Summary

The claimant freeholders were granted summary judgment on their claim that the defendant lessees had breached lease agreements by assigning the leases to subsidiary companies without the freeholder's consent.

Facts

The applicant freeholders (T) applied for summary judgment on their claim against the respondent lessees (D) for declarations that they were in breach of lease agreements.

T owned hotels which were subject to leases granted to D who were members of the Hilton group. D's obligations under the lease were guaranteed by Hilton. There was a provision in the leases prohibiting assignment without the prior written consent of the landlord. A further provision dealt with assignments to associated companies of the tenant and stated that the landlord could impose conditions prior to giving its consent which included the tenant giving notice of any assignment and, in clause 3.14.6(b), that on such an assignment "the tenant shall procure that the guarantor and any other guarantor of the tenant shall covenant by deed with the landlord". D assigned various leases without obtaining T's consent. T contended that the various assignments were excluded assignments under the Landlord and Tenant (Covenants) Act 1995 s.11 so that D remained liable on their respective covenants contained in the leases. The assignees were £1 subsidiary companies in the Hilton group and the assignments were made as part of a corporate restructuring. D gave notice to T of the assignments and argued that the assignments put an end to the guarantee given by Hilton as guarantor and that it was not liable to guarantee the obligations of the assignees.

D submitted that clause 3.14.6(b) was invalid insofar as T sought that the guarantor guaranteed the obligations of the assignee. T argued that sub-clause (b) should be read as meaning "any other guarantor [procured by] the tenant".

Held

Given the size of the rental obligations, it could not have been within the contemplation of the parties that D would be able to organise their affairs so that T would only have recourse against £1 companies. The regime of the creation of the lease with a nominal company with a guarantee backed up by Hilton, coupled with the provisions of detailed financial requirements on assignment, meant that the structure of the lease was that T would always be entitled to have either a tenant who was of sufficient standing to meet the burdens of the lease or a tenant who was supported by a guarantor who could meet those burdens. The effect of D's excision of sub-clause (b) meant that in reality T had exactly the opposite. T's reading of sub-clause (b) led to a commercially sensible result. There was no obligation on the part of the landlord to impose the conditions, it was a provision granting entitlement as opposed to an obligation. Clause 3.14.6 prohibited D from assigning without approaching T for consent. T had been deprived of the option to impose the two conditions by D's failure to ask for consent to assign. It was not a trivial breach. As D were in breach, they could not pray in aid the provisions of the 1995 Act because it was an excluded assignment for the purpose of s.11. T were entitled to declaratory relief (see paras 52, 66, 69-70, 72, 76, 90-94 of judgment).

Application granted