Pledging To Breach A Lease

Where a tenant company manages to achieve a lease provision allowing it to share occupation with other members of its corporate group, management of that group might inadvertently allow the Landlord to terminate.

Careful drafting is required for a seemingly small point because management of, for example, the group's overall finances at a later date may unintentionally affect the legal structure of the group of companies and cause a breach of the lease.

Although the recent case of Enviroco Ltd v Farstad Supply A/S (the "Asco case") deals with the pledging of shares by way of security and indemnity provisions in an oil and gas contract, it may have a much wider knock on effect in real estate transactions in both England and Scotland. We reported on it in our Law-Now of 8th January, 2010 from the perspective of corporate shareholding, but it is worth revisiting from a Scottish real estate perspective.