The importance of obtaining your mortgagee's consent

In the recent case of Co-operative Bank Plc v Hayes Freehold Ltd, the importance of obtaining a mortgagee’s consent to a proposed transaction was emphasised.

In this matter, a commercial freehold owned by the head landlord, Hayes Freehold Ltd, was charged to Co-operative Bank Plc. The tenant of the premises, Deutsche Bank, had underlet the property to a sub tenant. Hayes Freehold Ltd, Deutsche and the sub tenant agreed to enter into deeds of surrender so that the head lease and sub lease were extinguished. The deeds of surrender were completed, but Deutsche Bank did not obtain the formal consent from the mortgagee, Co-operative Bank Plc, to these arrangements.

The court held that the surrender in respect of the sub lease had been effective and the sub tenant’s guarantor was also released from their liability. The surrender of the head lease however had not been legally effective and was held to be void in the absence of the mortgagee’s formal consent being obtained.   

Deutsche had not checked with the landlord whether the property was mortgaged and whether a formal consent was required to the surrender of the head lease. It therefore resulted in Deutsche Bank still being on the hook to pay rent, in excess of £2.6 million per year, for the remainder of the term of the head lease.

This case emphasises the importance of checking whether there is a mortgagee involved and whether formal consent is required for a particular transaction. Failure to obtain mortgagee’s consent can lead to the transaction’s legal validity being called into question, and in some cases, held as void.

The consequences of failing to obtain consent can lead to disaster.

I am based at our Chelmsford office and can be reached on  01245  453811 or email [email protected].