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Case law: Company tenant named in lease did not exist, allowing landlord to take back possession

A party entering into a legally binding agreement should check the other party named in the agreement actually exists, a recent ruling makes clear.

August 2019

This update was published in Legal Alert - August 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

Where the other party is a company, a limited liability partnership or a community interest company, you can check the name given in the agreement is registered at Companies House or, for a foreign entity, obtain a letter of opinion from a foreign notary that it exists.

In this case, a lease stated that the tenant of the premises was a company called Seafood Shack UK Ltd. However, there was no such company. The company that actually occupied the premises was called Seafood Shack (Cardiff) Ltd which had a holding company called Seafood Shack Ltd.

By the time the mistake was picked up several months later, Seafood Shack (Cardiff) Ltd had gone into liquidation. When the liquidators disclaimed the premises, the landlord forfeited the lease and took back possession of the premises.

The holding company Seafood Shack Ltd claimed that it was the company that was supposed to have been the tenant of the premises, and argued that the landlord had therefore taken back the premises unlawfully.

The legal test when construing or interpreting the terms of a commercial agreement, such as a lease, is the objective test of what a reasonable person in possession of all background information reasonably available to both (not just one of) the parties at the time the contract was entered into would think the parties had meant.

The High Court found that the landlord had not been aware of the existence of either Seafood Shack (Cardiff) Ltd or Seafood Shack Ltd when it granted the lease, so it was not possible to say that a reasonable person would think it had intended Seafood Shack Ltd to be the tenant.

The Court therefore ruled that Seafood Shack Ltd had never been a party to the lease, and whatever interest Seafood Shack (Cardiff) Ltd had in the premises had been disclaimed by its liquidators. The landlord had therefore recovered possession of the premises lawfully.

Operative date

  • Now

Recommendation

  • Any party entering into a legally binding agreement should check the other party actually exists – for example, in the case of companies, limited liability partnerships and community interest companies, by checking they are registered at Companies House in the name they say they are – and/or obtaining a letter of opinion from a foreign notary that it does.

Case ref: Seafood Shack Limited v Darlow [2019] EWHC 1567 (Ch)

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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