Has the Court of Appeal provided clarity on the construction of covenants against assignment to group companies?

Has the Court of Appeal provided clarity on the construction of covenants against assignment to group companies?

What’s  happened?

In Tindall Cobham 1 Ltd v Adda Hotels (an unlimited company) [2014] EWCA Civ 1215, [2014] All ER (D) 49 (Sep) the tenants were all associated companies in the Hilton Group Adda Hotels and Puckrup Hall Hotel Limited were the original tenants of ten hotels in the UK under separate leases granted in 2002 by the landlord’s predecessors in title (expiring in 2029). Each of the leases was substantially the same and reserved significant base and turnover rent with Hilton Worldwide Inc (the parent company in the Hilton Group) as guarantor.

The facts:

In July 2014 Adda and Puckrup assigned each of the leases (separately) to the tenants as part of a reorganisation. Those advising Adda and Puckrup took the view (although later accepted that this was wrong) that, as the second requirement of cl 3.14.6 of the leases—, - that the landlord could require the tenant on an intra-group assignment to procure a guarantee from its existing guarantor—, was void following K/S Victoria Street v House of Fraser (Stores Management) Ltd and others  [2011] EWCA Civ 904, it was not necessary to obtain the landlord’s prior consent to the assignments. If lawful, the assignments would have the effect of releasing Adda and Puckrup as original tenants and, more importantly, Hilton Worldwide as guarantor . The landlord was in the process of refinancing —a highly material factor in the negotiations for a new loan facility was the valuation of the hotel which would be affected by the continued existence or not of the Hilton Worldwide guarantee.

What did the High court find?

The assignments had been carried out in breach of clause 3.14 of the leases and so were excluded assignments within the meaning of the Landlord and Tenant (Covenants) Act 1995, s 11 (LT(C)A 1995),. It also made a declaration that, under cl 3.14.6 of the leases, the tenants were not permitted to assign the leases without first applying for the written consent of the landlords (such consent not to be unreasonably withheld) and that the landlord was entitled, as a condition of giving consent, to require the assigning tenants to procure a new guarantor in place of Hilton Worldwide . (whose own guarantee would expire on the lawful assignment of the leases).

The tenants ap

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About the author:

Melissa Moore is a dual qualified in England and Wales and South African lawyer and has 14 years’ experience in property practice in England. She has worked in local government and been a partner at a regional law firm and most recently an associate director at Berwin Leighton Paisner which she joined in 2005. Melissa has wide experience in all areas of property law and specializes in commercial real estate development. She has experience in a number of sectors including hotel, leisure, offices, investment, industrial, motorway service stations and funding. She has worked on large scale strategic developments and government funding initiatives, town centre regeneration schemes and private mixed use developments both for public sector and private developers and investment funds. In 2013 she was ranked by Legal 500 as recommended for local government work.