Breaches of alienation covenants in commercial leases

Unauthorised Assignment or Underletting of Commercial Premises


Alienation

Most leases place restrictions on the tenant’s ability to assign (or sell) the lease and to create underleases. Such dealings will either be absolutely prohibited or will only be permitted with the landlord’s prior consent (such consent not to be unreasonably withheld or delayed).

Unauthorised assignments and underlettings are problematic for landlords as they can lose track of who is occupying the property and who is responsible for paying the rent. When granting a lease or approving an assignment or underlease, the landlord has the opportunity to vet the tenant or undertenant and impose conditions such as a requirement for a rent deposit or guarantor to be provided. If an unauthorised assignment or underletting takes place, the landlord has missed the opportunity to seek these safeguards.

Effective management by the landlord

Landlords or their agents should as a matter of course inspect properties at regular intervals. If an unauthorised occupier is found at the premises the landlord can then take steps to regularise the position, either by having the occupier removed or by giving retrospective consent to the assignment or underlease.

When landlords are approached by tenants for consent to assign or underlet, they should deal with such applications promptly. If a landlord is slow to respond, or raises unreasonable objections, the tenant may decide to proceed with the assignment or underlease without consent. This will lead to complications for all parties in the future.

Unauthorised assignments and underlettings

If a landlord discovers that an assignment has taken place in breach of the restrictions in the lease it should seek legal advice. Depending on the circumstances, the landlord’s options may include:

• Granting retrospective consent to the assignment or underletting.

• Obtaining an injunction to “undo” the assignment or underlease.

• Seeking damages from the tenant for losses arising out of the unauthorised transaction.

• Forfeiture of the lease.

If the tenant argues that the landlord has unreasonably withheld consent to the assignment or underletting, it may apply to court for a declaration that consent was unreasonably withheld and that the transaction should be allowed to go ahead. Landlords should make every effort to ensure that such court applications are avoided by engaging with the tenant at an early stage.

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