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Tenant's personal break right

Published: 14th January 2010

NorwichUnion Life & Pensions v. Linpac Mouldings Limited [2009] EWHC 1602 (Ch)

Summary

The High Court confirmed that a Landlord was entitled to withhold consent to an assignment of a lease on the basis that the proposed new Tenant had the right to break the lease under a personal break right.

Facts

This case concerned a 99 year lease granted in the 1970s. In 1986, the Landlord granted consent to an assignment of the lease to Linpac. As part of the assignment, the Landlord and Linpac agreed a break right which was personal to Linpac i.e. only Linpac was entitled to break the lease and not any other party to whom it sold its interest in the lease.

Linpac subsequently assigned the lease in 2005. It remained liable for the rent and the tenant covenants by virtue of a covenant it had given to the Landlord in a Licence to Assign to pay the rents and observe the tenant covenants in the lease for the remainder of the term.

The assignee, Ecomold, eventually went into administration. The administrators applied for Landlord's consent to assign the lease back to Linpac.

If that assignment had been allowed to take place, the Landlord argued that Linpac would exercise the break right and that would obviously be disadvantageous to the Landlord.

In fact, Ecomould went ahead and assigned the lease to Linpac without the Landlord's consent and Linpac attempted to exercise the break option.

Decision

The purported assignment of the lease by Ecomold to Linpac was unlawful because Landlord's consent had not been obtained. However, the Court said that, even if Landlord's consent had been obtained, the personal break right would not have been "revived" by the assignment.

The High Court said this did not accord with commercial common sense because it would effectively have allowed a personal concession given to a prior Tenant to remain in suspended animation pending a possible assignment back to that Tenant in future. The Court said such an uncertainty would not have been intended by the parties.

Further, the Court thought that, even though the break right would not be revived by the assignment, the Landlord was still acting reasonably in its refusal to consent on the basis of its belief that the break right would be exercised.

If you would like to discuss any of the issues raised in this article please contact Karl Jackson in our Real Estate department on 0161 214 0500.