When negotiating heads of terms for a new lease to a tenant company, a landlord should take care to ensure that the tenant company is a corporate entity with a legal personality. For example, a limited company would have the correct legal personality to take a lease. However, a branch company would not.
What is a branch company?
Overseas companies often set up branch companies in the UK during the early stages of international expansion, before a firm presence in the UK is established. The branch can conduct business on behalf of the foreign parent company in the UK and, if business takes off in the UK, a subsidiary company may then be set up in place of the branch.
The nature of a branch company is similar to that of a limited company. The branch is usually registered at Companies House with its own registration number and the letters 'BR' will precede that registration number to identify it as being a branch company. Specific details should also be filed, such as the constitutional documents, details of the directors and company secretary, the branch office address and the description of the type of business activities conducted. However, despite these similarities with a registered limited company, a branch is not a separate legal entity and as such does not have its own legal personality.
Landlords should take care therefore not to grant a lease to a branch company as it does not have the capacity to enter into the lease, nor can the covenants and obligations be enforced against it. A Landlord should insist that the overseas parent company enters into the lease in place of the branch company instead. The branch company's UK address could, of course, be used as an address for service in the UK for the purposes of the lease.