Assignment of a Lease

When a tenant wants to assign its lease, it will usually need to obtain consent to the proposed assignment from its landlord. If a lease is assigned without obtaining the required consent, the assignment will normally be valid, but the tenant will remain liable to the landlord for the rent and to comply with the obligations in the lease.

Where the assignment of a lease is a standalone transaction, the correct procedures are usually followed. However, where the assignment takes place in the context of a wider business transaction, such as the sale of a business, it is easy to overlook the technical details. The recent case of E.On UK plc v Gilesports Ltd [2012] EWHC 2172 (Ch) illustrates some of the pitfalls.

In this case, an application for landlord’s consent had been sent by e-mail by the tenant’s solicitors to the landlord’s managing agents. Normally, where the landlord receives an application for consent, it is under a statutory duty to consider the application within a reasonable period of time and, if it objects to the assignment, to give its reasons in writing to the tenant. In the E.On case, the court held that service of the tenant’s request by e-mail to the landlord’s managing agents was not sufficient to trigger the landlord’s statutory duty to consider the application. The tenant’s lease contained provisions stipulating how notices should be served. The application for consent should have been served in accordance with those provisions in order to trigger the landlord’s statutory duties.

Eleven days after providing accounts for the proposed assignee, the tenant assigned the lease to the new owner (the assignee), without having obtained landlord’s consent. The assignee ceased to pay rent, and the landlord therefore sought to recover it from the tenant, on the basis that as no consent had been obtained, the tenant was still liable under the lease.

The tenant tried to argue that the landlord had unreasonably delayed giving consent and it should therefore be deemed to have consented to the assignment. The court rejected this argument both on the basis that the statutory duty to consider the tenant’s request had not arisen and, even if the duty had arisen, eleven days was too short a period to expect the landlord to reach a decision on the tenant’s request.