Tindall Cobham 1 Ltd v Adda Hotels [2014] EWHC 2637 (Ch)
In Tindall Cobham 1 Ltd v Adda Hotels [2014] EWHC 2637 (Ch), Kirk Reynolds QC appeared for the successful Claimant landlords. The dispute arose out of the assignment of leases of hotels and associated premises vested in the First and Second Defendants, of which the Third Defendant was the original guarantor. The assignments were made without the consent of the Claimants being sought. The Defendants’ case was that there was no need to seek such consent under the terms of the leases on their true construction. The relevant provision of the leases was a covenant relating to intra-group transfers of the leases. This provided that such a transfer would only be permitted if (a) the consent of the landlord was sought, but that (b) consent would be forthcoming once two conditions were fulfilled, namely (i) the giving of notice of the transfer in advance and (ii) that the original tenant’s guarantor become the assignee’s guarantor. The Defendants contended that condition (ii) was void because it offended the anti-avoidance provisions in section 25 of the Landlord and Tenant (Covenants) Act 1995, as interpreted in K/S Victoria Street v House of Fraser [2012] Ch. 497. Without that condition, the Defendants contended that all they were required to do was to give notice of the assignment in accordance with condition (i). The effect of this argument, the Defendants contended, was that the leases could be assigned (even on the day that they were granted) to essentially worthless shell companies (being the rest of the Defendants), but also with the Third Defendant (a company of substance) thereby released from its liability as guarantor.
Peter Smith J accepted the Claimants’ submission that the clause should nonetheless be construed so as to enable the landlord to require the outgoing tenant to provide a guarantor for the incoming tenant, or, secondarily, to create a free-standing entitlement (shorn of the offending second condition) to refuse consent to the intra group assignment. Any other interpretation, by which intra-group transfers could lead to the release of guarantors and permit transfers to insubstantial companies within the same corporate group with no real assets, offended commercial sense and the clear commercial purpose underpinning the assignment provisions of the leases in question. Accordingly, on the construction of the leases in question, Peter Smith J avoided the “capricious” effects resulting from the decision in K/S Victoria, which the Court of Appeal in that case recognised as the possible consequence of their reasoning.
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