141: The pitfalls of serving a break notice before lease assignment registered

The High Court recently held that a break notice served by an assignee of a registered lease was insufficient to end the lease as the assignee had not yet been registered as the proprietor of the property at HM Land Registry (Sackville UK Property Select II (GP) No.1 Ltd and another v Robertson Taylor Insurance Brokers Ltd and another [2018] EWHC 122 (Ch)). In this case, the assignee had not registered the deed of assignment before it purported to serve notice to break the lease.

Where a tenant has taken an assignment of a registered lease, the transfer will take effect in equity and the legal estate will not pass to the assignee until the assignee is registered as the proprietor of the property at HM Land Registry. Until the legal estate has passed to the assignee, the assignee is not entitled to serve a break notice on the landlord in respect of the lease.

It is important for an assignee to consider whether they intend on exercising a right to break the lease, particularly where a break date falls within six months following the assignment. There can often be long delays at HM Land Registry for registrations of some transactions and enough time needs to be allowed for registration to take place before the break is exercised.

This could be particularly relevant in cases where the assignment of a lease is part of a larger transaction. For example, the sale of a business by way of an asset purchase, where the purchasing entity might intend to move the business of the assignee to different premises but the selling company does not wish to be responsible for the termination of the lease.

In view of the above case, it is important to check any break dates before taking an assignment of a lease, register the assignee’s interest at HM Land Registry promptly following an assignment, and check the terms of break clauses to ensure any break notices served are valid. If there is a break date in a lease where notice would need to be served shortly after completion of the assignment, consider whether the seller should be obliged to give notice to terminate on behalf of the buyer.