Most modern leases contain provisions restricting the tenant’s right to assign or underlet and frequently prohibit the tenant from assigning – as opposed to underletting – part of the premises demised by the lease. Consequently, the courts do not often get the opportunity to consider the rules that apply to an assignment of part.
Smith v Jafton Properties Ltd [2011] EWCA Civ 1251; [2011] PLSCS 255 concerned a long lease of residential premises that was granted in 1926 and did not impose any restrictions on dealings with part. Did the tenants, who each owned two flats following assignments of part, qualify to enfranchise under the Leasehold Reform Housing and Urban Development Act 1993?
Most modern leases contain provisions restricting the tenant’s right to assign or underlet and frequently prohibit the tenant from assigning – as opposed to underletting – part of the premises demised by the lease. Consequently, the courts do not often get the opportunity to consider the rules that apply to an assignment of part. Smith v Jafton Properties Ltd [2011] EWCA Civ 1251; [2011] PLSCS 255 concerned a long lease of residential premises that was granted in 1926 and did not impose any restrictions on dealings with part. Did the tenants, who each owned two flats following assignments of part, qualify to enfranchise under the Leasehold Reform Housing and Urban Development Act 1993? The landlord claimed that an assignment of part does not create separate holdings, with separate tenants of each. It cited section 5(5) of the 1993 Act, which prevents the right to collective enfranchisement being exercised by tenants that own three or more flats in the building they are seeking to enfranchise, and argued that the tenants were not qualifying tenants because the court must treat them as tenants of all the flats. The Court of Appeal’s ruling in favour of the tenants has wider implications for the law in general. It held that, where leased land is physically divided, liability imposed by the application of the common law rules regarding privity of estate between a landlord and assignee is confined to land where there is privity of estate between them. In other words, an assignee of part is liable to pay rent and perform the obligations that are referable to the part that has been assigned to him – and is not liable for the rent and obligations that are referable to the remainder. If privity of estate exists only in respect of the part that has been assigned, it must follow that the estate itself has been severed. Therefore, where leasehold premises are sub-divided by an assignment of part, the tenants will each have separate holdings. The court did not consider whether the physical severance of leasehold land creates separate tenancies, because the question did not arise. However, Lewison LJ acknowledged that this could be important when interpreting statutory provisions – and suggested that the answer will depend on the context in which the question is asked. Assignments of part create difficulties and uncertainties for both landlords and tenants, even though the Landlord and Tenant (Covenants) Act 1995 has improved the position in relation to leases granted on or after 1 January 1996. The issues that need to be addressed include apportionment of rent (because the assignor and assignee cannot fix this by themselves), and the landlord’s entitlement to distain or forfeit for breach of the lease and to terminate (especially if the lease is protected by the Landlord and Tenant Act 1954, because it is not possible to serve a section 25 notice in respect of part). This decision provides landlords with yet another reason to prohibit tenants from assigning part only of the premises demised by a lease. Allyson Colby is a property law consultant
