6 February 2013

Reacting to an unlawful assignment

Unless an assignment of a lease is documented by deed, it will be ineffective as a legal assignment.  What this means in practice is that the assignor (the original tenant) will remain liable to the landlord under the terms of the lease notwithstanding that the tenant may well consider that he has washed his hands of the lease by (invalidly) assigning the lease to a third party.

It is not always easy for a landlord to establish whether there has been a purported assignment or not particularly where rental payments are made on behalf of tenants by third parties and where the business being run from the premises remains, on the face of it, exactly the same.  Often, the actual situation will only become clear at the expiry of the lease when a schedule of dilapidations is served on the tenant.  The landlord will then be faced with a protest from that tenant that the schedule has been served on the wrong party and that the landlord should be dealing with the current occupier.
Perversely, the Landlord may well take the view that the occupier is a better financial prospect than the original tenant and therefore accept the tenant’s protest and direct the dilapidations claim to the unlawful assignee.  In response, the assignee is likely to argue that the assignment was ineffective and that, as such, the landlord is pursuing the wrong party!

Unfortunately for the landlord in this scenario, because the rights and obligations have not been validly assigned to the assignee, the landlord has no direct contractual rights against the assignee and the landlord’s claim must therefore be directed against the original tenant.

The occupier may be tempted to feel smug about this. But that smugness will not last very long as the original tenant is likely to come chasing after the occupier for an indemnity against its liability to the landlord.

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About the Author
Syed Alam, Senior Associate Solicitor
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