One of the most important decisions of 2010 was that of the High Court in ruling that T’s guarantor cannot be required to also guarantee the obligations of T’s assignee when T assigns. Any such requirement will be void. 


Do you know the different legal consequences of these two lease provisions: 


‘Not to use the premises as...’, or 


‘The premises shall not be used as...’. 


The answer is that the former is expressed ‘actively’ (‘not to use the premises’) and can only be broken by the person who gave the covenant (eg T). The latter phrase, however, is expressed ‘passively’ (‘the premises shall not be used’) and will be broken if anyone uses the premises for that prohibited purpose. 


There are two types of breach of covenant that are generally considered incapable of remedy: 


not to assign, underlet or part with possession;


illegal or immoral use.


LTA 1987 gives long lessees the right of first refusal if L intends to dispose of his interest. 


Sometimes L will own a piece of land adjacent to the block of flats and wants to know whether he can deal with that without the provisions of LTA 1987 applying. 


If L can show that the whole of that piece of land does not have service media under it (and never will have) then the block of flats will not normally be ‘affected’ by the disposal of that land, and so the disposal will not need to comply with LTA 1987. On the other hand, if there are service media under it then the block of flats will be ‘affected’. 


If L’s consent is needed for T to assign (or sublet) then such consent is not to be unreasonably withheld (s19(1) LTA 1927. Moreover, LTA 1988 says that L must give written notice to T of its decision to grant or refuse consent, within a ‘reasonable time’. 


The decision as to what is a ‘reasonable time’ for L to respond will vary with the facts of the case. The original rule of thumb when advising Ts was that they were unlikely to be able to threaten L with proceedings (or go ahead with the transaction) before the expiry of one month, assuming it was a straightforward application. But, in the last decade the trend of cases has been to give L an ever decreasing amount of time in which to respond. 


It is all very well saying that L must respond within a ‘reasonable time’ to T’s request to assign (or sublet). But what if T’s request is insufficiently detailed?


When LTA 1988 came into force, the general view was that if T submitted an incomplete or inadequate application, then it was for L to respond by setting out the information required. That approach was impliedly confirmed by Blockbuster [2003], with the general interpretation of that case being that the onus lay on L to point out to T, in a timely fashion, what the inadequacies were in T’s application (and to specify the information needed). Only then did the clock pause, with it then restarting again when information was received by L. Thus, to be on the safe side, information provided by T had to be processed by L as and when it was received. Thus, the emphasis was upon L responding to T’s inadequate application by asking T to supply further (specified) information. 


’Guarantee stripping’ is when a company voluntary arrangement (CVA) strips away guarantees given to a creditor; typically, this will be when the CVA strips away a guarantee given by T’s group company in respect of T’s liabilities to L. 


It has now been made clear that guarantee stripping of this sort will usually be rejected as being ‘unfairly prejudicial’ to L. As we noted in our October issue (p25) the recent Sixty [2010] case makes it clear that guarantee stripping can only be justified if there is a payment to L based upon a thorough evaluation, and genuine pre-estimate, of L’s losses. Anyone promoting such a CVA must therefore be very sure that they have accurately calculated and compensated L fully for the losses – but that is likely to be impossible in difficult times when the future is uncertain (which is precisely when CVAs are used).

Remember that there can be complications when L wants to grant a lease of a commercial unit within a mixed-use residential/commercial building. Under LTA 1987, L will commit a criminal offence if he makes a ‘disposal’ (eg granting a lease) without having first served ‘Offer Notices’ on the qualifying residential Ts in the building.

The 1987 Act applies to premises where two or more flats in the building are held by qualifying Ts, and where the number of flats held by the qualifying Ts exceeds 50% of the total number of flats in the building. Whilst the Act does not apply to 100% commercial premises, it does apply to mixed-use buildings where the commercial element accounts for less than 50% of the total floor area (eg a high street building where the ground floor is a shop, and the upper levels are residential flats).