The report of E.ON UK plc v Gilesports Limited  EWHC 2172 bears reading because there are a number of interesting points, but in this article I will focus on only one – how long is a reasonable time to consent to an assignment?
Gilesports is better known under the name of its parent company, Sports Direct, and it had a sub-lease of a shop in Nuneaton. The shop was occupied by a group company, OSC, under the group company sharing rights contained in the lease. In December 2007, Gilesports contracted to sell OSC to JJB Sports plc. The transaction involved transferring 8 leases to JJB, including Nuneaton.
Cobbetts acted for Gilesports, and it asked for the landlord’s details. Gilesports gave the details of managing agents for Royal London. Sadly, Royal London was the freeholder, not OSC’s immediate landlord. An application for consent was made to the agents by email with a copy of JJB’s accounts in January 2008. By March, JJB had offered a parent company guarantee in respect of the lease, and by April Cobbetts was in touch with Royal London’s in–house solicitor. The licence to assign was agreed and engrossed during April. It was only via a telephone conversation about an unrelated rent review memorandum at the start of May that it became clear that neither Gilesports nor Royal London were in touch with the intermediate party, Central Networks. Central Networks was Royal London’s tenant and Gilesports’ landlord.
Cobbetts quickly obtained details of the landlord’s managing agents from its client and once again emailed the agents with an application for consent to assign. Cobbetts sent the form of licence to assign all the other parties had agreed, but not accounts for the prospective assignee. Although it set out the history of the application since January, it did not say it was now urgent. The email was followed up both by phone and email. A copy of the assignee’s accounts was requested and sent on 9 May 2008.
Cobbetts sent one more chaser. Then the transfer was completed before the end of May, regardless of consent. Cobbetts assumed that Halliwells, acting for the assignee, would register the transfer with Central Networks. The court saw evidence suggesting Halliwells had prepared a notice of assignment and an application to the Land Registry to register the transfer, but these were never sent. It is not known why.
By the end of June, the licence to assign had been sent to Geldards, acting for Central Networks. However, before the licence could be progressed, JJB withdrew the offer of a guarantee. Geldards was not told about this while Sports Direct was trying to get JJB to change its mind. The negotiations between solicitors carried on in a desultory manner. JJB refused to give a guarantor and on 19 February 2006 OSC went into administration.
The case was triggered because no rent had been paid since April 2008.The court considered a number of issues. This summary deals only with the issue of the application for consent to assign. The duty not to unreasonably delay consent arises from section 1(3) of the Landlord and Tenant Act 1988. The duty is triggered when a written application for consent is served on the landlord. Section 5 of the 1988 act permits an application to be served in any manner permitted by the lease.
Gilesports’ application was made by email from its solicitors to the managing agents. This was certainly a written application. The lease incorporated the service provisions of section 196 of the Law of Property Act 1925. The 1925 act requires service either by personal delivery to a landlord’s last known place of abode or business, or by registered post. Neither was used in this case. The court held that the application was not ‘served’ on Central Networks.
Those of you reading carefully will note that, even if email had been sufficient, the application was not emailed to the actual landlord. Notwithstanding that all the parties proceeded on the basis that an application for consent had been made, this did not establish an estoppel by convention. Because the application had not been made properly, the reasonable time to give consent did not start to run.
What if this analysis was wrong? Had there been an unreasonable delay? Gilesports argued that the clock started on 9 May, when accounts for OSC were sent. Eleven working days later, the assignment took place without consent. The judge did not think this was a reasonable time generally, and particularly with regard to the Whitsun bank holiday period. Gilesports’ lawyers did not say the matter was urgent, nor why it was urgent, nor did they set a timescale for a response. Indeed, given that freeholder’s consent had been sought in January and the matter had not reached Central Networks till May, it would have been reasonable for Central Networks to conclude that the matter was far from urgent. Central Networks had to consider both the assignee and the guarantor: not complex, but still a task to be done.
It follows that the transfer was completed in breach of covenant. The lease was a ‘new lease’ and therefore, following an unauthorised assignment, Gilesports continued to be liable for the tenant’s covenants (and the rent) in the sublease.
It is easy to be wise with the benefit of hindsight. I think the clearest lesson from this case is not to forget the basics. By all means send an email asking for consent. But this should support a written application properly served, not replace it. Corporate support work can be seen as the poor relation to ‘proper’ real estate work. Yet even on these transactions, it is almost always necessary to deduce and check title. This case shows how shortcuts can lead to long delays.
Suzanne Gill, Pinsent Masons