Over Taylor Biggs

A property sold at auction was leasehold for a term of 99 years.  The Landlord's consent was required for an assignment of the Lease.  Consent was not to be unreasonably withheld if to a respectable and responsible assignee.  Under the Auction Conditions, the Assignee was to enter into a Licence to Assign and a Rent Deposit or other security, if properly required under the Lease.  A longstop date of three months from the date of the auction was prescribed in which consent was to be obtained. 

In this case, the Assignee Buyer was a dormant company.  The Landlord therefore requested a guarantor.  The Assignee proposed its sole director and principal shareholder.  A dispute arose in relation to the content of the Guarantee and the Assignee applied to the County Court for a Declaration that the Landlord's consent had been unreasonably withheld or that unreasonable conditions for giving consent had been imposed. 

The Guarantor wanted to be released automatically on a future assignment of the Lease, which the Landlord would not accept.  The Landlord instead proposed the Guarantor should be released on a subsequent assignment provided a reasonable alternative security was provided.  This was unacceptable to the Assignee who argued the Landlord was seeking protection to which it was not entitled under the Lease and this was unreasonable. 

It argued that the Landlord could always refuse consent if dissatisfied with the financial strength of a future Assignee or any security being offered and that the form of Guarantee requiring reasonable alternative security was likely to generate future disputes, for the Landlord's consent could require a Guarantee of equal strength to that provided by the Guarantor.

Negotiations were not concluded by the end of the longstop date and the Buyer rescinded the Sale Contract.  The Seller argued that the Buyer had breached the Sale Contract by not completing a Landlord's Licence and entering into the Guarantee.  It served a Notice to Complete.  The Buyer then sued for the return of its deposit and the High Court held in favour of the Seller.  The Buyer appealed to the Court of Appeal.

The Court of Appeal held that the requirement for a personal guarantee in the form proposed in the draft Licence was unreasonable and not properly made in accordance with the Auction Conditions.  The Landlord could not normally require a Guarantee to extend beyond the period during which the Lease was vested in the Buyer.  To require this would have increased or enhanced the Landlord's rights under the Lease and this was, therefore, unreasonable.  The Landlord was always entitled to refuse consent to a future assignment of the Lease.

The Guarantor should not have to rely on the Landlord acting sensibly and refusing to consent to an assignment where there was an insubstantial future tenant.  The form of the Landlord's Guarantee was also problematic, as it exposed the Guarantor to a dispute as to whether reasonable alternative security had been provided.  The Guarantor could not be exposed to such a dispute.

The case is illuminating, for it took more than two years for the Buyer to recover its deposit and this only after a hearing in the Court of Appeal.  Contracts that are conditional on completion of a future assignment are fairly common and, at auction, there is frequently no alternative but to negotiate the Licence to Assign after Contracts have been exchanged.  Both the Seller and the Buyer are left rather beholden to the Landlord.

Landlord Protect Limited v St Anselm Development Company Limited [2009]