Non-existent company registered on a commercial lease loses legal rights

In this case, a lease of restaurant premises had been granted to a tenant, a non-existent company.

Mr Darlow, the landlord, granted a lease to the company Seafood Shack UK Ltd (SSUKL) in 2017 - however, the premises were actually occupied by Seafood Shack Ltd (SSL). 

Six months after the lease had been granted, the tenant noticed the error within the lease and attempted to rectify it by granting a new lease to SSL. Whilst SSL were undergoing the process to grant the new lease, SSL was wound up and went into liquidation.

The liquidators disclaimed that SSL had any interest in the lease that had been granted to SSUKL. Following this, Mr Darlow re-entered the premises and believed that he was entitled to take back possession of the premises, therefore forfeiting the lease.

SSL claimed that as they were the intended lawful tenant, the company was entitled to possession of the premises. They asked the court to either interpret the lease with their name as the tenant or to allow the lease to be rectified. 

On this basis, they believed that the landlord had acted unlawfully by recovering possession of the premises.

The judge had to deliberate whether SSL had truly been intended as the tenant at the time that the lease was granted. 

He referred to the test set out in an earlier case, Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38. In this case, the House of Lords applied an objective test for the interpretation of the terms of a legal agreement. 

They asked if a reasonable person that possessed all material information reasonably available to all parties privy to the contract would have understood the party in question to be the tenant.

The solicitors of SSL had failed to conduct a company search or insert the company registration number in the lease. As the tenant was a non-existent company, the court maintained that the landlord had not been aware of SSL when the lease had been granted, and so it was not possible to believe that a reasonable person would think that the parties intended SSL to be the correct tenant. 

The judgement held that SSL had never been a party to the lease. Mr Darlow was, therefore, within his rights to take back possession of the property and the company in existence. SSL had no legal interest.

This case highlights the importance of carrying out company and identity checks on all parties involved in a legally binding agreement. This can simply be done by checking that the company is registered at Companies House. 

It is also pertinent for parties to the lease to clarify which company they intend to be named on the lease – ideally with a company registration number.

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