Lease assignments - not only a deed does the deed

Lease assignments should be effected by deed but can, in certain circumstances, take place in equity or by one party making a successful claim of an assignment by estoppel. Depending on the particular circumstances, it may be of benefit to a party to claim that there has been an assignment by one of these alternative methods.

For example, a tenant may wish to claim that it has passed its rental obligations to an assignee even though a formal deed has not been completed. The case of Lankester & Son Ltd v Rennie is a recent example where the tenant tried to argue that an executed transfer document, held in readiness for completion, amounted to an assignment in equity. As an alternative the tenant offered an argument that there had been an assignment by estoppel based on the landlord’s conduct following the period of the “assignment”. The landlord had carried out repairs for the “assignee” and agreed to various requests from the “assignee”, including consenting to alterations at the property and a relaxation of rental payments from quarterly to monthly.

The landlord’s conduct appears to have muddied the waters somewhat, but the Court of Appeal held that there had not been a representation from the landlord to the tenant that the landlord had accepted the assignee as its new tenant. Therefore, there was no assignment by estoppel. Perhaps there is some comfort here for landlords who are cautious when a proposed assignee is let into occupation in advance of completion of a deed of assignment.

The prospect of an executed but undelivered deed creating an assignment in equity was clearly a step too far for the Court of Appeal and it is not surprising that this strain of the argument was not successful. The court concluded that the transfer had not been delivered and, therefore, there was no equitable assignment. It is a well-established point of law that an equitable assignment occurs from the date of completion of an instrument to assign a lease until the assignment is registered at the Land Registry (if appropriate). At this point the equitable assignment becomes an assignment in law.

Overall this case is a reminder to all parties of the risk involved in the shifting of legal obligations that comes with a lease assignment, and the importance of completing a formal assignment by deed. From the landlord’s perspective, it is important to protect the landlord’s income stream by making sure the legal formalities are completed. A well drafted licence to assign (if required) can assist in setting out when an assignment is deemed to have taken place and, for the tenant, document when the landlord must start dealing with the assignee as its new tenant.