Land Registration: Whether an assignee whose interest had not been registered was entitled to serve a break notice (Sackville UK Property Select II (GP) No. 1 Limited v Robertson Taylor Insurance Brokers Limited – 2023)
Where a party has received an assignment of a lease but registration of the assignment has yet to be completed, is the assignee entitled to serve a break notice?
The background
In Sackville UK Property Select II (GP) No. 1 Limited v Robertson Taylor Insurance Brokers Limited [2023], the business owned by Robertson was acquired by Integro. Robertson was granted licence to assign the unregistered lease of the business premises to Integro, which was duly granted on 29th March 2017. Notice of the assignment was given to the landlord on 20th April 2017.
Integro did not meet its covenant in the Licence to Assign requiring it to apply for registration within 10 business days of completion of the assignment, and was completion of registration of the assignment was made with effect from 7th July 2017.
The lease contained a break option to state that “The Tenant may terminate this lease…”. Integro’s solicitors sent a letter to the landlord on 2nd May 2017 purporting to exercise the break, with Integro “being the Tenant under the Lease”.
The landlord argued that the break notice was invalid, as Integro was only the beneficial owner of the lease, and not the tenant, at the time it was served. The landlord applied to the court seeking summary judgment and an order that the break had not been validly exercised.
The businesses of Robertson and Integro were both subsidiaries of the same group, and Integro’s solicitors stated in evidence that they were acting for both Robertson and Integro in connection with the Licence to Assign.
The High Court addressed which party should have served the break notice, and whether the break notice had in fact been given on behalf of Robertson by virtue of the solicitor’s relationship to both Robertson and Integro.
The decision
The High Court found in favour of the landlord, granting summary judgment to state that the break notice should have been served by Robertson as Integro was, at the time, only an assignee with beneficial interest in the lease.
S.27(1) of the Land Registration Act 2002 states that a disposition of a registered estate is only effected by completion of registration, which in this case was 7th July 2017.
Robertson argued that Integro’s beneficial ownership was sufficient for service of the break notice, and that the lease should be interpreted together with the Licence to Assign and the Assignment, meaning that the term ‘Tenant’ included Integro.
Robertson contended that the Landlord and Tenant (Covenants) Act 1995 entitled the beneficial owner to exercise the option, an argument that the High Court felt had some weight, together with other arguments including estoppel.
S.3(2) of the LT(C)A 1995 has the effect of binding an assignee to the tenant covenants of a tenancy, which includes an agreement for a tenancy and therefore an equitable lease. In the case of an equitable assignment, the benefit and burden of covenants pass only in equity meaning that Robertson would not have been released from liability but instead would be indemnified by Integro. Therefore Integro did not enjoy the right as an equitable assignee to enforce the performance of covenants by the landlord, or to exercise the break.
Reading the lease together with the Licence to Assign and Assignment did not assist the court in defining who the Tenant was at the time the break notice was served, and this argument by Integro did not succeed. Further, it would not have been likely that a reasonable person would have interpreted ‘Integro’ as meaning ‘Robertson’ and Integro could not therefore successfully argue that the break notice was served on Robertson’s behalf.
Advice and action for landlords
This case confirms that a party whose interest is not registered at the Land Registry is unable to serve a valid break notice.
Although the assignee had an equitable interest in the lease, it was not vested in that party such that a break notice could be served. Parties are advised to ensure that assignments and dispositions are registered promptly following completion in order to ensure the legal operation of benefit and burden in the interest transferred.
The High Court found in favour of the landlord, granting summary judgment to state that the break notice should have been served by the outgoing tenant Robertson as Integro was, at the time, only an assignee with beneficial interest in the lease.
