2 July 2014

Landlord’s consent and ‘Group Sharing’ under a lease – a neat solution for LLPs

A business tenant is usually obliged to seek consent from the landlord prior to assignment or subletting. Many leases contain a long list of conditions that must first be complied with . This may concern owners of Limited Liability Partnership (LLPs) thinking of converting their business to a limited company. The process of obtaining the landlord’s consent to transfer the existing lease to the new company can be a time consuming and costly process for the tenant. However, if your lease contains a group sharing provision, this may provide a neat solution.

A group sharing clause typically allows a tenant to share occupation with any body corporate that is a member of the same group. The Tenant may not even need to notify the landlord of the change in occupation. One body corporate must be the subsidiary of the other, meaning that the parent body owns a majority of the voting rights in the other. Ordinarily this provision would be used by companies. However, the definition of a body corporate includes LLPs and so they too can make use of this provision.

To rely on this clause the relationship between the LLP and the new company must be structured correctly. The LLP should be retained and at least 50% of the voting rights transferred to the new company so that it becomes part of the same group. The change of occupancy can then be completed without involving the landlord.

Make sure this clause does not go unnoticed! Check the terms of your lease and seek professional advice – it could save you both time and money.

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About the Author
Zoe Touhey, Partner
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