Complying with an obligation to grant an option and a subsequent application
Michael Harrigan, Commercial Property Paralegal looks at the implications of the recent TCG Pubs Ltd and another v The Art of Mystery of the Girdles of London 2017 EWHC case.
The tenant of the property, TCG, went into administration with its assets purchased by Stonegate Pub Company Ltd. TCG and Stonegate subsequently set about procuring an assignment of the lease. The lease provided that if the tenant wished to assign or sublet the pub it “must first grant an option to the landlord” who then had 60 days in which to exercise the option and buy back the residue of the lease term at the then current open market rent. If the landlord did not choose to buyback the lease then the tenant could assign the lease with the consent of the landlord, such consent not to be unreasonably withheld or delayed.
The solicitors to the administrators wrote to the landlord offering them the opportunity to buy the lease for the sum of £1.7 million who believed this was sufficient to trigger the buyback right in the lease. The following day, Stonegate’s lawyers wrote to the landlord requesting permission to assign the lease to Stonegate. The request therefore came from the proposed assignee and not the tenant. The landlord decided not to accept the offer to buy-back the lease as they could not afford it.
The landlord’s lawyers subsequently wrote to Stonegate’s lawyers and said that, subject to the request coming from the tenant’s administrators, they had no objection in principle to the assignment subject to certain conditions, including the provision of a six month rent deposit. Stonegate’s lawyers replied confirming that they had the authority of the tenant to approach the landlord for its consent.
The most important question identified by the judge was whether the second letter from the proposed assignee was adequate and a valid application for permission to assign.
The court found that the letter from the proposed assignee’s solicitors did not constitute a valid request for consent, as the letter did not confirm that the application was being made with the administrator’s authority.
As a result, when served, the second letter was not a valid request. Once the fact that the proposed assignee was acting with the authority of the tenant was confirmed then thereafter the application would be valid and the clock would start running for the purposes of the “reasonable time” given to a landlord to respond by virtue of section 1(3) of the Landlord and Tenant Act 1988.
The most practical point for practitioners is the clear stance that the judge took on the prospective assignee applying for the licence to assign. It is not unusual in a business purchase situation, particularly where the tenant is insolvent, for the parties to agree that the prospective assignee will approach the landlords for consent to assign the various leases that the business holds.
Administrators want to drop out of the picture as soon as possible to save on costs and the buyer is in a better position to coordinate the consents and amalgamate the properties into its existing portfolio. Although this is an acceptable approach, the judge made it clear that the prospective assignee must spell out to the landlord that, in seeking consent to assign, it is acting with the authority of and on behalf of the tenant.