How not to assign a lease

Steeles Law Head of Real Estate Michael Fahy and Trainee Solicitor Laura Tanguay consider the High Court decision of E.ON UK plc v Gilesports Ltd [2012] EWHC 2172 (Ch) on landlord’s consent for assignment.

Introduction

This case is a useful illustration of how not to assign a lease. We outline the facts of this case and review what can happen when a tenant assigns its sublease to another party without first obtaining the immediate landlord’s proper consent.

Consent to Assign

It is typical for a lease to provide (as this sublease did) that an assignment may only be completed with the landlord’s prior written consent, such consent usually taking the form of a Licence to Assign. A tenant must therefore make an application to its landlord for it to consider. Under section 1(3) of the Landlord and Tenant Act 1988, landlords must consider and respond to a tenant’s request within a reasonable time frame, and, if consent is refused, provide the tenant with the reasons for such refusal in writing.

The Facts

In this case, an application for the landlord’s consent had been sent via email, which was not in accordance with the terms of the sublease which incorporated section 196 of the Law of Property Act 1925 (as amended by the Recorded Delivery Service Act 1962) for the service of notices (i.e. that notices must be left at the landlord’s last known place of business or sent by Recorded Delivery). The landlord did not respond to the request and so no consent was received by the tenant. Despite this, 11 days after submitting its request, the tenant completed the assignment of the sublease. As consent had not been given, the landlord sought to recover rent from the tenant post assignment. In court, the tenant argued that the landlord had unreasonably delayed in giving consent and it should therefore be deemed to have consented.

Judgment

It was held that service of the tenant’s request by email was not sufficient to trigger the landlord’s statutory duty to consider the application under section 1(3) LTA 1988. The application should have been served in accordance with the provisions of the sublease. Even if service by email had been sufficient, the court stated that 11 days was too short a period to hold that the landlord had been unreasonably in its delay. Unfortunately for the tenant, the bad news did not end there; as the assignment was never registered with the Land Registry (in breach of covenant) and so by virtue of section 7 LRA 2002, the assignment of the sublease became void and reverted back to the tenant. As such, the tenant was still the current tenant (and not the ‘former tenant’) for the purposes of the section 17 notice for rent demanded under LTCA 1995, and therefore, its liability for rent arrears was not limited by this section.

If you require advice on any issues raised in this article please contact Michael Fahy on 020 7421 1720 or [email protected].