When a tenant wishes to assign his lease to another party, consent from the landlord may be required. If it is required, then the tenant, and any guarantor of the tenant, will only be released from liability once consent is received.
The case in July 2012 between E.ON UK plc and Gilesports is an interesting example of what can go wrong if the procedure is not correctly followed.
It must be said that this case did involve quite a few parties and was part of a wider business transaction, so one can understand that it could have gone wrong. Here is a brief summary of the case:
- The freehold interest was owned by the Royal London Mutual Insurance Society and the head leasehold interest was vested in E.ON, which had acquired it from the original tenant, Central Networks East plc
- Gilesports held the retail premises in a shopping centre under a sublease from E.ON. Their parent company, Sports Direct, decided to put another of their companies, OSC, into the shop, which was permitted under the lease, as long as the parent owned both Gilesports and the new occupier
- In 2007, Sports Direct sold OSC, so decided to assign the interest in the sub-lease from Gilesports to OSC
- Unfortunately, Sports Direct incorrectly identified its immediate landlord as being the freeholder, Royal London
- Eventually an email was sent to E.ON, requesting consent to assign
- When the deadline was reached, 11 days after the email was sent, consent had not been received, but Gilesports decided to assign the sub-lease anyway
- The assignment was not registered at the Land Registry
- When OSC went into administration in early 2009, E.ON wrote to Sports Direct asking for payment of rent arrears
- Sports Direct advised that the sub-lease had been assigned the previous year, so they weren’t liable for the rent. E.ON disagreed and took Gilesports to court
In the ensuing court case, the High Court decided that, as per the terms of the lease (the sub-lease contained the same terms as the lease), consent was required from E.ON and that, because it wasn’t, then the assignment was an "excluded assignment" within the meaning of the Landlord and Tenant (Covenants) Act 1995. This also meant that Gilesports was liable to the rent arrears.
Gilesports’ position was that E.ON had unreasonably delayed in giving its consent to the assignment and it was therefore lawfully entitled to assign. However, the court also ruled that the statutory duty of the landlord to consider the request had not been triggered, because the request was sent by email, which was not in according with the terms of the lease for the serving of notices. The court also ruled that 11 days was not an unreasonable delay for the landlord to consider the request (which had not even been marked as urgent).
Gilesports was ordered to pay. You can read the full judgment details here.
David is the former CEO of The Sheriffs Office.