E.ON UK plc v Gilesports Limited : Section 1(3) of the Landlord and Tenant Act 1988 BRIEFING. Introduction

Transcription

1 E.ON UK plc v Gilesprts Limited : Sectin 1(3) f the Landlrd and Tenant Act 1988 BRIEFING Intrductin A tenant applicatin fr cnsent t assign a lease can smetimes prve a fractius affair and can strain relatins between landlrd and tenant. Smetimes, the landlrd is nt in favur f the prpsed assignee r simply fails t prvide its cnsent in a timely fashin. Bth circumstances can frustrate a tenant wishing t exercise its right t assign. Tenants may use the prvisins f the Landlrd and Tenant Act 1988 ( LTA 1988 ) as a means f ensuring that a landlrd des nt unreasnably withhld r delay cnsent t a tenant assignment. Sectin 1(3) f the LTA 1988 cmpels the landlrd t give its cnsent within a reasnable perid f time r, in the alternative, give reasns fr its refusal. Breaching these bligatins will allw the tenant t either prceed t assign the lease r seek a declaratin frm the curt. The prevailing view is that the prvisins f the LTA 1988 lay the nus squarely n the landlrd and that any breach f its duties will allw the tenant t prceed with the assignment. The E.ON UK plc v Gilesprts Limited case challenges this view and shuld be seen as a warning t tenants that they must adpt a practive apprach when applying fr cnsent t assign. Facts E.ON UK plc purchased the head lease f premises frm Central Netwrks East plc ( Central ), but at the relevant times, Central held the head leasehld interest. Gilesprts Ltd ( Gilesprts ), a subsidiary f Sprts Direct Internatinal plc ( Sprts Direct ), had a sublease f the premises which it shared with the Original She Cmpany Ltd ( OSC ) by way f a grup cmpany sharing prvisin in the sublease. This prvisin permitted sharing nly fr as lng as the cmpanies remained part f the same grup. On 29 January 2008, JJB Sprts plc ( JJB ) bught OSC frm Sprts Direct, and therefre as OSC was n lnger part f the same grup f cmpanies, Gilesprts sught t assign the premises t OSC. A deadline t cmplete the assignment t OSC was set by Sprts Direct fr the end f May Page 1 f 5

2 Gilesprts slicitrs, having already btained the superir landlrd s cnsent t assign in early 2008, belatedly sught the cnsent f its immediate landlrd, Central, n 2 May 2008 by way f an sent t Central s managing agent. Hwever, Gilesprts slicitrs nly prvided a set f OSC s accunts (as it was bliged t d s under the lease) t Central n 9 May Cntact between Gilesprts slicitrs and Central s agent prgressed during May, but as Central had t cnsider the financial status f bth the assignee and its guarantr JJB, it was nt in a psitin t cnsent t the assignment by the end f May. At n pint in any crrespndence did Gilesprts slicitrs infrm Central that the assignment needed t cmplete by the end f the mnth. Added delays were caused because: The applicatin als requested a change f use; Central s agent was away n annual leave, and Credit reprts shwed that OSC had made a 7.6 millin lss. Cntact cntinued between the Central and Gilesprts slicitrs during 2008, in which time JJB withdrew its ffer t act as guarantr t OSC. In early 2009, OSC went int administratin and shrtly afterwards Central (still ignrant f the fact that the lease had been assigned t OSC) realised that Gilesprts had nt paid rent since April Accrdingly, it served a ntice (s.17 f the Landlrd and Tenant (Cvenants) Act 1995) n Gilesprts claiming payment f unpaid rent. The issues The main issues were: 1. Was the applicatin fr cnsent apprpriately served n 2 May 2008 by Gilesprts slicitrs? 2. If s, did Central unreasnably delay in respnding t the applicatin t assign in breach f its duties under the LTA 1988? There were als ther issues regarding failure t register the assignment, which are utside the scpe f this Briefing. Despite this, Gilesprts withut the knwledge f Central, assigned the lease frm Gilesprts t OSC n 28 May Page 2 f 5

