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08 January 2020

178: Is a tenant obliged to complete a lease with a new landlord under an agreement for lease with the old landlord?

In Bella Italia Restaurants Ltd v Stane Park Ltd [2019], the High Court considered whether a tenant, who had entered into an agreement for lease with the original landlord, was required to complete the lease with the landlord’s successor in title.

The freehold of a building in Colchester had been sold onto a new landlord owner. Prior to the sale, Bella Italia had entered into an agreement for lease with the old landlord to take new retail premises once the building had been constructed.

Bella Italia argued that it could refuse to accept the lease as the new freehold owner was not the original contracting party, and that the landlord’s obligation to grant the lease was personal to the original owner.

A draft lease, which was annexed to the agreement for lease, referred to the original landlord as party to the lease. The draft lease stated that references to the landlord and tenant ‘include their respective successors in title’, but the agreement for lease did not have the same wording.

The question for the court was whether Bella could refuse to accept a grant of lease from the new landlord and whether the agreement made the obligation to grant the lease personal to the original landlord.

The court found against Bella Italia and concluded that the obligation for the landlord to grant the lease was not personal to the original landlord. There was no provision in the lease stating that the lease had to be granted by the original landlord named in the agreement.

The tenant’s identity and covenant strength are usually crucial to the landlord. An agreement for lease usually states that the term ‘tenant’ does not include the tenant’s successors in title, that the lease is to be granted only to the named tenant, and that the tenant may not assign or part with the benefit of the agreement.

However, a similar provision is not usually given in relation to the landlord’s identity and landlord’s successors in title are not expressly excluded. Indeed, it is common for the landlord to sell its interest in a building and for the new landlord to grant a lease to the tenant.

If the identity of the landlord is important to the tenant, it should seek to include equivalent provisions to ensure the agreement is personal to the named landlord.

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