30 January 2017
Limited partnerships can’t be landlords
It is often thought that limited partnerships (LPs) are essentially the same as companies, but although in common use, they are not. The main difference is that, in law, LPs are merely combinations of persons that have no distinct legal personality. A company is legally a 'different person' from its directors and shareholders.
One of the consequences is that an LP is thus incapable of holding legal interests in land. In one striking case, that principle was overlooked with serious consequences for a property developer.
The LP concerned, which had five corporate partners, purported to take an overriding lease of land on which it planned to construct a high-rise building. With that objective in mind, it served a notice on a tenant of part of the site by which it sought to exercise a break clause, terminating the latter's lease.
The tenant challenged the validity of the notice on the basis that the LP could not hold any legal interest in the land and thus could not be its landlord. In upholding those arguments, the High Court found that the notice had incorrectly described the LP, rather than one or more of its partners, as the landlord.
The mistake could not be remedied because a reasonable recipient of the notice, appreciating that the legal estate could not be held by the LP, would have been puzzled by what it meant. The overriding lease had not vested the legal estate in the LP and the notice was thus necessarily invalid.
This case is yet another example of the old maxim that 'the devil is in the detail'. To ensure that your property or other transactions are carried out with both an eye for detail and the benefit of sound commercial legal advice, contact Gemma Hunter. Call 01753 279035 or email firstname.lastname@example.org.