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Commercial Tenants told to Mind the Gap

Mind the Registration Gap

Mind the Registration GapA recent High Court case has emphasised the importance of getting assignments of leases registered before the new tenant takes any steps under the lease.  In Sackville UK Property Select II (GP) No. Ltd v Robertson Taylor Insurance Brokers Ltd [2018] EWHC 122 (Ch), Sackville leased some premises in London to Robertson.  The term of the lease began on March 2013 for 10 years.  The lease contained a break clause allowing the tenant to terminate the lease on 14 March 2018, with not less than 9 months’ written notice. The term “tenant” was broadly defined to include, “…any person in whom this Lease may from time to time be vested by whatever means…”. The lease was registered with the Land Registry.

At the end of March 2017, Robertson assigned the lease to Integro Insurance Brokers Ltd.  Notice of the assignment was given to the Sackville in April 2017. At the beginning of May 2017, Integro served a break notice on the landlord – well within the contractual notice period.

Break notice invalid due to failure to register assignment
Integro did not comply with its obligation in the assignment to apply for registration within ten business days after the completion of the assignment.  In fact, the registration of the assignment was not completed until 7 July 2017.  Sackville argued that the break notice was not valid because, at the time of service, Integro was not the legal tenant.

The Court agreed with Sackville.  The Court held that the terms of the lease required that a break notice must be served by the tenant.  Due to the registration gap, the tenant in this case was Robertson and not Integro.  The Court emphasised that any equitable rights or powers of disposition held by Integro did not change the fact that the contractual terms of the lease required the notice to be served by the legal tenant.

Integro’s solicitors gave evidence to show that Integro and Sackville were both subsidiaries of the same holding company.  Further, Integro’s evidence showed that Sackville had understood and accepted that both Robertson and Integro were represented by the same solicitors and were aware of the group relationship. Consequently, Integro argued that a reasonable recipient of the break notice would have understood that the server had intended to give the name of the original tenant. This argument was rejected by the Court.

PHOTO: Elizabeth Deyong, Head of Commerical Property at Barr Ellison

Elizabeth Deyong is Head of Commercial Property at Barr Ellison Solicitors

Timely registration important
This case serves as a lesson, if one is needed, that all aspects of legal process must be carried out correctly and without delay.  In the case of the assignment of a registered lease, the assignee must register the lease as quickly as possible to minimise the gap between execution of the assignment and registration of the assignment with the Land Registry. Until the registration of the assignment is complete, the assignee will not be the legal tenant and a broad definition of the term “tenant” in the lease may not confer the assignee tenant’s rights.

Assignor obligation essential in event of registration delay
Consequently, if an assignee intends to immediately rely on any clauses in the lease, especially the break clause, then the assignee will need to take steps to ensure that the assignor is legally obliged to carry out the assignee’s instructions.  This obligation would also cover the assignee in a situation where the Land Registry delays registration due to an administrative backlog. Ensure that the assignor is legally obliged to carry out the assignee’s instructions. This can be done as an assignor obligation in the assignment document itself or as a separate simple agreement.  Obtaining the assignor’s cooperation by way of a legal obligation is a simple, easy and cost-effective step that is often ignored. This can lead to costly consequences for the assignee.

For more information please contact Elizabeth Deyong (email: e.deyong@barrellison.co.uk) (telephone: 01223 417 267).

Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.

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