Tindall Cobham 1 Ltd v Adda Hotels [2014] EWCA Civ 1215

Landlords will be aware of the various tricky questions raised but not answered in the case of K/S Victoria Street v House of Fraser (Stores Management) Limited [2011] EWCA Civ 904.  Not the least of them is how provisions for intra-group assignments can be made to work, given Lord Neuberger’s decision that a parent company which has guaranteed the lease obligations of its subsidiary cannot give a new guarantee on an intra-group assignment to guarantee the obligations of the assignee.  Such a guarantee would fall foul of the anti-avoidance provisions in section 25 Landlord and Tenant (Covenants) Act 1995.

In this case, the relevant clause stated (a) that the lease could not be assigned intra-group without the landlord’s consent, and (b) that the landlord could require a parent company guarantee as a condition of consent.  The Court of Appeal decided that, in the context of the alienation restrictions as a whole, the fact that a parent company guarantee could not lawfully be provided did not mean that the landlord had no option but to grant consent; much less that the tenant need not even seek consent (which is what happened here).  Instead, the clause had to be read as simply imposing a requirement for landlord’s consent.  The landlord’s ability to refuse consent was, though, subject to the usual requirement to act reasonably under s.19(1), Landlord and Tenant Act 1927.

This issue does not arise in relation to ‘old’ (broadly, pre-January 1996) leases.  Of course there are far fewer of them now, so it is an issue of day-to-day importance.  It is encouraging to see the Court of Appeal recognising the commercial realities of letting transactions underpinned by parent company guarantees, and interpreting lease provisions so as not to undermine that – where possible.  It must be emphasised, though, that the decision turned on detailed points of interpretation, not on issues of policy and principle, and was certainly not a foregone conclusion.  In another case, different wording might prevent a similar interpretation.

Also, it is still an open question what would happen if the clause had been of the other common type, providing that intra-group assignment with a parent company guarantee does not require landlord’s consent.  Would a court simply declare the whole intra-group assignment provision void, leaving the parties to operate the general provisions as to assignment?  The alternative would be for the group companies to regard themselves as free to assign without either parent company guarantee or landlord’s consent – this decision should give them serious pause for thought, at least.