Most commercial leases prevent the tenant from assigning, underletting, or parting with or sharing possession or occupation without consent. Possession and occupation are separate legal concepts; a person has possession of premises if he has the right to exclude all others from the premises.
Ansa Logistics Ltd v Towerbeg Ltd [2012] EWHC 3651 (Ch) concerned a 42-acre site in Liverpool, used for the storage and marshalling of Ford motor vehicles. The tenant held the land under two long leases and applied for a licence to underlet to Ford, who wanted to take control of the operation itself. The landlord claimed that the tenant was in breach of covenant because it had already allowed Ford to take possession of the site, refused permission for the underletting and sought to forfeit the leases.
The leases prohibited the tenant from assigning, underletting or parting with possession without the landlord’s consent. However, the courts have consistently given a strict, narrow meaning to covenants against parting with possession and a covenant that forbids parting with possession is not broken by a tenant who in law retains possession, even though he allows another to use and occupy the premises.
The tenant had transferred its assets, stocks and employees to Ford, who occupied the site as licensees, but had continued to pay rates and to insure the site at its own expense. It had also taken the lead in rent review negotiations, after consulting with Ford. It also held the contract for the provision of rail access to the site and continued to retain access to it itself.
The landlord claimed that the tenant had allowed Ford to enjoy gradually increased control until the point was reached where the tenant had parted with possession. However, the court ruled that it was important to distinguish between the control that Ford exerted over its business and its ability to control the tenant’s access to the site.
Much of the evidence that the landlord relied upon concerned the former, and not the latter. Ford needed to control access to the site, but this did not mean that Ford could exclude the tenant. The tenant had continued to have responsibilities on, and had not parted with possession of, the site.
The judge rejected all the landlord’s reasons for refusing to countenance the underletting. The tenant was not in breach of its leases and, if it had been, could have cured the breach by granting the underlease.
Ford’s pension liabilities were not a reasonable basis for refusing consent, even though, as a result, it had fewer assets than liabilities. The risk that Ford would fail was extremely low and the tenant would remain liable to pay the rent under its own headleases.
The judge noted that the landlord had been prepared to pay the tenant £2.5m for its leases to enable it to create a leisure park and suspected that it had refused permission for the underletting because it had its own plans for the site.
This was not a valid reason for rejecting the tenant’s application; nor was the fact that Ford’s presence on site and ability to object to the landlord’s planning application might affect the prospects of obtaining permission to develop either the site or land in the vicinity.
Allyson Colby, property law consultant