3 Was the applicatin fr cnsent apprpriately served n Central? This was a fairly straightfrward issue t address. Gilesprts slicitrs relied n the they sent t Central s agent n 2 May 2008 as evidence f service. There was n dubt that this was a written applicatin fr cnsent. Hwever Central cntended, that the culd nt be deemed gd service by way f the Law f Prperty Act 1925 ( LPA 1925 ). In the absence f any service prvisins in a tenancy agreement, sectin 196 f the LPA 1925 requires service f any ntice by either physical delivery t the last knwn place f abde r business f the landlrd r by registered pst. The Curt held that the applicatin was nt crrectly served. Cnsequently, the remaining issue abut the landlrd s duties under the LTA 1988 did nt have t be addressed as the LTA 1988 (and hence the landlrd s duties) nly applies nce an applicatin has been crrectly served n a landlrd. If the applicatin had been validly served, did Central unreasnably delay in respnding t the applicatin t assign? Althugh fairly academic by virtue f the finding abve, the Curt did cnsider what the cnsequences wuld have been fr the parties if the applicatin fr cnsent had been served crrectly. The lease prhibited assignment, save withut the cnsent f the landlrd which was nt t be unreasnably withheld. Had the applicatin been served crrectly, this qualificatin wuld have invked the prvisins f the LTA 1988, namely that Central, as landlrd, had a duty t either grant r refuse (with reasns) its cnsent within a reasnable time f receipt f the applicatin. In terms f what cnstitutes reasnable time, the Curt drew reference t the psitin as set by case law. It cnfirmed that whilst time shuld be measured in weeks instead f mnths, it was in neither party s interest fr the decisin t be rushed. Furthermre, regard had t be given t nt nly what the parties knew at the date the applicatin was served, but als subsequent events. Applying this t the facts, the Curt utlined the fllwing reasns as t why the time given t Central t cnsider the applicatin was insufficient and why Central had nt breached its duties under the LTA 1988: Time started running nt frm the 2 May 2008, when the initial was sent by Gilesprts slicitrs, but nly nce Central received OSC s accunts n 9 May 2008; Cnsequently, the time frm 9 May t 28 May 2008, a perid f 11 wrking days, was far t shrt fr Central t be able t fully cnsider the implicatins f the assignment, especially given that it had t cnsider nt nly the Page 3 f 5

4 financial standing f OSC, but that f JJB as guarantr; The changing financial situatin meant that Central needed t take mre time t evaluate the prpsed assignment; Gilesprts slicitrs had failed t mentin in crrespndence t Central, either in the initial f 2 May 2008 r in subsequent crrespndence, the urgency f the matter, give reasns fr the urgency r set a deadline, despite having numerus pprtunities t d s; Gilesprts slicitrs als failed t remind Central f its duties under the LTA Therefre, there was n way that Central was t knw that the matter was urgent. The Curt ruled that even if the ntice had been served crrectly, Central had nt delayed in giving its decisin. Accrdingly, Gilesprts had breached the assignment cvenant by assigning t OSC withut cnsent. As a result the transfer was vid and the lease reverted t Gilesprts wh were then bliged t adhere t the tenant s cvenants and in particular the bligatin t pay the significant rent arrears. Implicatins f E.ON UK plc v Gilesprts Limited The main implicatins arising frm this case are that: 1. If the prvisins in either the tenancy agreement (r in the absence f such, the LPA 1925) relating t service are nt adhered t, the tenant cannt rely n the prvisins f the LTA It may then face a situatin where the landlrd refuses t act upn the applicatin and it will have n statutry prtectin t fall back n. 2. Upn serving the applicatin, the tenant shuld alert the landlrd f any deadlines, r at least highlight that the matter is urgent. It shuld als remind the landlrd f its duties under the LTA A tenant must view this as an nging bligatin and prperly manage the timetable f the applicatin prcess taking int accunt hlidays and any ther factrs that may delay the landlrd granting cnsent, such as financial checks. The timetable shuld als take int accunt the fact that the landlrd will need time t discuss the issues with its advisers. Failure t d s can prve fatal t the ability t rely n the LTA 1988 in respect f unreasnable delay arguments which a tenant might therwise seek t rely n. Cnclusin This case is a salient reminder that tenants must nt apprach the assignment prcess in a halfhearted manner and simply rely n the LTA 1988 t frce an assignment thrugh. Tenants need t be practive, cmmunicate effectively with the landlrd and diligently manage the applicatin Page 4 f 5

5 prcess. A failure t d s may result in a vid transfer with the effect that the utging tenant will still be bund by the terms f the lease. Fr further details please cntact: Rbert Btkai Partner : Winckwrth Sherwd Slicitrs DT rbtkai@wslaw.c.uk Andrew Nayager Slicitr : Winckwrth Sherwd Slicitrs DT anayager@wslaw.c.uk Page 5 f 5