Virtual assignment is not assignment

24 August 2010



A 'virtual assignment' is a device by which a tenant effectively appoints another organisation to deal with the practical aspects of its tenancy, in effect acting as attorney for the tenant.

Since most leases contain a clause which prohibits the tenant from parting with possession of the let property without the landlord's consent, it was inevitable that eventually a case would come before the courts to deal with whether a virtual assignment breached a lease.

Last year, the High Court ruled that a virtual assignment by NatWest bank to a company called New Liberty Holdings Ltd. breached the covenant in the lease not to share or part with possession of the property.

The bank had previously sublet the premises (with the landlord's permission) to a firm called William M Mercer Ltd., which continued to occupy them.

The Court of Appeal has now overturned the High Court's decision, considering that the virtual assignment in this case was in effect an agency agreement and that the tenant had not parted with possession of the property or been sharing possession of it, LJ Ward concluding that 'at the time the Virtual Assignment was entered into and at all material times thereafter, NatWest was not and has not itself been in possession of the demised premises at all'. Mercer was in possession of it before and after the virtual assignment and, in practice, nothing had changed.

Landlords, in some circumstances, may wish to alter their lease terms to prevent virtual assignments of leases.

Contact Michael Larcombe for advice on all landlord and tenant matters on 01753 279087, complete the online enquiry form or email comproperty@bpcollins.co.uk.