A concurrent or overriding lease is a lease of the landlord’s reversion subject to the rights of existing occupational tenants. It will often be used to sell an income stream in return for a capital sum and its term may be longer or shorter than the leases granted to the existing tenants.
On first impressions, the grant of a concurrent lease might appear to relegate existing tenants to the position of subtenants because for so long as the concurrent lease is in existence, the concurrent tenant is entitled to collect the rents payable by the occupational tenants. However, this is not the case; the existing leases are not subleases. So, if the concurrent lease is forfeited for any reason, the occupational leases will be preserved because instead of being carved out of the concurrent lease they were carved directly out of the reversion.
What then is the position if an occupational tenant decides to exercise the break rights in its lease? In Standard Life Investments Property Holdings Ltd v W&J Linney Ltd [2010] EWHC 480 (Ch); [2010] PLSCS 248, the High Court was asked to decide whether a tenant’s break notice was invalid because it was served on its original landlord and not on the owner of the concurrent lease.
The occupational lease and the concurrent lease were both “new” leases for the purposes of the Landlord and Tenant (Covenants) Act 1995. The judge’s conclusion that the only party on which a valid break notice could be served was the owner of the concurrent lease sits alongside the provisions of section 3, which deals with the transmission of the benefit and burden of covenants in leases granted after the Act was brought into force.
The court rejected the tenant’s argument that, as a matter of contract, the lease defined the recipient of the notice as “the Landlord” and that that definition continued to apply even though it had ceased to hold the immediate reversion. The judge decided that this did not make commercial common sense because it would mean that the current reversioner could have its income stream removed without its knowledge. A party that was once but is no longer the landlord, would have no interest in checking whether any conditions applicable to the exercise of the break clause had been complied with or in communicating with the current landlord.
In addition, vacant possession could be given only to the current landlord. The parties could not have contemplated that the tenant could simply move out of the premises and return the keys to the current owner of the reversion without having notified it of its intention to do so.
The decision provides yet another example of the way in which contract and property law principles combine in landlord and tenant situations. It shows that although the law of contract governs the way in which contracts are interpreted, property law principles govern the transmission of leasehold rights and obligations and that commercial common sense is an essential part of the process of contractual interpretation. It also serves as reminder that when in doubt, tenants would be well advised to serve too many break notices – to ensure that at least one of them is valid – rather than too few.
Allyson Colby is a property law consultant
