At common law, a landlord is unable to distrain on the goods of an assignee for arrears of rent that accrued before the assignment of a lease. Consequently, many will consider it strange that the courts will, none the less, require assignees to discharge the entirety of any rent arrears, including any sums due from the assignor, to obtain relief from forfeiture: Barratt v Richardson [1930] 1 KB 686.
The recent Lands Tribunal decision in Glass v Campion [2008] PLSCS 173 serves as a useful reminder of the potential severity of this rule. In that case the landlord wrote to the assignee of a residential property stating that there were substantial arrears of ground rent and buildings insurance. The landlord noted, from its search at the Land Registry, that the property had changed hands. This led to a further complaint that the assignee had failed to register the change of ownership with the landlord, as required by the lease. The landlord asked the assignee to remedy this breach, and reminded the assignee that arrears of rent “run with the property”.
In the preliminary proceedings, the Lands Tribunal had to consider whether time was of the essence for the requirement to register changes of ownership with the landlord within 28 days. The tribunal held that it was, and that the assignee was in breach of its obligations under the lease. It also ruled that the breach of covenant had not ceased to exist simply because the landlord knew of the assignment and had discovered the name of the assignee. The landlord had therefore satisfied the requirements of sections 166 to 172 of the Commonhold and Leasehold Reform Act 2002 (which restrict a landlord’s ability to forfeit a long residential lease and require the landlord to establish the existence of a breach before a section 146 notice is served). Consequently, the landlord will be entitled to serve a section 146 notice on the assignee to forfeit the lease.
The tenant may well obtain relief from forfeiture on the ground that the landlord suffered no loss, despite the failure to register the assignment in accordance with the lease. However, the tenant will also have to deal with the issue of the rent arrears, and the landlord’s assertion that neither it nor its managing agents had issued a clear ground rent receipt to either the former tenant or the assignee.
It is easy to see why the problem arose. Long residential leases are generally freely assignable, without reference to the landlord. By contrast, leases of commercial premises usually impose prohibitions against assignment without the landlord’s consent (in which case the parties will generally deal with the issue of arrears before any assignment of the lease takes place). However, not all commercial leases are framed in this way. This case serves as a salutary reminder that assignees should always check whether their assignor is in arrears with rent or any other payments due under the lease.
Allyson Colby is a property law consultant
