Old Grovebury Manor Farm Ltd v W Seymour Plant Sales and Hire Ltd (No 2)

An assignment of a lease made without the consent required by a covenant against assignment nevertheless transfers the term to the assignee. The breach exposes the lease to forfeiture; it does not invalidate the assignment.

For the purposes of section 146 of the Law of Property Act 1925, the assignee holding the term is the lessee upon whom notice must be served. Service on the original lessee alone is insufficient. The original lessee remains liable on the covenants but no longer holds the term or possesses the immediate interest in seeking relief from forfeiture. Forfeiture proceedings commenced without service on the assignee are premature.

The plaintiffs leased business premises to the second defendant under a covenant prohibiting assignment without written consent. The second defendant assigned the remaining term to the first defendant without that consent. The plaintiffs subsequently served a notice under section 146(1) of the Law of Property Act 1925 on the second defendant and commenced proceedings for forfeiture.

Walton J determined as a preliminary issue that the assignment had transferred the term and that the notice should therefore have been served on the first defendant. The plaintiffs brought an interlocutory appeal. The central issue was whether an assignment made in breach of covenant remained effective so that the assignee was the “lessee” entitled to receive the statutory notice.

1. Appeal dismissed. Lord Russell delivered the judgment, with which Browne LJ agreed. The assignment made without the lessor's consent was effective to vest the remaining term in the first defendant. A covenant against assignment restricts dealings through contractual obligation. It does not deprive the holder of the term of the legal capacity to assign it.

2. The unauthorised assignment constituted a breach of covenant and gave the lessor an occasion to seek forfeiture. That consequence did not make the assignment imperfect or effective only between assignor and assignee. Indeed, unless the transaction effectively transferred the term, there would have been no completed assignment constituting the relevant breach.

3. Section 146(1) of the Law of Property Act 1925 required notice to be served on the assignee. The statutory purpose is to provide a period during which the person whose interest is exposed to forfeiture may consider how to avoid that result. Following the assignment, that person was the assignee holding the term, rather than the original lessee.

4. The statutory language confirmed that conclusion. The person with the practical interest in applying for relief under section 146(2) was the assignee. Section 146(5)(b) also provided that “lessee” included persons deriving title under a lessee. The original lessee remained liable to perform the leasehold covenants but was no longer the tenant through privity of estate.

5. The authorities concerning notices following assignments tended to support service on the assignee. The mortgage case of Dudley and District Benefit Building Society v Emerson was distinguishable because the mortgagor there lacked an estate or interest capable of supporting the purported lease. The assignor in the present case unquestionably held an estate capable of assignment.

6. Because the section 146 notice had been served only on the original lessee, the statutory precondition to forfeiture proceedings had not been satisfied. The proceedings were premature. The appeal was dismissed with costs.

1. Court of Appeal: The plaintiffs' interlocutory appeal was dismissed with costs. The court upheld Walton J's determination that the section 146 notice had to be served on the assignee and that the forfeiture proceedings were premature.
2. High Court: Walton J decided as a preliminary issue that the unauthorised assignment transferred the term to the first defendant. As no section 146 notice had been served on that defendant, the proceedings had been commenced prematurely. No citation is stated in the judgment.