Lease document
February 16, 2022

Leases and sub-leases case study

Breaches of leases and problems with sub-leases can lead to complicated legal disputes. In this case study by Disputes Associate Jessica Hancock, we look at how issues with leases can be untangled.

The problem:

The owner of commercial premises leases their unit to a charitable organisation, but, in breach of their lease, the charity sub-lets the building to numerous commercial companies. The problem comes to a head when the owner of the premises wishes to bring an end to both the lease and sub-leases.

The solution:

We were instructed by a high-profile and influential British manufacturer regarding a large office and commercial unit in Cheshire that they owned.

A 26-year lease had been entered into with a registered charity as tenant. The lease was not, although it ought to have been, registered.

In mid-2013, our client was approached by what it understood to be another registered charity (indeed this is what they made out) which wanted to occupy the property. It was agreed with the original tenant that this ‘charitable enterprise’ could also operate from the unit providing they did not undertake commercial activities for profit.

Acting in good faith, our client prepared a document which was effectively an assignment of the existing lease to the ‘charitable enterprise’ which also contained a licence for the current charitable tenant to use part of the property for training purposes. As the existing lease was not registered, the assignment couldn’t be registered either. The ‘charitable enterprise’ therefore entered unilateral notices against the title at the Land Registry. The lease contained clauses which, among other things, prohibited the creation of sub-tenancies or the sharing of occupation.

By 2020 it became apparent that there were in fact other people occupying the building and suspicions arose as to the commercial realities of this ‘charitable enterprise’. Investigations were carried out and it transpired that there were no less than eight active commercial companies (not charities) operating from the property.

Some of the companies were connected to the individual running the supposed ‘charitable enterprise’ and others were not. None of the companies which had been allowed into occupation (in breach of the lease terms) had a written lease and they were all protected tenants by virtue of the Landlord and Tenant Act 1954 (meaning that their tenancies could only be brought to an end in very specific circumstances).

The ‘charitable tenant’ was, during the very early stages of our instruction, struck off the register of companies and dissolved for failure to file documents with companies’ house. Our team recognised this and used the tenant’s dissolution to take steps to forfeit the lease. The benefit of forfeiture (rather than asking the Crown to simply disclaim the Lease) was that it would also bring to an end the various sub leases which had been created by the tenant.

A section 146 notice was served on the Crown and the lease was forfeited by way of peaceable re-entry. Further investigations were carried out by a team on the ground as to the identities of the various occupiers. The appropriate notices were served on the third-party occupiers (and the Crown) in respect of the collection of their goods and belongings and arrangements made for them to collect their items. On collection the third-party occupiers were asked to sign documents which, if required, our client could use to defend any relief from forfeiture proceedings if made in the future. An application was made to the Land Registry to remove the unilateral notices.

The outcome:

Our client was able to sell the property for over £1 million without the need for court proceedings or payment of compensation, and a commercial approach was taken to protect our client against any relief from forfeiture claim in the future. Our client was delighted at the outcome, which was all achieved during a pandemic!

Value to client:

Our expertise in commercial premises leases, along with quick commercial and pragmatic thinking led to a successful, speedy and cost-effective resolution.

For advice about disputes over leases and sub-leases, please get in touch by emailing or phoning our Altrincham team on 0161 929 8494, our Stoke-on-Trent office on 01782 205000  or our Birmingham office on 0121 516 3025.