It is not uncommon for Tenants who want to sell or transfer (‘assign’) their Leases to someone else, to allow that third party to take over the premises before the legal formalities have been completed. Sometimes they do not even bother with the legal formalities.
This happened in Lankester & Son Limited v R D Rennie & A Rennie. The Tenant (T) took a Lease of a car showroom in 2007 but the following year decided that it wanted to pass the Lease on to a third party (A). As is common with most commercial Leases, T needed the Landlord’s (L) permission which would only be forthcoming if certain conditions were met (mainly relating to guarantees for payment of the rent etc).
Things drifted on until 2010, by which time T and A had signed a transfer of the Lease from one to the other but had still not complied with L’s conditions. In fact T had already allowed A into occupation of the premises by then and A was by now paying rent directly to the Landlord.
Although L and A came to a deal between them by the time T wanted to come off the lease, no deal had been reached between L and T.
The Court of Appeal found that even if T and A had completed the transfer of the Lease as between themselves, it would not have been legally effective, as T had not obtained L’s permission and complied with L’s conditions. Although L had been accepting rent from A for some time and had settled its differences with A, T was still the lawful tenant and must pay any arrears of rent etc which L had not been able to recover from A.
Solicitors often advise their Tenant clients not to allow anyone into occupation of the premises before the legal formalities have been completed. In this case, not only did T have to pay the outstanding arrears of rent but also substantial sums in legal costs. Tenants beware!