The Third Party Tenant – A Warning to Commercial Landlords

What should a landlord do on discovering that its tenant has made an unauthorised assignment of its lease to a third party without the landlord’s prior knowledge or consent?

Unfortunately, all too often landlords do not take action and allow the third party to remain in occupation for as long as they pay the rent.

Generally a lease will prevent sub-letting or assignment unless the tenant complies with certain requirements (such as obtaining the landlord’s prior consent). However an unauthorised assignment can still be effective in transferring the lease from the original tenant to the third party.

If the landlord does not take action straight away then they are likely to lose their right to end the lease because of the unauthorised assignment and almost certainly if they accept rent from the third party.

An unauthorised sub-let or assignment can lead to all sorts of problems for the landlord, particularly on expiry of the lease. Time and costs are incurred in investigating who is responsible for any dilapidations and who notice should be served on for example. In some circumstances, the third party may even have acquired the rights to renew the lease under the 1954 Landlord and Tenant Act.

Alarm bells should ring as soon as a landlord becomes aware that the rent is being paid by a third party and legal advice should be sought immediately to prevent the landlord from losing its right to forfeit the lease later on.

If the landlord does not want to keep the third party as its tenant then any rent received from the third party should be returned whilst the landlord starts the process required to forfeit the lease. If the landlord is prepared to accept the third party as its tenant then it can consent retrospectively to the assignment and a licence to assign should be drawn up straight away.

For individual advice, please contact Annabel Mayer on 01284 727118 or email annabel.mayer@ashtonslegal.co.uk