When a lease is granted to an incorrect limited company, how should the court approach its interpretation of the lease when determining a claim for possession?
In Seafood Shack Limited v Alan Darlow , a 25-year lease of a restaurant was granted to ‘Seafood Shack UK Ltd’, a company which did not exist. ‘Seafood Shack Limited’ and its wholly owned subsidiary ‘Seafood Shack (Cardiff) Ltd’ were both incorporated the year before the lease was granted. Seafood Shack (Cardiff) Ltd traded from the premises but subsequently went into liquidation. The liquidators disclaimed any interest in the premises and the landlord took back possession.
Seafood Shack Limited (“SSL”) claimed that it was the intended tenant and that the lease should be interpreted, or rectified, to reflect as such. SSL sought damages from the landlord for repossessing the premises unlawfully. The landlord denied both claims. The County Court was asked to consider whether SSL was a party to the lease, whether the lease should be rectified and if so, whether the landlord lawfully took back possession or whether SSL is entitled to possession of the premises.
The County Court found in favour of the landlord, concluding that it had taken possession lawfully and that the existing companies did not enjoy any rights of possession over the premises.
The Court held that there was no contractual interpretation principle to guide it as to whether SSL or its subsidiary was the intended tenant. The parties had not mutually misunderstood the tenant’s identity, and the landlord had not been aware of the existence of SSL or its subsidiary; as a result, the lease could not be rectified to correct a misunderstanding or misinterpretation. Although it was felt that the existing companies, most likely the subsidiary, had accrued basic rights of occupation whilst trading, these had ceased when the liquidators disclaimed the property.
Advice and action for landlords
It is, of course, recommended that landlords ensure appropriate due diligence is undertaken prior to granting any lease. In this case, some basic checks with Companies House would have highlighted that the tenant’s identity was incorrect.
In any event, it is reassuring to landlords that where there is no demonstrable misunderstanding or lack of clarification, the court will follow the wording of the lease itself as a starting point.
The County Court found in favour of the landlord, concluding that it had taken possession lawfully and that the existing companies did not enjoy any rights of possession over the premises. Any rights that the subsidiary accrued during occupation ceased on the liquidators’ disclaimer of the property.