The High Court has ruled that a lease relied on by N17 Electrics Limited did not bind ACC Bank over retail premises at Milltown, Tuam and Terryland Retail Park in Galway.
The dispute arose after receiver Kenneth Fennell was appointed over three Terryland retail units and a premises at Milltown in January 2011. N17 Electrics was wound up later that month and its liquidator maintained that a business lease dated 1 April 2005 was an asset of the company.
The lease, between property owner Tom Naughton and N17 Electrics, purported to cover the Milltown superstore and Terryland premises until April 2020 at a stated rent of €30,000, with reviews every five years.
ACC Bank argued that the lease could not bind it because its earlier mortgages over the properties expressly prohibited Mr Naughton from leasing them without the bank’s prior written consent. That consent had never been obtained.
N17 Electrics accepted that the bank was not itself a party to the lease but argued, among other points, that ACC knew the company occupied the properties and benefited from rental payments being used by Mr Naughton to meet his bank repayments. It contended that the bank should therefore be prevented from denying the tenancy’s validity.
Ms Justice Dunne rejected that argument. She found that ACC was aware of N17 Electrics’ occupation and had been somewhat lax in ensuring formal leasing arrangements were put in place. But awareness of occupation was not the same as consenting to the 2005 lease.
The judge also highlighted difficulties with the document itself. Its description of the properties was sparse, the referenced terms and conditions were not attached, and the stated rent was substantially below the rent actually being paid.
The court held that a mortgagor may create a lease binding between landlord and tenant while that lease remains ineffective against a mortgagee whose required consent was never obtained.
ACC Bank and the receiver were therefore entitled to a declaration that the 2005 lease was not binding on them and was not an asset of N17 Electrics for the purposes of the winding up.