E.ON UK Plc v Gilesports Limited

 

The Message

Ensure applications for consent are properly served on landlords.

The Case

E.ON UK Plc v Gilesports Limited [31 July 2012] considers important issues relating to the obtaining of landlord’s consent to the assignment of a lease.

Gilesports, a subsidiary of Sports Direct International plc, had a lease of shop premises. Subsequently, Original Shoe Company Ltd (“OSC”), also owned by Sports Direct, occupied the shop in accordance with permitted group sharing arrangements. Sports Direct contracted to sell OSC to JJB Sports, entailing a transfer of the shop to OSC, since its occupation would otherwise no longer be permissible.

The application for landlord’s consent to the transfer of the lease was a long drawn out process, exacerbated by an assumption that application had been made for the consent of Gilesports’ immediate landlord, Central Networks, when that was not so. At the beginning of May 2008, Gilesports’ solicitors applied, by email, to Central Networks’ managing agent, for the licence. The email did not state that the matter was urgent. Various correspondence ensued between the parties without the licence being completed.

On 28 May 2008, the lease was transferred from Gilesports to OSC, but Central Networks was not notified. Discussions continued on the provision of Central Networks’ consent, but the form of licence could not be agreed. In February 2009, OSC went into administration, but Central Networks was again not informed. In August, Central Networks notified Gilesports that there were rental arrears exceeding £139,000. Only in October was Central Networks’ solicitor notified that the lease had been transferred to OSC.

Central Networks sent notices under section 17 of the Landlord and Tenant (Covenants) Act 1995 claiming the arrears from Gilesports. This was without prejudice to Central Networks’ contention that Gilesports was still the tenant.

Subsequently, E.ON, which was Central Networks’ successor in title, brought proceedings seeking a declaration that Gilesports remained the tenant and claiming the arrears. The High Court decided in E.ON’s favour.

Gilesports contended that Central Networks unreasonably delayed giving its consent to the transfer. However, while the lease wording provided that landlord’s consent was not to be unreasonably withheld, it did not state that consent was not to be unreasonably delayed (by contrast, another lease provision did include such a reference).

Gilesports then sought to rely on the landlord’s statutory duty within a reasonable time to give consent (except where it is reasonable not to do so) and serve written notice of its decision. However, the duty applies when the tenant has “served” on the landlord a written application for consent. The duty did not apply in the case, since Gilesports did not serve on Central Networks a written application for consent. That was because the making of the application, by the sending of an email to Central Networks’ managing agent, did not constitute good service, as it did not comply with the lease’s requirements for service.

In any event, the Court decided that Central Networks did not fail to give its consent within a reasonable time. The decision was based on a number of reasons including the fairly short time of 11 working days in which Central Networks was required to consider the transaction and formulate a response (before the transfer was executed). Central Networks was not told that the matter was urgent and the overall circumstances would have led Central Networks to conclude that the matter was far from urgent.

The Court concluded that Gilesports executed the transfer in breach of its lease and, as this was an “excluded assignment” for statutory purposes, Gilesports remained liable under the lease.

The Court also decided that since the transfer had not been registered at the Land Registry when registration was required, the title to the legal estate reverted from OSC to Gilesports, which held it on a bare trust for OSC. This constituted an assignment by operation of law, so that Gilesports became again liable under the lease. The section 17 notices did not apply to Gilesports as it was the tenant.