L may grant a lease to T, only for T to subsequently become a ‘dormant’ company.

If a company is dormant, then by definition it is not trading, and that can be unsatisfactory from L’s point of view. Apart from the fact that it may not have sufficient assets to cover any default, the fact that there is a non-trading T could have an adverse effect on capital value when L comes to sell. After all, if the dormant T is holding the lease, then it will be easier for other group companies to allow them to go into liquidation (and have the lease disclaimed) without that affecting the rest of the companies within the group.

On the other hand, L may not be concerned, provided the rent is paid on time and the dormant T is part of a substantial group. However, if there is no clause in the lease allowing group companies to share, L may prefer T to assign to a stronger group company.

Another point to bear in mind is that a dormant T can still apply for an LTA 1954 lease renewal (even though it is not in occupation and not trading). Under s42, occupation by a group company is treated as the equivalent to occupation by T. In that situation, L should consider asking the court for a provision in the renewal lease that requires the dormant T to provide a guarantor (although ?Cairn Place [1984] makes it clear that the court will only sparingly exercise its discretion to require a guarantor on renewal, if one was not originally required when the original lease was granted). Source: Lovells.