UK: Real Estate Update - Case Roundup, Summer 2016

Last Updated: 14 September 2016
Article by Bates Wells Braithwaite

EMI Group Ltd v O & H Q1 Ltd [2016] EWHC 529 (Ch)

A tenant cannot assign its lease to its guarantor. In this case the focus was whether the tenant, HMV, had legitimately assigned the lease to its guarantor, EMI, once it had entered administration. The High Court found that the effect of such purported assignment was that the assignment was void by virtue of section 25(1) of the Landlord and Tenant (Covenants) Act 1995, as it frustrates the purpose of the Act. The assignment is void and the lease remains vested in the tenant with the tenant's guarantor remaining bound by its guarantee.

This issue was one of the points that was not settled by the Court of Appeal in K/S Victoria Street v House of Fraser (Stores Management) Ltd and others [2011] EWCA Civ 904, and the decision is of particular importance where a corporate restructuring is planned and where a group company has guaranteed the obligations of another in a lease.

Isaaks v Charlton Triangle Homes Ltd [2015] EWHC 2611 (Ch)

A tenant sought rectification of its lease and the alteration of the land register where the lease mistakenly stated that the third floor had been demised (rather than the second).

The Land Registry had refused to amend the register on the basis that it correctly recorded what was said in the lease, and said that the tenant should surrender the lease and enter into a fresh one with the landlord. To do so would have affected the tenant's mortgagee's security. Applying rule 126 of the Land Registration Rules 2003 and schedule 4 to the Land Registration Act 2002 ('LRA 2002'), the court held that the lease should be amended and the land register should be altered (rather than rectified). In respect of the latter it was irrelevant that the error was not the Land Registry's fault.

The Law Commission recently launched a consultation on revising the LRA 2002, including the provisions on altering the land register (see News in Brief).

Asset Land Investment plc and anor v Financial Conduct Authority [2016] UKSC 17

For the first time, the Supreme Court considered the definition of a collective investment scheme under section 235 of the Financial Services and Markets Act 2000, ruling that 'land-banking' arrangements were a collective investment scheme, and therefore was a regulated activity.

The court found that, although investors were the legal owners of their individual plots of land, the practical arrangement of the scheme was such that investors did not have control over their investments and the appellant (Asset Land) was the central operator of the scheme.

Bristol Rovers (1183) Ltd v Sainsbury's Supermarkets Ltd [2016] EWCA Civ 160

This Court of Appeal case related to 'the Pirates' home ground, the Memorial Stadium. Bristol Rovers had entered into a contract with Sainsbury's where completion was conditional upon Sainsbury's obtaining satisfactory planning permission. A restriction imposed on deliveries to the proposed store before 6am weekdays was not acceptable to Sainsbury's and Sainsbury's appealed, but unsuccessfully.

Sainsbury's terminated the agreement with Bristol Rovers, who argued that Sainsbury's refusal to allow Bristol Rovers to launch a further planning appeal in its own name was a breach of Sainsbury's 'all reasonable endeavours' obligation to obtain an acceptable planning permission and act in good faith. The Court of Appeal ruled in favour of Sainsbury's. The court found that the 'all reasonable endeavours' and good faith obligations were restricted by the specific terms of the agreement. In short, the Court of Appeal found that those obligations were curtailed by Sainsbury's specific obligations in relation to appeals, which did not extend to compel them to consent to a planning appeal by Bristol Rovers.

Padwick Properties v Punj Lloyd Ltd [2016] EWHC 502 (Ch)

A landlord can make arrangements to secure and re-let an empty property without unilaterally bringing about a surrender of an existing lease by operation of law. In this case, the tenant went into administration and the administrators returned the keys to the landlord and stated that responsibility for the security and safety of the property reverted back to the landlord. The landlord changed the locks and marketed the property to be re-let with vacant possession. Later, the tenant went into liquidation and the liquidator disclaimed the lease.

The landlord gave notice to the guarantor of the lease requiring it to enter into a new tenancy as per its guarantee obligations. The guarantor sought to argue that the lease had already been surrendered by operation of law and thus its obligations had ceased. The landlord argued that the lease was still in existence.

The court ruled in favour of the landlord that there had been no surrender by operation of law. The return of the keys was a unilateral act by the tenant and the landlord's agent had made it clear that no surrender was accepted – a letter from the agent to the administrators stating as such was a key factor in the court's decision. Security measures taken by the landlord after changing the locks were taken only to protect the property and did not mean that possession had been retaken.

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