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Courtesy of Thames Valley Business Magazine April 2012

A recent report by property research company, The Local Data Company, highlighted the gathering storm in Britain’s high streets and predicted a rise in the number of empty shops, in 2012.

We need hardly be reminded of the reasons, given the economic backdrop, nor some of the high profile casualties including Peacocks, Barratts, Thorntons and Past Times.

But the default or potential default, of a tenant occupier, whether of retail, offices, or any other commercial property, can sometimes result in unpleasant and unexpected consequences, for a former tenant/occupier, notwithstanding a sea change in the law in that respect, enacted some 16 years ago. In an environment where landlords are increasing looking at their options to recover rent arrears, it is perhaps timely to remind ourselves of the broad principles of the law in that respect.

‘Old’ and ‘New’ tenancies

Before the Landlord and Tenant (Covenant) Act 1995 came into effect on 1 January 1996, a tenant who assigned his lease to a third party, invariably remained liable for any future non-payment of the rent or other breach, by his assignee, or indeed any future assignee who subsequently took over the lease. He could, in short, often be required, (under what the Act terms an “old tenancy”) to pay rent or other arrears or make good other breaches of the tenancy obligations, perpetrated by a successor to his lease. A landlord could often choose which, of more than one, potentially liable parties to pursue – usually the one remaining solvent or with the deepest pocket.

The 1995 Act sought to largely remove the perceived injustice which resulted, by providing that, with some exceptions, a tenant who assigns a lease entered into after the Act took effect (a “new tenancy”), is automatically released from his obligations (and with him, his guarantor, if any) leaving the actual current tenant/defaulter responsible for any landlord’s claim.

The principal exception is that, as the price of his consent to the assignment, a landlord of a new tenancy, may require the outgoing tenant to enter into an “Authorised Guarantee Agreement” – an arrangement under which, in brief, the outgoing tenant in effect guarantees performance by his immediate assignee (but not any subsequent assignee, should the lease be assigned further).

All may not be lost

But for the unfortunate former tenant who receives a demand for payment from the landlord, perhaps many years after he assigned the lease, all might not be lost.

It is not unknown for lease documentation to fail to fully reflect the provisions of the Act and clauses or obligations which, on the face of it seek to hold the former tenant liable, may not be effective, as the 1995 Acts contains stringent anti-avoidance measures which can render even apparently straightforward language, void and unenforceable.

It is also not always the case that a former tenant, even under an old tenancy, remains liable post assignment of his lease – much depends upon the provisions of the actual documentation, and the history of the lease.
Further, in certain circumstances there are also time constraints which may prevent a landlord claiming arrears from a former tenant, who has not been notified of a potential claim within 6 months after it first arose, a requirement which applies to old and new tenancies.

Assuming, of course, that such parties remain solvent, he may also be able to claim an indemnity for his losses from the party to whom the lease was assigned (it also does not follow that that party will always be the current tenant/defaulter).

In conclusion

If you are unfortunate to be on the receiving end of a claim by a landlord in respect of rent arrears or other beaches of a lease, accrued or perpetrated by an assignee, the best course is to seek expert advice as soon as possible. Inaction may not only be a worry, but just might also prejudice your position and it will often be incorrect to assume that there is no escape from liability or that there is nothing you can do to limit any losses that might result. The law in this area is particularly complex and there are a number of significant further details and exceptions to the outline above.

For those who are considering assigning a lease, including perhaps in the context of the disposal of a business, it is also as well to look closely at the issue, since the documentation entered into with the landlord at that juncture, will dictate the risk of there being a claim against you later and a landlord may not always be able to insist upon there being an authorised guarantee agreement.

Andrew Taylor
Partner, Real Estate
T: 0207 634 4611
E: ataylor@pitmans.com

Award-winning law firm Pitmans LLP has acted on behalf of Class Telecommunications Limited on the acquisition of R.C.G. Global Networks Limited for an undisclosed consideration. The transaction was led by Pitmans’ Corporate Partner, Adam Dowdney, and assisted by Corporate Solicitor Carolyn Butler, Employment Solicitor Amanda Dorling and Commercial Property Director Bhaminee Sharma.

Class Telecommunications have been operating since 1989, offering a range of managed telephony solutions including fixed line, broadband & data services, mobile phones and telephone systems and support.

