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Does your lease allow group company assignments?

19 November 2014

The Court of Appeal has recently attempted to clarify the interpretation of covenants dealing with intra-group assignments of leases.

Inevitably any interpretation is to some extent dependant on the particular wording of the covenant in the particular lease in question but the case of Tindall Cobham 1 Limited & Others v Adda Hotels & Others provides useful guidance to the way in which a Court would seek to interpret similar clauses.

The Tindall case addressed a not uncommon scenario feared by landlords following the Good Harvest line of cases [1] (which held that a guarantee given by an outgoing tenant’s guarantor of an assignee’s liability under a lease was void by virtue of the Landlord and Tenant (Covenants) Act 1995. 

There are a relatively significant number of leases in existence where the tenant has negotiated a special concession to the usual requirement for landlord’s consent to assign, such that any assignment to a group company does not need landlord’s consent provided that the parent company which had guaranteed the original tenant also guarantees the group company assignee.

Good Harvest established that such an obligation to give the parent guarantee on assignment is void and any guarantees which have been given in such circumstances are also void. 

Therefore the concern in Tindall was whether, given the landlord could not require the parent to guarantee the group company assignee, such a clause would allow the tenant to freely assign the lease intra-group without any landlord’s consent or guarantee package at all, which could significantly impact on the value of the landlord’s interest. 

The Court decided against deleting from the clause only the wording which was unlawful (namely the requirement for the outgoing tenant’s guarantor to guarantee the incoming tenant’s obligations) leaving the remainder of the clause intact. 

This would have effectively left the landlord unable to impose any conditions at all when giving consent to an intra-group assignment and could not have been what the parties had intended.

The Court instead ruled that the entire proviso to the clause (requiring the guarantor) should be struck out, leaving only the simple wording that the lease could not be assigned to a group company without landlord’s consent. 

This is a balanced provision which allows the landlord to consider an application for consent to an intra-group assignment in the circumstances at the time, but with the overriding obligation to act reasonably. 

As mentioned, each such case will turn on the wording of the particular lease in question but Tindall provides a useful indication of the way in which the Courts will be prepared to use common sense to get round the potential uncommercial effects of the anti-avoidance provisions of the 1995 Act. 

Courts in future may be prepared to avoid interpreting leases in such a way as to provide an unintended windfall to one or other of the parties.

As a result of this case landlords should perhaps rest easier knowing that the Courts may be prepared to construe similar provisions in a more commercial way than might have previously been feared following the Good Harvest and K/S Victoria Street decisions.


[1] Good Harvest Partnership LLP v Centaur Services Limited [2010] EWHC 330 (Ch)

K/S Victoria Street v House of Fraser (Stores Management) Limited [2011] EWCA Civ 904