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Landlord and tenant – Assignment of lease – Assignment
 EWCA Civ 1215
5 September 2014
Court of Appeal, Civil Division
Lord Justice Longmore, Lord Justice Patten and Lord Justice Ryder
Kirk Reynolds QC and Julian Greenhill (instructed by Berwin Leighton Paisner LLP) for the claimants.
John McGhee QC and James Ballance (instructed by Paul Hastings (Europe) LLP) for the defendants.
Landlord and tenant – Assignment of lease. The Court of Appeal, Civil Division, considered the construction of covenants against assignment contained in leases granted to companies in the Hilton Hotel Group and their interaction with the provisions of the Landlord and Tenant (Covenants) Act 1995. The court varied, in part, an order made by the Chancery Division.
The judgment is available at:  EWCA Civ 1215
The defendant companies were all associated companies in the Hilton Group. The first and second defendants were the original lessees of ten hotels in England and Wales under separate leases granted by the claimants’ predecessors in title (the leases). The third defendant parent company was guarantor under the leases. In July 2014, the first and second defendants assigned each of the leases to the nine companies which were joined as the fourth to twelfth defendants. Prior consent to the assignments was not obtained from the claimants as landlords. The claimants issued proceedings seeking, among other things, a declaration that the assignments were unlawful as being in breach of cl 3.14 of the leases (see  of the judgment for the relevant provisions). On an application for summary judgment, the judge made a declaration that under cl 3.14.6 tenants were not permitted to assign the leases without first applying for the written consent of the landlords and that the landlords were entitled, as a condition of giving consent, to require compliance with the conditions set out in sub-cll (a) and (b) of cl 3.14.6. The judge accepted the claimants’ construction of sub-cll (b), namely that it entitled them to require the assigning tenants to procure a new guarantor (approved by the claimants) in place of the third defendant whose own guarantee would expire on the next lawful assignment of the leases. The defendants appealed against that part of the order.
The principle issue was whether the judge had been right to construe cl 3.14.6 in the way that he had. Consideration was given to the two alternative lines of reasoning provided by the judge. The first was to construe the reference in sub-cll (b) to ‘any other guarantor of the Tenant’ as meaning ‘any other guarantor procured by the Tenant’ so as to impose upon the assignor an obligation to provide an alternative guarantor to the Guarantor as defined. The second was to treat s 25 of the Landlord and Tenant (Covenants) Act 1995 as invalidating not merely sub-cll (b) as the defendants had contended, but the entirety of the proviso to cl 3.14.6, leaving a simple qualified covenant against assignment in the case of an assignment to an associated company.
The court ruled:
(1) The claimants’ construction of sub-cll (b), as accepted by the judge, was incorrect. As a matter of ordinary language, the reference in cl 3.14.6 to ‘the Guarantor and any other guarantor of the Tenant’ denoted the persons who, at the time of the assignment, were the guarantors of the tenant’s obligations under the lease. The condition imposed on the tenant was no more than that he should procure a new guarantee from those persons. The claimants’ construction of sub-cll (b) required a significant re-formulation of the clause. Further, the sub-clause did not include a requirement for any new guarantor to be approved by the landlord, and it was not obvious why one should be implied (see - of the judgment).
Hillas & Co Ltd v Arcos Ltd  All ER Rep 494 considered; Baden’s Deed Trusts, Re, Baden v Smith  1 All ER 1016 considered.
(2) In respect of s 25 of the Act, the solution which respected the structure of the contract and gave effect to the provisions of s 25(1) of the Act was to regard, as the judge had, the whole of the proviso as being avoided by the legislation. That realistically treated the proviso as a complete term of the contract (which it was) and left cl 3.14.6 as a qualified covenant against assignment, which could be operated according to its terms (see  of the judgment).
The judge’s order would be varied in part. The appeal would otherwise be dismissed (see  of the judgment).
Allnatt London Properties Ltd v Newton  2 All ER 290 considered.
Decision of Peter Smith J  All ER (D) 48 (Sep) Reversed In Part.