Termination of Tenancies for Tenant Default - Law Commission

have to apply for relief, which, if granted, would take the form of a number of new
tenancies held directly from the former head landlord. 81
6.82 Although this provisional proposal elicited little comment, all who did respond
approved the objective that the CP was seeking to advance. Clifford Chance LLP
considered the proposal to be an improvement on the current law, and the Bar
Council gave it strong support. However, the Judges of the Chancery Division
suggested that the problem of the termination of the head tenancy of a block of
flats could be more neatly dealt with by transferring the head tenancy to a
management company formed by the sub-tenants for that purpose.
6.83 On reconsideration we have come to the view that realisation of this objective
would require complex legislation, and we doubt that the ends justify the means.
We are now persuaded that the mischief the proposal was seeking to remedy can
be addressed more effectively by other forms of order. In particular, our
recommendation for the court to be able to order sale of the tenancy being
considered for termination would provide a ready solution to the problem
identified in the First Report. The tenancy would be sold subject to any subtenancies
and the problems brought about by their termination avoided.
6.84 For these reasons, we do not intend to proceed with this provisional proposal.
Transfer orders
6.85 The CP referred to an order vesting the tenancy in an applicant as an example of
a type of preservation order. 82 Following the analysis in the First Report, it stated
that the applicant in whom the proceedings tenancy was vested would take by
way of assignment. 83 It was, however, doubted in the First Report that all
derivative interests in the proceedings tenancy would be automatically preserved
on assignment. By vesting the tenancy in a party who already had a derivative
interest in it, that party would be elevated into a direct relationship with the
landlord. This would create a gap in the structure of derivative interests. It would
not always be fair, the First Report argued, to close this gap by elevating such
interests. 84
6.86 We no longer find this analysis convincing. As a general principle, any
assignment of a tenancy is subject to all pre-existing interests deriving from it
which are capable of binding a successor in title to the outgoing tenant. 85 We
consider that this principle should apply equally where the assignment is by court
order. Where the assignee already holds a qualifying interest, that interest will
merge with the tenancy.
81 This would incur attendant conveyancing expenses, the need for new mortgages to be
granted in many cases and liability for Stamp Duty Land Tax.
82 CP, para 7.43.
83 CP, para 7.43; First Report, para 10.36.
84 First Report, para 10.36, n 42.
85 Where title to the tenancy is registered, these interests must also be protected by
substantive registration or by being noted on the register if they are to bind a purchaser for
valuable consideration: Land Registration Act 2002, ss 27 and 29.
122