Conveyancers usually play safe when assigning or underletting leasehold premises – and refuse to complete a without a licence to assign or underlet. However, less formal communications from landlords or their agents can sometimes constitute “consent” for the purposes of some transactions. In British Telecommunications Ltd v Rail Safety and Standards Board Ltd [2012] EWCA Civ 553, the court was asked to interpret an agreement for underlease that was conditional on the grant of licences to underlet and alter part of the premises. The agreement specified the form that the licences must take and, if they were not obtained before 5 October 2007, either party could withdraw. The parties executed a counterpart of the licence to underlet and sent it to the superior landlord’s solicitors on 28 September 2007. However, the superior landlord was not ready to complete the licence to underlet until 7 November 2007 and did not pronounce itself ready to complete the licence for alterations – which required one last signature from RSSB – until 16 November 2007. On receiving a request for the funds needed to pay the superior landlord’s costs, RSSB served a notice terminating the agreement for underlease and refused to complete the transaction. BT refused to accept the validity of that notice. The agreement provided that a notice of termination would not be effective if the superior landlord’s consent was obtained before such notice was served. BT argued that the requisite consent had been obtained and claimed damages from RSSB in excess of £1.5m. The High Court interpreted the agreement for underlease generously. The judge accepted BT’s arguments that the superior landlord had indicated its willingness to proceed and decided that the requisite consents had been obtained. However, the Court of Appeal has overturned that decision on the ground that neither of the licences had been obtained before RSSB withdrew from the transaction. The Court of Appeal took the view that it would flout business common sense for BT and RSSB to commit themselves, in breach of an absolute prohibition against underlettings of part in the intermediate lease, without the requisite consent. This would have risked the forfeiture of the intermediate lease and loss of the underlease. The agreement for underlease provided that the superior landlord’s consent must take a specific form which, in turn, was to be executed as a deed. This requirement would make no sense if the superior landlord’s consent could be given orally or on different terms. The court refused to attribute a different meaning to the parties’ agreement and ruled that the conditions in the contract had not been fulfilled because the licences executed by the superior landlord had not been delivered as deeds. Consequently, the superior landlord was free to change its mind at any time before completion. Neither party could escape the transaction before 5 October 2007, but were perfectly entitled to do so after that date, unless the contract had become unconditional – which was not the case here. The decision highlights the importance of setting realistic and achievable deadlines in conditional contracts – and of sticking to them to ensure that no one walks away. However, those who prize the certainty provided by formal licences will welcome the decision. Allyson Colby is a property law consultant
Conveyancers usually play safe when assigning or underletting leasehold premises – and refuse to complete a without a licence to assign or underlet. However, less formal communications from landlords or their agents can sometimes constitute “consent” for the purposes of some transactions.
In British Telecommunications Ltd v Rail Safety and Standards Board Ltd [2012] EWCA Civ 553, the court was asked to interpret an agreement for underlease that was conditional on the grant of licences to underlet and alter part of the premises. The agreement specified the form that the licences must take and, if they were not obtained before 5 October 2007, either party could withdraw.
The parties executed a counterpart of the licence to underlet and sent it to the superior landlord’s solicitors on 28 September 2007. However, the superior landlord was not ready to complete the licence to underlet until 7 November 2007 and did not pronounce itself ready to complete the licence for alterations – which required one last signature from RSSB – until 16 November 2007.
On receiving a request for the funds needed to pay the superior landlord’s costs, RSSB served a notice terminating the agreement for underlease and refused to complete the transaction. BT refused to accept the validity of that notice. The agreement provided that a notice of termination would not be effective if the superior landlord’s consent was obtained before such notice was served. BT argued that the requisite consent had been obtained and claimed damages from RSSB in excess of £1.5m.
The High Court interpreted the agreement for underlease generously. The judge accepted BT’s arguments that the superior landlord had indicated its willingness to proceed and decided that the requisite consents had been obtained. However, the Court of Appeal has overturned that decision on the ground that neither of the licences had been obtained before RSSB withdrew from the transaction.
The Court of Appeal took the view that it would flout business common sense for BT and RSSB to commit themselves, in breach of an absolute prohibition against underlettings of part in the intermediate lease, without the requisite consent. This would have risked the forfeiture of the intermediate lease and loss of the underlease.
The agreement for underlease provided that the superior landlord’s consent must take a specific form which, in turn, was to be executed as a deed. This requirement would make no sense if the superior landlord’s consent could be given orally or on different terms. The court refused to attribute a different meaning to the parties’ agreement and ruled that the conditions in the contract had not been fulfilled because the licences executed by the superior landlord had not been delivered as deeds. Consequently, the superior landlord was free to change its mind at any time before completion. Neither party could escape the transaction before 5 October 2007, but were perfectly entitled to do so after that date, unless the contract had become unconditional – which was not the case here.
The decision highlights the importance of setting realistic and achievable deadlines in conditional contracts – and of sticking to them to ensure that no one walks away. However, those who prize the certainty provided by formal licences will welcome the decision.
Allyson Colby is a property law consultant
