The Landlord and Tenant Act 1988 applies to leases that prohibit tenants from assigning without their landlord’s consent. It places landlords under a duty to consent to an application for a licence to assign within a reasonable time, unless it would be reasonable not to do so.
In E.ON UK plc v Gilesports Ltd [2012] EWHC 2172 (Ch), the parties decided to complete an assignment before the landlord responded to their application for a licence to assign.
Consequently, the court had to decide whether the assignment was lawful, because the landlord had failed to consent to the assignment of a lease within a reasonable time, or whether the lease had been unlawfully assigned to the assignee. If the assignment was unlawful, it constituted an excluded assignment within section 11(1) of the Landlord and Tenant (Covenants) Act 1995 and had not released the assignor from liability under the lease.
The assignor conceded that time had not started to run until the landlord had received the assignee’s accounts. This had left the landlord with 11 working days in which to consider the tenant’s application for a licence to assign and for change of use. The judge agreed that the landlord had not had long enough to consider the financial and legal implications with its advisors, to consider the matter internally and to formulate its response. The assignor knew that the landlord’s legal adviser was taking a break over a bank holiday period. It had not behaved as if, or stated that, the transaction was urgent and had assigned the lease prematurely. Consequently, the assignment had been unlawful and was an excluded assignment for the purposes of section 11.
The judge also refused to accept that the application for permission to assign its lease had been properly served on the landlord, because the application was made by email to the landlord’s managing agents. The lease provided for service of notices in accordance with section 196 of the Law of Property Act 1925. The judge took the view that the provisions were mandatory and that the assignor should have delivered the application or sent it by registered post to the landlord’s last known place of abode or business. Consequently, the assignment had also been unlawful because the lease did not require the landlord to deal with applications in a timely manner and the provisions of the 1988 Act were not engaged.
Following assignment, the assignee should have applied for first registration of the lease within two months. What was the effect of its failure to do so? Under the Land Registration Act 2002, the legal title to the lease reverted to the assignor on trust for the assignee. The judge ruled that, had the assignment without the landlord’s consent been lawful, liability under the lease would, nonetheless, have reverted to the assignor when the legal title reverted to it. The statutory transmission of the title was an assignment by operation of law, which also transmitted the benefit and burden of the covenants in the lease: sections 3(2)(a) and 28(1) Landlord and Tenant (Covenants) Act 1995.
The judge applied the same reasoning to the assignor’s claim that section 17 of the 1995 Act applied to limit its liability under the lease. Section 17 provides that landlords must notify former tenants promptly of any arrears of fixed charges to preserve their ability to pursue them for the amounts due from the current tenant. Title to the lease had reverted to the assignor. Consequently, the assignor was not a former tenant and section 17 was not applicable.
Allyson Colby
Property law consultant
