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30th January 2015

A warning to take care when assigning leases

A recent Court of Appeal decision, Lankester & Son Ltd v Robert David Rennie and Anne Rennie, highlights the importance of a tenant complying with the relevant assignment formalities when they assign their lease to a third party.

If they fail to do so, then the lease remains vested in the tenant, and the tenant will still have to comply with their obligations in the lease.

In this particular case, the Landlord leased a car showroom to the Tenants. The Lease contained a provision which stated that, if the Tenants wanted to assign the Lease, then they would need to obtain the Landlord’s consent.

Approximately a year later, the Tenants approached the Landlord regarding assigning the Lease. The Landlord indicated that it would consent to the assignment if the proposed assignee’s directors provided personal guarantees that the assignee would comply with the Tenants’ obligations in the Lease.

A month later, the Tenants vacated the Premises and the intended assignee moved in. However, there was no formal assignment although a solicitor held a signed but undated deed to transfer the Lease. The assignee began to pay rent direct to the Landlord. However it later decided to vacate the premises, saying that it could not accept the assignment terms. After various communications between the parties, the Landlord commenced proceedings against the Tenants for rent arrears and other sums.

In the County Court, the Tenants argued that the Lease had been assigned to the proposed assignee, thus they were no longer liable for the rent arrears. But the Court did not agree with the Tenants and held that the Lease had not been assigned. There were various outstanding matters, one of which was that the Landlord had continued to insist on the assignee’s directors providing personal guarantees as a condition of consenting to the assignment and these had not been given.

The Tenants appealed on several grounds. For one thing, they argued that the Landlord was “estopped” (i.e. prevented) from asserting that the proposed assignee was not its tenant for two reasons. First, there was an “estoppel by representation”: the Landlord had represented that the assignee was now its tenant by taking rent from it and allowing it to make improvements. Second, there was an “estoppel by convention”: the Landlord and Tenants had acted on the common assumption that the assignee was now the Landlord’s tenant.

However, the Court of Appeal agreed with the County Court not only that there had been no effective assignment of the Lease but also that the Landlord was not estopped from asserting that the assignee was its tenant. There was no estoppel by representation: the Landlord may have represented to the proposed assignee that it was now its tenant but not to the Tenants and the Tenants had not acted to their detriment in reliance on anything said or done by the Landlord. Neither had there been an estoppel by convention: there had not been a shared understanding between the parties about their relationship and the parties had never conducted themselves on the basis that there had been. The Court concluded that the original Tenants remained the tenants under the Lease and bound by the covenants it contained.

The case is an apt reminder to tenants to comply with all formalities required for an assignment of lease to avoid remaining liable for payments and other obligations under the lease.

For more information, please contact Sandeep Jandu on 01908 247010 or click here to email Sandeep.

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