The Practical Lawyer

Landlord and tenant – commercial

Rent – T in administration (1)

The High Court has held that if T is in administration, and the company continues to use the premises, then the rent due to L must be paid as an expense of the administration. Thus, rent will rank ahead of sums due to preferential and other unsecured creditors.

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Virtual assignment – valid

Over the past year there has been much debate about the validity of virtual assignments, following a High Court decision in which it was held that a virtual assignment would nearly always be a breach of the ‘parting with possession’ covenant in a lease.

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Short-term lets – issues

L might be tempted to generate some cash by allowing an empty property to be occupied on a short-term let.

One complication to think about is dilapidations. If L is still pursuing a dilapidations claim against a former T, then granting a new tenancy (however short) could give rise to an argument that the dilapidations claim should fail because L has suffered no loss (through being able to re-let at a market rent). Whilst that argument may be rebuttable, it is a further complication that L will have to deal with.

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Rent – T in administration (2)

If T has gone into administration, L may well consent to an assignment of the lease to an assignee. In that situation, can L then sue the assignee for the earlier rent arrears?

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Sale of reversion – release of L

Under Landlord and Tenant (Covenants) Act 1995, if T assigns a ‘new’ tenancy, then T will only remain liable if an Authorised Guarantee Agreement (AGA) is signed to that effect. But, the release provisions for Ls are slight different. Under s6, if L assigns the reversion in the whole of the premises then L must apply to T to be released. The logic of this is that whereas L will usually have some measure of control over who comes in as T (through the terms of the lease), T will not usually have any corresponding control in respect of the assignee of the reversion. In other words, L can usually sell to whomsoever he wishes, and thus the requirement that L has to apply for a release will go some way towards redressing that balance of power.

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Lease renewal – L in administration

If a company is in administration, then no legal proceedings can be started without the permission of the court, or the administrator. So, if L goes into administration, can this ‘statutory moratorium’ be used to prevent T from applying to the court for a new lease?

In a recent case, on expiry of its lease, T had applied to L for a new tenancy under LTA 1954. L opposed the application because it planned to redevelop (Ground (f)). T’s normal response would be to apply to the court for the grant of a new lease, but L then went into administration, and the administrator refused consent to the court proceedings (because it wanted longer to put together a redevelopment scheme – which would probably have increased the value of L’s property from £4m to £6m).

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Virtual assignment – parting with ‘possession’

Virtual assignments are still commonplace in large corporate transactions. For instance, if a seller has dozens of leasehold properties it may not be practical to apply for consent to assign for each property before completion of the deal. Formal consent will often only be applied for after completion of the transaction, with a virtual assignment being used as a stop-gap until the formal consent of L is obtained. On other occasions, no formal consent will ever be obtained and the parties will simply rely upon the virtual assignment.

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Homelessness – priority need

The categories of priority in both England and Wales are:

pregnant woman (and partner);

has dependent children;

vulnerable due to old age, mental illness of physical disability, or special reason (or partner of such a person);

homeless due to an emergency (eg flood, fire).

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Former T – liability?

We all know that the rules on the liability of former Ts were changed by the Landlord and Tenant (Covenants) Act 1995. A former T of an ‘old’ lease (pre-1996) will usually remain liable under privity of contract, even after the lease has been assigned. On the other hand, a former T under a ‘new’ lease (post-1995) will not be bound by privity of contract and T’s liability will have ceased on assignment, unless T entered into an Authorised Guaranteed Agreement.

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Company – dormant T

L may grant a lease to T, only for T to subsequently become a ‘dormant’ company.

If a company is dormant, then by definition it is not trading, and that can be unsatisfactory from L’s point of view. Apart from the fact that it may not have sufficient assets to cover any default, the fact that there is a non-trading T could have an adverse effect on capital value when L comes to sell. After all, if the dormant T is holding the lease, then it will be easier for other group companies to allow them to go into liquidation (and have the lease disclaimed) without that affecting the rest of the companies within the group.

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