A common way of securing retail or office space is to take an assignment of a lease from an existing tenant. Leases usually contain a requirement for landlord’s consent to such an assignment. A recent case has highlighted the importance of ensuring that if the proposed assignee makes the application, they specifically confirm that they have the authority to do so.
Background
TCG Pubs Limited and another v The Art or Mystery of the Girdlers of London [2017] EWHC 722 (Ch) involved a dispute between the tenant (in administration) (TCG) and the defendant (Girdlers) in relation to the proposed assignment of a lease of pub premises in London. The lease contained a provision prohibiting assignment without the consent of the landlord, such consent not to be unreasonably withheld.
The facts
The tenant went into administration and its administrators entered into a business purchase agreement with a purchaser. Amongst other disputes (related to a landlord right of first refusal), the tenant claimed that it had sought consent to assign.
The landlord disputed whether the tenant (as opposed to the assignee) had made a valid application for consent. As is often the case with insolvency scenarios, the proposed assignee’s solicitors purported to apply for consent to assign. The letter did not give any indication that it was written on behalf of the tenant or written with the tenant’s authority.
Whether a valid application had been made impacted on whether the landlord had acted reasonably, but also on when the “clock” started and whether a related first refusal deadline had expired.
The business purchase agreement gave the proposed assignee authority to make the application (on behalf of the existing tenant). However, the application letter did not mention this. The judge ruled that the initial application for consent to assign was therefore invalid on the basis that the application did not explicitly make clear that it was being made with the tenant’s authority. While the judge ruled that the application was subsequently validated (from the date that authority to make the application was communicated), this resulted in the clock starting at a later date.
Conclusion
This provides a useful reminder that if the proposed assignee does make the application for consent to assign, it needs to be made absolutely clear that the assignee is acting with the authority and on behalf of the existing tenant. Otherwise the clock will not start running for the purposes of whether the landlord has responded within a “reasonable time” until the authority is communicated to the landlord.
This could be particularly significant if it is important to commence trading from the site promptly, for example to ensure the continuity of trading or avoid losing any goodwill. As court proceedings often take some time to be determined, a question over the validity of an application can create significant unnecessary uncertainty.
The first application to assign, or indeed any other notice given under the lease, forms an important part of the assignment process and it is therefore important to get legal advice on the content and service of such notice.
