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Lease assignments and requests for landlord’s consent – administrators and assignees beware!

28 Sep 2017

A lease assignment is where a tenant wishes to divest itself of primary liability for obligations under a lease by assigning the lease to a third party. This can happen either as part of a sale of a business (e.g. where the incoming tenant will continue the existing tenant’s business) or as an independent transaction (e.g. where the incoming tenant does not wish to take over the existing tenant’s business but just wants to trade from the particular property).

 

In each case however, the landlord’s consent to the assignment of the lease to the incoming tenant is almost always required. This is dealt with by a Licence to Assign.

 

The request for the landlord’s consent will usually be made by the existing tenant. However, anyone acting with the tenant’s authority can request the consent.

 

When a company in administration is seeking to assign a lease the incoming tenant may request the consent because the administrators will wish to limit the costs incurred in dealing with the transaction. In doing so however the incoming tenant (or its solicitors) must make it clear that they are acting with the existing tenant’s authority otherwise the consent request will not be valid.

 

The recent case of TCG Pubs Ltd (“TCG”) v The Art or Mystery of the Girdlers of London (“Girdlers”) (2017) highlights the pitfalls of a party other than the existing tenant applying for landlord’s consent to assign.

 

Facts

 

Girdlers was the landlord and TCG the tenant under a lease. TCG entered administration in September 2015 and sought to assign the lease to Stonegate Pub Company Ltd (“Stonegate”).

 

In November 2015, Stonegate (the incoming tenant) wrote to Girdlers requesting that Girdlers grant consent to TCG to assign the lease to Stonegate. The request for consent therefore came from the incoming tenant rather than the existing tenant. The letter from Stonegate to Girdlers did not mention that Stonegate were acting with TCG’s authority but in fact Stonegate had obtained TCG’s authority to write to Girdlers on TCG’s behalf.

 

The court decided that the letter from Stonegate to Girdlers was not a valid request for consent because, while Stonegate had TCG’s authority, it had not conveyed this fact to Girdlers. Accordingly, as far as Girdlers was concerned, the consent was not requested in accordance with the lease.

 

The consequences of this were that the Girdlers were under no obligation to deal with the application for consent until they had been informed that Stonegate were acting with TCG’s authority.

 

Conclusion

 

Applications for consent are often considered routine and fairly straightforward. However, this decision shows that the procedure of obtaining consent cannot be considered lightly and that particular circumstances need to be taken into account.

 

In particular, a landlord is under a legal obligation to deal with an application for consent to assign a lease within a reasonable time but only if the application is valid which it will not be if not made by the existing tenant or with that tenant’s authority which is communicated to the landlord.

 

Short Richardson and Forth LLP have acted for both landlords and tenants when assigning leases in administration and are aware of how to avoid the potential pitfalls so that the transaction proceeds smoothly. Please contact Chris Morgan, a solicitor in our commercial property department for further information.

 

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Tel: +44 (0)191 232 0283  ·  Email: info@srflegal.co.uk

 

Short Richardson and Forth Solicitors Limited is a private limited company registered in England and Wales under company number 10572065, authorised and regulated by the Solicitors Regulation Authority No 637150.

Short Richardson and Forth Solicitors Limited is a private limited company constituted and run in accordance with the provisions of the Companies Act 2006. The term “partner” has been used to denote individual senior solicitors employed by Short Richardson and Forth Solicitors Limited.