Tenants wishing to assign their leases should ensure that they comply with the alienation provisions in the lease. If consent is required, and is not obtained, it could be an excluded assignment and the tenant (and any guarantor of the tenant) will not be released from liability for performance of the tenant covenants. This includes the payment of rent.
The decision in the case of E.ON UK plc v Gilesports Ltd is a warning to tenants wishing to assign their leases.
Gilesports held the property under a sublease. An application for consent to assign was made to the head landlord, and the form of the licence to assign was negotiated with the head landlord's solicitors. However, it was not until quite late in the day that the intermediate landlord (Central Networks who later became E.ON) was approached for consent to assign.
When consent to assign was not obtained by the deadline that Gilesports had imposed for the assignment, Gilesports assigned the lease anyway.
Following the assignment, but before the licence to assign was completed, the assignee became insolvent. E.ON sought a declaration that Gilesports remained the tenant under the lease and was liable to pay the rent arrears that had arisen since the unauthorised assignment.
The court decided that E.ON's consent was required to the assignment and, as it was not obtained, the assignment was an "excluded assignment" within the meaning of the Landlord and Tenant (Covenants) Act 1995. As such, Gilesports remained liable under the tenant's covenants in the sublease.
The court also considered the issue of delay in giving consent to an assignment, and concluded that E.ON did not, in this case, unreasonably delay in giving consent. Each case is always considered on its facts but here the judge held that:
- Eleven working days was a fairly short time to require the landlord to consider the implications of the transaction. The landlord had to consider the financial position of the proposed assignee (which was not good as events showed), the offer of a guarantee and a change of use;
- One of those days fell within the Whitsun half term break and, therefore, it was very likely people would be away. In fact, prior to completing the excluded transfer the tenant had been told that the landlord's managing agent would be away;
- The initial email did not state that the matter was urgent and at no time did the tenant suggest that the landlord was unreasonably withholding consent.
Although the landlord in this case was not guilty of unreasonably delaying in giving consent, the case is a reminder of the obligation of a landlord to deal with applications in a timely manner. For example, don't leave an application for consent on someone's desk while they are on holiday for a couple of weeks. Whether a landlord has unreasonably delayed will depend upon the facts of the case but as a general rule a landlord should give its decision within four weeks of an application being received.