The tenant that never was

The grant of a lease to a non-existent tenant highlights the importance of checking that companies in a transaction are registered at Companies House.

Mr Darlow granted a lease of a restaurant in Cardiff to a company called Seafood Shack UK Ltd. The identity of the tenant had been set out in heads of terms but, crucially, nobody checked to ensure that the tenant company had been incorporated. The lease was therefore ‘granted’ to a non-existent tenant.

The premises were actually occupied by Seafood Shack (Cardiff) Ltd (SSCL). Six months after the grant of the lease, the mistake was spotted and steps were taken to grant a new lease to Seafood Shack Ltd (SSL), the parent company of the occupier. However, before a new lease could be completed, SSCL was wound up and liquidators appointed. The liquidators disclaimed any interest in the premises. Mr Darlow therefore peaceably re-entered the premises and forfeited the lease.

SSL claimed that Mr Darlow had acted unlawfully in taking back possession of the premises, that it was the intended tenant of the lease and, therefore, still entitled to occupy the premises.

Was SSL the true tenant?

The judge had to decide whether SSL was the intended tenant of the lease. On the facts, he held that the landlord, Mr Darlow, was not aware of the existence of either SSL or SSCL. The question was whether therefore, as a matter of law, SSL could be held to be the correct tenant under the lease.

The judge applied the test set out in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, that the lease must be interpreted in a way that ‘a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’.

There have been cases where a document has misnamed a party to it and the courts will interpret the document to refer to the correct party. However, on the facts of this case, it was not possible to say that a reasonable person would take the parties to have meant that the tenant was, in reality, SSL. This was not a case of misnomer where the correct name could readily be substituted.

In this instance, it was not possible to rectify the lease to refer to the correct party as the tenant either. For rectification, there has to be common intention between the parties that has not been put into effect by the document. Here, there was no common intention that the tenant should be SSL, so rectification was not possible.

Outcome

The judge held that SSL was not and had never been a party to the lease. When SSCL took occupation, it was likely that a tenancy at will arose in its favour, but whatever interest it had was disclaimed by the liquidators. The taking of possession by Mr Darlow was not, therefore, unlawful, and there was no basis on which SSL could claim possession of the premises.

The case demonstrates the importance of checking that the parties to a document legally exist. For UK companies, limited partnerships and limited liability partnerships, a simple check can be carried out at Companies House to determine if a company exists. For foreign companies, an opinion letter is usually obtained which, among other things, confirms the legal existence of the company.

Further information

Seafood Shack Limited v Darlow [2019] EWHC 1567 (Ch).