UK: Assignments, Not Getting Consent Can Be Very Costly

Last Updated: 11 March 2013
Article by Armel Elaudais

In the case of E.On v Gilesports [2012] EWHC 2172 (Ch), tenants were reminded of the harsh consequences of not following the procedure for seeking the landlord’s consent to an assignment and deciding to go through an assignment without consent.

Gilesports was the sub-tenant of a retail unit. The Original Shoe Company (“OSC”) moved into the unit under group sharing arrangements permitted under the lease. When OSC was subsequently sold, Gilesports sought to formally assign the lease to OSC.

After obtaining the head landlord’s consent, Gilesports’ solicitors emailed the immediate landlord requesting its consent to the assignment, which under the terms of the lease was not to be unreasonably withheld. Discussions then followed between the parties regarding the terms of the licence to assign. But four weeks later, before consent was formally granted, Gilesports and OSC completed the assignment. Negotiations continued regarding the licence until the landlord became aware that OSC had gone into administration. Throughout this time, the landlord was unaware that the assignment had already been completed. Over a year later, the landlord wrote to Gilesports pointing out that there were rent arrears of nearly £140,000 and that rent had not been paid for 18 months. It was only then that Gilesports notified the landlord of the assignment.

Some of the issues that the Court considered were (i) whether the landlord had unreasonably delayed its consent to the assignment, and (ii) whether the assignment was valid so that Gilesports was released from the tenant’s covenant to pay rent.

Before it could decide on the issue of delay, the Court had to consider whether Gilesports had validly served notice requesting the landlord’s consent as this had only been done by email. There were no express notice provisions in the lease other than incorporating Section 196 of the Law of Property Act 1925. The Court found that Section 196 was restrictive rather than permissive so that to be valid, service on the landlord had to be either by delivery to its last known place of business or by registered post. The Court therefore concluded that requesting consent by email alone meant that no application for consent had been served on the landlord. It then followed that the provisions of Section 1(3) of the Landlord & Tenant Act 1988, requiring the landlord to give consent within a reasonable time were not triggered.

The Court looked at all the circumstances and found that in any event there had been no unreasonable delay on the landlord’s part. In effect the landlord had only had 11 working days between Gilesports’ request and completion of the assignment and given that this time included a holiday period, this was considered to be a fairly short time, especially when the superior landlord had been given several months to give its consent to the assignment. The Court also put a lot of emphasis on the fact that, although the matter appeared to be urgent, this was in fact never made clear to the landlord. No deadline was ever stipulated or any reason given for the urgency. Further, having regards to OSC’s adverse financial position, the Court felt that it was appropriate for the landlord to take time to consider the position and the guarantor that was being offered by the assignee.

The fact that the assignment was in breach of covenant meant that the Landlord and Tenant (Covenants) Act 1995 did not apply, such that Gilesports remained liable for the covenants under the lease. In any event, as the assignment was never registered with the Land Registry, it became void after two months and the legal estate reverted back to Gilesports after that date.

Lessons to be learnt

This decision is a stark reminder of the consequences of not following the proper procedure for an assignment and assigning without consent. Tenants should always check the notice provisions under the lease and ensure that any request for consent is in strict compliance. If a request is urgent this should be made clear to the landlord. The tenant should also provide all of the necessary information about the assignee to the landlord at the outset to avoid delay.

If for some reason the assignment takes place before consent is formally granted, the landlord should be notified and the position rectified as soon as possible. Although only the assignee can register the transfer at the Land Registry, the tenant should take steps to ensure that this is done promptly. If not, the tenant may find itself still liable for the tenant covenants under the lease, including rent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Armel Elaudais
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