Alchemy Estates has unintentionally allowed tenants to use informal correspondence as licence to assign, says Matthew Walker
? Correspondence referring to consent “in principle” could inadvertently result in consent being granted by a landlord ? “Subject to licence” will not necessarily prevent consent from beIng given ? Unless the House of Lords overrules Aubergine Enterprises, correspondence should be handled with care |
The decision in Alchemy Estates Ltd v Astor [2008] EWHC 2675 (Ch); [2008] 3 EGLR 143 has made it easy for landlords, agents and solicitors inadvertently to leave the door ajar for tenants to rely upon informal correspondence as licence to assign.
In January 2008, Alchemy contracted to acquire a leasehold property from Astor, which required landlord’s consent.
On 25 April, the landlord’s solicitor sent an e-mail stating:
“Our client in principle is prepared to grant its consent to enable the lease to be assigned to Alchemy Estates Ltd
The conditions attaching to the grant of such Licence are (a) the payment of our client’s reasonable costs and (b) such Licence is documented within the form of the attached draft Licence to Assign
Please note that this correspondence does not constitute the provision of consent by our client. Such consent will only be provided on the completion and delivery of a formal Licence executed as a Deed…”
On 7 May, the landlord’s solicitor sent an engrossed licence, which was executed by the landlord and Astor and forwarded to Alchemy for completion. However, on 19 May, Alchemy sought to rescind the contract. Under the standard conditions of sale (4th ed), which were incorporated into the contract, either party was entitled to rescind if the landlord’s consent had not been obtained by 10 March.
Right to rescind
The court ruled that, for reasons that have already been considered (see EG 13 December 2008, p75), Alchemy had lost its right to rescind. Sales J observed that when Alchemy sought to do so, the landlord had already consented to the assignment by virtue of the e-mail of 25 April.
Relying upon Aubergine Enterprises Ltd v Lakewood International Ltd [2002] EWCA 177; [2002] 1 WLR 2149, Sales J concluded that although the consent was expressed to be in principle and conditional upon payment of reasonable costs and execution and delivery of a formal licence to assign, it was clear that consent given subject to certain conditions was sufficient to prevent the right to rescind from arising.
In Aubergine, the Court of Appeal held that any consent drawn from correspondence should, when construed in the light of the surrounding circumstances: (i) record consent as required by the contract (ii) be unconditional or subject only to reasonable conditions and (iii) be unequivocal.
On that basis, letters headed “subject to licence” by the landlord’s solicitor, together with a statement of conditions, “did not qualify the plain indication of consent in the body of the letters so as to make it equivocal or uncertain”. The court was of the view that the same reasoning applied to the qualification “in principle”.
In Prudential Assurance Co Ltd v Mount Eden Land Ltd [1997] 14 EG 130, the Court of Appeal ruled that “subject to licence” did not have the same magic as “subject to contract”. In Next plc v National Farmers Union Mutual Insurance Co Ltd [1997] EGCS 181, a letter headed “subject to licence”, and other correspondence from the landlord’s solicitor confirming instructions by the union in respect of the landlord’s consent to assign, resulted in consent being given.
Current position
The judge’s comments in Alchemy were not determinative of the outcome to the case (which rested on other grounds). However, it is notable that he applied the test laid down in Aubergine.
The current position, therefore, is that correspondence referring to “consent in principle” could inadvertently result in consent being granted, notwithstanding that it is marked “subject to licence”.
Each case will turn on its own facts, but the following may help to avoid consent being given unintentionally:
? parties should ask their solicitor to check all correspondence
? avoid the use of “consent in principle”
? mark correspondence “subject to licence” – this will not in itself prevent consent from being given, but may be taken into account
? check the lease for a clause providing that where the landlord’s consent is required under the lease, that consent will be valid only if it is given by the landlord in a particular form, such as by deed, unless the landlord has expressly waived in writing the requirement to comply with those formalities.
Hopefully, the courts will alter their position in the future to reflect the expectations of commercial parties that consent is given only on completion of a formal licence to assign. Unless and until the House of Lords overrules Aubergine, correspondence should be treated with care.
Matthew Walker is a solicitor at Wragge & Co LLP
