This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

Court gets commercial: Landlord given protection when faced with intra-group transfer
05 September 2014

Court gets commercial: Landlord given protection when faced with intra-group transfer

The Court of Appeal has today confirmed that a tenant could not transfer its lease without landlord's consent where the assignment clause contained invalid provisions relating to repeat guarantees.


The case of Tindall Cobham 1 Ltd v Adda Hotels involved leases of ten hotels, each let to a Hilton Group subsidiary and guaranteed by Hilton Worldwide Inc. The tenant wanted to assign the leases to newly-formed £1 group companies, without landlord's consent and without providing a guarantor.

The Court of Appeal ruled that the landlord could not be forced to allow such an assignment.  Instead, the tenant must apply for landlord's consent, which cannot be unreasonably withheld, but which can be made conditional on a substantial fresh guarantee.

The leases

All the leases were granted in 2002 for terms expiring in 2029.  There were two main clauses dealing with assignment.

The first clause applied to assignments generally.  This said the tenant could not assign without the landlord's prior consent, which was not to be unreasonably withheld. The landlord was allowed to refuse consent on certain grounds and to impose various conditions, such as requiring the assignee or its guarantor to have a BBB+ credit rating.

The second clause applied only to assignments to a company in the same group as the tenant.  In such a case, the landlord could impose the following conditions:

(a) notice of the assignment to be given to the landlord within ten working days; and

(b) the assignor's guarantor must guarantee the assignee's obligations (sometimes called a "repeat guarantee").

The second clause went on to say that if the tenant complied with these two conditions, then the landlord's consent "shall" be given to the group company assignment.

Condition (b) was the problem.  In 2011, the Court of Appeal decided in the well-known case of K/S Victoria Street v House of Fraser that repeat guarantees are void under the Landlord and Tenant (Covenants) Act 1995.

The tenant said this meant it could assign each lease to a £1 group company without a guarantor.  The existing guarantor, Hilton Worldwide Inc., would be released, and the tenant would merely have to give notice within ten working days of the assignment.

In July 2014 the tenant went ahead with the assignments on this basis.  This had an immediate and significant effect on the landlord, who was in the process of refinancing.  Proceedings were brought in the High Court later that month, and the case was heard by the Court of Appeal at the end of August.


Lord Justice Patten rejected the tenant's interpretation of the assignment provisions.  In particular, he disagreed with the argument that if notice of the assignment was served on the landlord, then the landlord must consent to the assignment.

He said the second assignment clause laid down a streamlined process for consent to group company assignments, so long as the guarantor remained liable.  But since (because of the House of Fraser decision) it was not possible for the guarantor to remain liable, the streamlined procedure had lapsed.  Instead, the first assignment clause would apply, and the landlord's consent would be required.

The July 2014 assignments were found to be invalid because landlord's consent had not been obtained.  If in the future the tenant seeks permission to assign the leases within its group then the landlord's consent will be required.  The landlord will be able to insist that the assignee (or a new guarantor) satisfies the financial tests and other conditions laid down in the first assignment clause.


This is a commercially sensible decision that goes some way to preventing a tenant's covenant package from being diluted.  A landlord faced with an assignment to a company of no substance may now be able to require other conditions before it grants consent.

However, it has to be remembered that today's decision is based on the specific drafting in the leases in question. A different document, before a different court, and in different circumstances may result in a different outcome.

We understand that neither party currently has made an application to appeal to the Supreme Court.

Our dedicated real estate litigation team has significant experience in dealing with letting disputes, both from a landlord and a tenant perspective. If you think that we may be able to assist you with any of the above issues or any other questions you may have, please do not hesitate to contact us.