Breach of alienation covenant and the registration gap (Reiner v Triplark)

It is common to see in residential flat leases a covenant which prohibits the tenant from assigning without the previous consent of the landlord, which is not to be unreasonably withheld.

Where there is a right to manage company (an “RTM company”) in place, consent to assign must be sought from the RTM company, which is in turn obliged to notify the landlord of the request for consent (under ss 98 and 99 Commonhold and Leasehold Reform Act 2002 (the “Act”)).

If consent is not sought, a tenant risks being in breach of the lease and a landlord may be entitled to take remedial action against the tenant including forfeiture, an injunction or damages.

In this case the tenant, Ms Reiner, assigned her lease to Mr Wismayer (the director of the RTM company) without obtaining the consent of the RTM company or Triplark, the landlord and freehold owner of the building in which her flat was situated. The sale contract required Mr Wismayer to obtain the consent of the RTM company, which could only be given once Triplark had been notified. Mr Wismayer failed to notify Triplark for fear of objection. Mr Wismayer then applied to the Land Registry to register the transfer. However Triplark lodged an objection with the Land Registry which prevented registration of the transfer from being completed. A compulsorily registrable transfer only operates at law when registration at the Land Registry has been completed. The effect of this was that, during the registration gap (that is, the period between completion of the assignment and registration at the Land Registry), Ms Reiner retained legal ownership of the flat and held it on trust for Mr Wismayer.

Ms Reiner argued she had not breached the alienation covenant in the lease because she had not “parted with possession” of the flat. She based this on the fact that the assignment had not been registered at the Land Registry so she retained legal possession of it.

The Upper Tribunal agreed with Triplark and held that Ms Reiner had given up possession of the flat as she had given vacant possession to Mr Wismayer when the assignment completed. Although she held the flat on trust, all rights of enjoyment and possession of it were vested in Mr Wismayer and she had no right to possession.

Ms Reiner also argued that the RTM company had unreasonably withheld consent to the assignment. The Upper Tribunal confirmed that the RTM company could not have done so because s98(4) of the Act meant it could not grant consent until it had notified the landlord (which it had not done).

This case provides useful clarification that an assignment will be in breach of a covenant not to part with possession without consent, even if it has not been registered at the Land Registry. It also shows the importance of RTM companies informing landlords of requests for consent to assign. Furthermore, tenants seeking consent to assign in an RTM building must be prepared for delays if the RTM company fails to comply with its statutory obligations under the Act. In these cases, a tenant may have a claim for damages against the RTM company under the Landlord and Tenant Act 1988.