Group Assignments – The 'Obvious Solution'

The recent Court of Appeal decision in Tindall Cobham 1 Limited & Others v Adda Hotels (An Unlimited Company) and Others [2014] EWHC 2637 (Ch) ("Tindall Cobham") has been welcomed by concerned landlords following the previous case of K/S Victoria Street v House of Fraser (Stores Management) Limited and others [2011] EWCA Civ 904 ("K/S Victoria").

In K/S Victoria, the Court of Appeal held that any agreement requiring a current tenant's guarantor to guarantee the obligations of an incoming tenant (an assignee) would be void under Section 25 of the Landlord and Tenant (Covenants) Act 1995 ("the LTCA"). Many leases which were granted before K/S Victoria would have contained such a provision as in this case. Until Tindall Cobham, it was unclear how the Courts would deal with such a provision.

This decision from the Court of Appeal shows that the Courts will interpret leases affected by Section 25 of the LTCA in a practical and commercial way and not merely render entire clauses void.

Facts

Adda Hotels and Puckrup Hall Hotel Limited ("the Tenants") were subsidiaries of Hilton Worldwide Inc. The Tenants had leasehold interests of ten UK Hotels under a lease whereby Tindall Cobham 1 Limited ("the Landlord") was landlord and Hilton Worldwide Inc. ("the Guarantor") acted as guarantor. The leases contained covenants that the Tenants were not to assign the Property to a group company without the prior written consent of the Landlord, save that if (i) the Tenants provided the Landlord with notice of the assignment within 10 working days of completion ("the first condition") and that (ii) on assignment, the Guarantor (and any other guarantor of the Tenants) provided a guarantee of the assignees' performance under the leases ("the second condition"), the Landlord's consent would be deemed given.

The Tenants assigned the leases to group companies (albeit shell companies) without the consent of the Landlord. As the leases were granted after 1 January 1996, the Tenants and the Guarantor would have been automatically released from future liability under the lease unless the assignment was an excluded assignment (if made by operation of law or in breach of the lease covenants). The Tenants first argued that these were non-excluded assignments.

The Tenants and the Guarantor considered that there was no need to obtain the Landlord's prior written consent as the second condition was void as it offended Section 25 of the LTCA. This is because it sought to keep the...