the Landlord and Tenant (Covenants) Act 1995, of its intention to claim the rent from it as the former tenant. Those notices were served without prejudice to its assertion that the assignment was ineffective and that the defendant remained the tenant. The headlessee then brought proceedings to establish the defendant’s liability for the arrears as tenant.
Issues arose as to whether: (i) any consent was in fact required for the assignment, on a proper construction of the sublease; (ii) the headlessee was precluded from unreasonably delaying the giving of such consent; (iii) the transfer had transferred t’he benefit and burden of the tenant’s covenants to the assignee notwithstanding that it had not been registered at the Land Registry; and (iv) section 17 of the 1985 Act applied to limit the defendant’s liability to the amounts claimed in the notices. The headlessee assigned its headlease and cause of action to the claimant.
Held: The claim was allowed.
(1) The words “so far as the same are not inconsistent with the terms hereof as if the same had been herein repeated and set out in full mutatis mutandis”, as they appeared in the sublease, required the defendant, as tenant under the sublease, to observe and perform the same covenants with regard to the headlessee as the headlessee was required to observe and perform with respect to the head lessor. The purpose of the relevant clause was enable the sublease to be expressed in short form. It was evident that the headlessee would want to be protected by tenant’s covenants from the defendant corresponding to those that it had given to the head lessor. Any other construction would produce an uncommercial result. Consequently, the sublease contained an obligation on the defendant, imported from the headlease, not to assign the property without the previous written consent of the headlessee.
(2) Although consent was not to be unreasonably withheld, the sublease, by reference to the headlease, imposed no requirement that consent should not be unreasonably delayed. No requirement to give consent within a reasonable time arose by virtue of section 1(3) of the Landlord and Tenant Act 1988 since that provision applied only where a written application for consent had been “served” on the landlord and, by section 5(2)(a), such service had to be effected in a manner provided in the tenancy. Since the sublease incorporated section 196 of the 1925 Act, service had to be effected in a manner permitted by that section, namely either delivery to the landlord’s last known place of abode or business or by registered post. Neither method had been used and the request sent by email in May 2008 did not suffice for that purpose. Accordingly, the application for consent had not been served on the headlessee and section 1(3) did not apply. In any event, a reasonable time had not elapsed on the facts of the case.
(3) Even if there had been no requirement for consent to the assignment, the defendant would none the less still be bound by the tenant’s covenants in the sublease so as to give rise to liability for arrears of rent. Although the sublease had not been registrable when first granted, its assignment triggered the requirement for compulsory first registration as a qualifying estate under section 4 of the Land Registration Act 2002. The failure to register had resulted in the assignment of the legal estate becoming void under section 7 of the 2002 Act, with the result that the legal estate reverted back to the defendant, which held it on a bare trust for the assignee. However, on the date when the assignment was executed, it had been an assignment of the entire legal and beneficial interest under the sublease to the assignee, which had accordingly become the tenant. The reversion of the legal estate to the defendant, once the transfer became void, amounted to an assignment of the legal estate by operation of law from the then tenant to the defendant. Accordingly, the defendant, as assignee, became bound by the tenant’s covenants by virtue of section 3(2)(a) of the 1995 Act.
(4) For similar reasons, section 17 of the 1995 Act did not apply to limit the defendant’s liability to the sums claimed in the section 17 notices. Section 17 applied where a former tenant was, as the result of an assignment, no longer the tenant. As from July 2008, when the legal estate reverted to it, the defendant was not a former tenant but the present tenant.
Jonathan Seitler QC (instructed by Wragge & Co LLP, of Birmingham) appeared for the claimant; Charles Harpum (instructed by Cobbetts LLP, of Manchester) appeared for the defendant.
