Elizabeth Dwomoh, the newest member of EG’s Legal Notes team, looks at a case offering a cautionary tale for lessees to ensure they have obtained consent before transferring possession of their interest.
The issues to be decided by the Court of Appeal in Reiner and another v Triplark Ltd [2018] EWCA Civ 2151; [2018] PLSCS 168 were twofold. First, whether in breach of covenant, Charlotte Reiner had parted with legal possession of her flat on completion in circumstances where the transfer had not been registered. Second, if Ms Reiner had parted with possession, whether the right to manage company’s failure to give consent was unreasonable.
The purported assignment
Ms Reiner was the registered proprietor of a flat held under an underlease dated 12 May 1978. The underlease contained a covenant against alienation without the landlord’s consent.
The respondent, Triplark, had been Reiner’s landlord since 2015. Management of the block in which her flat was situated was under the control of a right to manage (RTM) company, Northwood Hall RTM Company Ltd. By June 2015, the second appellant, David Wismayer, had become the sole director of the RTM company.
In June 2015, Reiner contacted the RTM company after experiencing difficulties selling her flat. Problems had arisen between the tenants in relation to the RTM company and its board. During the course of Reiner’s communication with the RTM (namely, Wismayer) he offered to purchase her flat.
On 18 June 2015, Reiner sought consent to assign from the RTM company. It did not give notice to the landlord as required by section 98(4) of the Commonhold and Leasehold Reform Act 2002 (the 2002 Act).
Reiner and Wismayer exchanged contracts for the flat on 26 June 2015. They completed on 29 July 2015. Wismayer paid the balance of the purchase price and Reiner gave him the keys and vacant possession of the flat.
Triplark became aware of the assignment. On 4 August 2015 it applied to the Land Registry to register a restriction preventing registration of the transfer. Pursuant to a covenant in the underlease, the “assignment” to Wismayer took effect only when the transfer was registered.
Triplark applied to the First-tier Tribunal (FTT) for a determination that Reiner was in breach of covenant. Without registration of the transfer, Reiner remained the registered proprietor of the leasehold interest in the flat.
Both the FTT and the Upper Tribunal (Lands Chamber) (UT) found Reiner was in breach of covenant for parting with possession of her flat. Further, the UT found the RTM company had not acted unreasonably in withholding its consent.
Parting with possession
The appellants argued Reiner was not in breach of covenant as the transfer had not been registered. In law, Reiner remained the tenant under the underlease. She was entitled to exercise the rights contained in the underlease. Although Reiner held those rights as bare trustee for the benefit of Wismayer, as lessee, she remained in legal possession of the flat and could not be said to have parted with possession of the same.
The “critical question” for the Court of Appeal was the nature of “legal possession”. This had previously been analysed by the court in Clarence House Ltd v National Westminster Bank plc [2009] EWCA Civ 1311; [2010] 1 EGLR 43. It meant the right to enter and occupy the land at the exclusion of all others, including the owner or another person with superior title.
In Stening v Abrahams [1931] 1 Ch 470 and Akici v LR Butlin Ltd [2005] EWCA Civ 1296; [2006] 1 EGLR 34 it was determined that a leasehold covenant against parting with or sharing possession concerned the question of whether a lessee had allowed another person into physical occupation with the intention of relinquishing their own exclusive possession of the premises to that person.
Applying Clarence House to the facts of the present case, Reiner had given up physical possession and control of the flat. She had removed all her belongings and given Wismayer the keys with vacant possession. The mere fact that Reiner remained in law the lessee until the transfer had been registered did not alter the factual reality. Although there was a completed equitable assignment, as bare trustee, Reiner was required to exercise her legal rights as lessee for the benefit of Wismayer.
Withholding consent
When a lease contains a covenant against alienation without consent, section 1 of the Landlord and Tenant Act 1988 provides that a landlord’s consent cannot be unreasonably withheld.
Pursuant to sections 98 to 99 of the 2002 Act, the right to consent was vested in the RTM company. Under section 98(4), the RTM company was prohibited from granting Reiner consent without giving Triplark 30 days’ notice.
The RTM company had not unreasonably withheld consent due to the statutory bar. Until notice was given to Triplark in accordance with section 98(4), its positive obligation to give consent, in circumstances where there was no good reason to withhold consent, was not engaged.
Elizabeth Dwomoh is a barrister at Lamb Chambers
