2014
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
AI Generated Summary
This case revolves around the unlawful assignment of hotel leases by companies within the Hilton Group without obtaining prior landlord consent. The assignments were intended to release the original lessees and Hilton Worldwide Inc. as the guarantor from obligations under the leases by operation of the Landlord and Tenant (Covenants) Act 1995. The court held the assignments unlawful and invalidated the proviso in clause 3.14.6 requiring tenants to procure new guarantors, thus preserving the landlords' contractual rights.
Judgment
Lord Justice Patten :
Introduction
The defendant companies are all associated companies in the Hilton Group (“the Group”). Hilton Worldwide Inc. is a Delaware corporation and a parent company in the Group. Adda Hotels (“Adda”) and Puckrup Hall Hotel Limited (“Puckrup”) were the original lessees of ten hotels in the UK under separate leases granted on 30 August 2002 by the claimants’ predecessors in title for terms expiring on 31 December 2029. The lease of the Tewskesbury Hotel was granted to Puckrup. The leases of the other nine hotels were granted to Adda. Each of the leases (which are in substantially the same terms) reserve significant base and turnover rents.
On 1 July 2014 Adda and Puckrup assigned each of the leases (separately) to the nine companies which have been joined as the 4 th to 12 th defendants. The name of each company indicates the location of the relevant hotels. The assignees are in each case £1 subsidiary companies in the Group which were formed for the purpose of taking the assignments.
We were told that the assignments were carried out as part of a Group re-organisation but they had the important consequence, if lawful, of releasing from further contractual liability under the various leases both Adda and Puckrup as original lessees and, more importantly, Hilton Worldwide Inc. as guarantor of those liabilities as a result of the operation of the provisions of ss. 5 and 24(2) of the Landlord and Tenant (Covenants) Act 1995 (“the 1995 Act”).
Those advising Adda and Puckrup took the view that it was not necessary to obtain the prior consent of the claimant landlord companies to the assignments. It is now conceded that this was wrong and in this Court Mr McGhee QC for the Hilton companies accepts that the assignments were not lawful and that under s.11 of the 1995 Act they were therefore ineffective to release the original tenants and their guarantor from their covenants under the leases. But the issue remains for the future whether a similar assignment or assignments to other associated companies in the Group would have the effect of achieving such release and whether the claimant landlords could lawfully prevent the assignments without at least the substitution of some suitable alternative guarantee.
These issues, which turn on the construction of the covenants against assignment in the leases and their interaction with the provisions of the 1995 Act, have led to litigation instituted by the claimants in the context of