Alienation Covenants: is registration of an assignment a prerequisite of breach?

Whether ‘parting with possession’ depends on the completion of registration of an assignment

The background

In Reiner and another v Triplark Ltd [2018], Mrs Reiner held a long lease of a flat of which Triplark held the freehold. The block was managed by an RTM Company. The leaseholder wanted to sell the flat, and, under the terms of her lease, was required to obtain the consent of the RTM Company. The lease prohibited assignment, subletting and parting with possession of the flat without the landlord’s consent.

Under s. 98 of the Commonhold and Leasehold Reform Act 2002, the RTM Company was required to ensure that the freeholder also received a copy of the application for consent. The tenant contracted to assign her lease to an individual who was also the sole director of the RTM Company. He was required under the contract to obtain the RTM Company’s consent. The Transfer was completed, and the tenant moved out of the property. The assignee director decided not to notify the freeholder due to their poor relationship, and the assignee was then prevented from registering the assignment at HM Land Registry as the freeholder lodged an objection. The tenant retained legal ownership, holding the property on trust for the purported assignee.

The decision

The Court of Appeal dismissed the tenant’s appeal, upholding the decision of the Upper Tribunal that, even though the assignment had not been perfected by registration, she had breached the covenant in her lease not to part with possession of the premises without the landlord’s consent. In its judgment, the Court stated that the tenant could have protected herself by requiring evidence from the assignee that notice had been given by the RTM Company and that no objections had been raised by the freeholder.

Further, although the RTM Company had not given notice to the landlord of the application for consent, it had nevertheless not granted consent and had not unreasonably withheld consent to the assignment.

Advice and action for landlords

A useful case for landlords, particularly where the right to manage has been acquired, Reiner confirms that ‘parting with possession’ and the transfer of beneficial ownership can include a contractual agreement only, whether or not legal ownership is transferred by registration.

Further, the case is a reminder of the provisions of the 2002 Act, which require an RTM Company to notify a freeholder of an application for consent to assign, giving the freeholder opportunity to object.