R.C.G. Global Networks provides business customers with telecommunication services, including the provision and rental of exchange lines, carrier pre-selection, broadband connections and associated services, and the supply and sale or rental of telecommunications equipment and materials.

Commenting on the transaction, Julian Miller, Managing Director of Class Telecommunications said “This is the first acquisition we have undertaken and I am very grateful to Adam and his team for leading us through the legal process which enabled us to complete on time and within budget. Their tenacity, professionalism and commitment gave me the reassurance that our interests were in safe hands and secured the result we wanted”.

Adam Dowdney, Pitmans’ Corporate Partner said “We were delighted to act for new client Class Telecommunications on this acquisition which is of considerable strategic importance to their development. As always, the deal required input from various departments which exemplifies our ability to provide a quick and commercial full-service offering. We are sure that this acquisition will prove to be of great importance to Class and look forward to working with Julian and his team again soon.”

Award winning law firm Pitmans LLP has acted on behalf of Maudesport Limited, one of the Uk’s leading mail order suppliers of sports and leisure equipment and team wear, on the sale of their company to DEMCO UK Limited for an undisclosed consideration. The transaction was led by Pitmans’ Corporate Partner, Philip Weaver, and Corporate solicitor, Carolyn Butler. They were assisted by Property Partner, Sally Sharp.

Maudesport limited supplies 60 Local Authorities with equipment for their schools, colleges and other establishments. It also supplies HM Prisons, NHS and MOD establishments as well as Youth Centres, Special Needs Units, leading fitness and leisure companies and the general public.

Commenting on the transaction, John Maude, the Owner and Managing Director of Maudesport Limited said “I was most satisfied in the manner that my corporate and legal advisors brought this sale to completion. Although intense as the final stages played out, Pitmans kept me informed and helped me through a process with which I was unfamiliar. In particular property issues, a difficult hurdle to overcome, were negotiated through to both parties satisfaction.”

Philip Weaver, Pitmans Corporate Partner added: “We were very pleased to bring this sale to a successful conclusion. Although the purchaser was a UK company, the decisions were made by its parent. We had noted from previous transactions (and this sale proved to be no exception) that US purchasers are often more concerned about some areas than a typical UK purchaser, such as environmental concerns.”

DEMCO UK Limited supplies materials, including laboratory equipment, chemicals and consumables to the eductation sector. The company also owns Technology Supplies Limited and Timstar Laboratory Supplies Limited (which it acquired in July 2009). DEMCO UK Limited is ultimately owned by Wall Family Enterprise Inc in the United States, a family-owned group of eight independent businesses that generates annual revenues of more than $200 million (£125 million).

Pitmans are proud to have acted on a pro bono basis on behalf of Red Balloon Learner Centre Group in the acquisition of premises to provide a new centre in Reading, Berkshire.

Red Balloon Learner Centre staff and unpaid volunteers work exceptionally hard to provide a ‘first class’ education for some of society’s most vulnerable and isolated children. The new centre will provide education for children who are no longer in mainstream schooling due to severe bullying in the Reading area.

The Red Balloon Charity  was established by Carrie Herbert, an educational consultant, in 1996 in order to provide a safe haven for children who had dropped out of school because of bullying.  There are now a number of Red Balloon Centres around the country.  It is hoped that this centre will offer a service to pupils throughout the Thames Valley.

Carrie Herbert, founder of Red Balloon said “Thank you so much for all that you have done for us in seeing through the purchase of the property at King’s Road.  I know it will make a marvellous Red Balloon”.

Leading law firm Pitmans is delighted to have assisted restaurant operator Zing Leisure Ltd in its acquisition of three restaurants from Burger King including flagship stores at Leicester Square and Queensway in central London.

Burger King were represented by their in-house team led by Debbie Waddell and by Clarke Wilmott.

Pitmans team comprised Tim Clark, who advised on franchising, Sally Sharp who advised on the acquisition of the premises and Philip Weaver who dealt with the asset purchase agreement.

Tim Clark comments: “Pitmans were delighted to assist Zing Leisure in their acquisition of three restaurants from Burger King. These flagship stores are situated in London’s consumer catering hubs and both deliver whopping footfall. It is illustrative of the astute commercial acumen that Zing Leisure possess in running their business that they have purchased these stores. ”