“A ‘virtual assignment’ is an arrangement under which all the economic benefits and burdens of the relevant lease (including any management responsibilities) are transferred to a third party, but without any actual assignment of the leasehold interest or any change in the actual occupancy of the premises in question. It is typically employed where the relevant lease contains covenants against assigning or parting with the possession of the demised property without the consent of the landlord, and there are concerns either that the landlord may be unwilling to consent to a legal assignment of the lease because of perceived concerns about the financial standing of the assignee, or that the landlord’s consent may not be available in advance of the scheduled date for completion of the transaction.”
“[NatWest] hereby irrevocably appoints [New Liberty] to be its true and lawful attorney to do all acts and things on its behalf and in its name which [New Liberty] may consider properly necessary or advisable to effect or to give proper effect to the provisions of the Virtual Assignment … and deliver as its act and deed … [everything] properly necessary or acquired for any of the following purposes [namely the acts similar to those set out in clause 4.1 of the Virtual Assignment itself].”
“30. (1) Not to assign or charge the Demised Premises in any part less than the whole (2) Not to charge the Demised Premises … (3) Not to execute any declaration of trust with regard to the Demised Premises or any part thereof or these Presents (4) Not to share or permit sharing of possession or occupation of the Demised Premises or any part thereof or part with possession or occupation of the same … (5) Not to underlet any part or parts of the Demised Premises or permit the same to be underlet … (6)(a) Not to underlet the whole of the Demised Premises nor permit the creation of any derivative underlease … (8) Not to assign the whole of the Demised Premises … (10) Not to assign, transfer, charge or underlet the whole of the Demised Premises or underlet parts thereof pursuant to paragraph 30(5) of this Schedule otherwise than in accordance with and without in each and every such case first complying with the foregoing provisions and subject thereto not without obtaining the previous consent in writing of the Landlord which consent shall not be unreasonably withheld.”
“21. … In my judgment, by executing the Virtual Assignment, the Defendant has either parted with possession of the Property to New Liberty or, at least, is sharing, or permitting the sharing of, possession of the Property with New Liberty. … the general definitions section of theLaw of Property Act 1925 defines "possession" as including "receipt of rents and profits or the right to receive the same, if any": see section 205 (1)(xix). Whilst that definition is provided for the purposes of a particular statute, and may be excluded where the context otherwise requires, in my judgment it encapsulates a concept well known to, and understood by, real property lawyers engaged in the drafting of leasehold documentation. Moreover, the alienation restrictions in the present Lease expressly differentiate between the concepts of "possession" and "occupation" which … should therefore not be conflated. … On the footing that the entire Property is underlet to a third party, the effect of this arrangement is that New Liberty is to deal with the Property as the Defendant, as its head leasehold owner, would otherwise have been expected to deal with it, and the Defendant no longer has the right to do so. In my judgment, that amounts to a parting with or sharing of possession.”
“As its name suggests, the V.A. is not in fact an assignment – it merely mimics the economic result of one without changing the legal position vis à vis third parties at all.”
“4. The intention of the Virtual Assignment is to pass to the Purchaser all of the economic benefits and burdens of the Leases and Underleases in respect of the Properties, together with the obligation to manage all dealings with the Landlords and Undertenants as if the Properties had been assigned to the Purchaser but without this Virtual Assignment creating, vesting or granting any legal or equitable estate in the Premises to the Purchaser. To this end, any monies from the Undertenant pursuant to any Underleases, together with all proceeds of any disposal of the Leases or for the surrender of any Underleases, shall belong to the Purchaser.”
“[50] As noted earlier, it is common ground that these contractual arrangements did not involve the transfer of any proprietary interest in the properties in question from Abbey to Mapeley, whether at law or in equity. Further, it is rightly accepted by Mr Goy that they did not, and were not intended to, transfer to Mapeley any contractual right to occupy the properties (for obvious reasons, given the existence of covenants against parting with possession without the consent of the landlord). In consequence, Abbey's status as tenant remained the same after as before the execution of the virtual assignment: it continued to occupy the properties the subject of the virtual assignment in right of its status as tenant under the leases. It follows as night follows day that since Mapeley had itself no proprietary or contractual right to occupy the properties in question, it was not in a position to 'lease back' (in the sense of re-transfer) such a right to Abbey. As the Tribunal rightly concluded (see paragraph 52 of its Decision …), the contractual arrangements between Abbey and Mapeley were effective merely to regulate, as between the two of them, Abbey's exercise of its continuing right (qua tenant) to occupy the properties.”
“52. The single answer to these two attractive arguments is that [Abbey's] right of occupation, and the right to enjoy the properties by assignment or underletting, derived from the lease with its landlord and not from the virtual assignment. The virtual assignment was a personal collateral agreement between [Abbey] and Mapeley which did not grant rights of occupation but which did regulate how certain rights were to be exercised but only as between [Abbey] and Mapeley. The fact that [Abbey] agreed with Mapeley that [Abbey] would occupy the premises subject to the occupancy regulations made no difference. The regulation of the right to occupy is not the same as the grant of a right to occupy. The right to occupy was given by the lease and the occupancy regulations were merely an agreement as to how the rights of occupation should be exercised as between [Abbey] and Mapeley.”
“86. In my judgment the Community law authorities which I have examined leave no room for doubt that a right of occupation is an essential and fundamental element of a transaction of leasing or letting for the purposes of Article 13B(b). It follows that since, for reasons given earlier, Mapeley acquired no right of occupation of the properties the subject of the virtual assignment, and hence was never in a position to transfer such a right back to Abbey, the supply made by Mapeley to Abbey under the contractual arrangements in question is not a supply of 'leasing or letting' within the meaning of Article 13B(b) and hence is not exempt from VAT. In my judgment the Commissioners are correct in characterising the supply by Mapeley as a standard-rated supply of agency and property management services. … 89. In the instant case Abbey is, in my judgment, attempting to have it both ways in just the manner described by the ECJ in the last sentence of paragraph 33 of its judgment in Cantor Fitzgerald [2001 STC 1453,[2002] QB 546 … Any grant by Abbey to Mapeley of a proprietary interest in the properties in question required its landlords' consent, as did any conferring by Abbey on Mapeley of a contractual right of occupation of those properties. Hence, given the absence of such consent, the need to resort to the device of a virtual assignment designed to produce the same commercial results, but without involving Abbey in doing either of those things. Yet Abbey is now contending that for VAT purposes it is to be treated as having done precisely that which the virtual assignment was specifically designed not to do.”
“… the covenant against parting with possession of the whole or part of the premises … should be given its normal, and technically legally correct, meaning, unless there is any good reason to construe it in some other way.”
“‘Possession’ includes receipts of rents and profits or the right to receive the same.”
“In this Act unless the context otherwise requires, the following expressions have the meanings hereby assigned to them respectively, that is to say …”
“23. The difference between possession and occupation is rather technical, and, even to those experienced in property law, often rather elusive and hard to grasp. Nonetheless, it is very well established, and is particularly important, and indeed well known, in the field of landlord and tenant law, especially in relation to the question of whether an agreement creates a tenancy or a licence, and in relation to alienation covenants such as clause 4.18. 24. While the interpretation of a word or phrase in a document must ultimately depend upon the documentary and factual circumstances in which it was agreed, it is desirable that the courts are as consistent as they properly can be when construing standard phrases in standard contexts. In that connection, a covenant against parting with possession is included in many, quite possibly most, modern commercial leases. Further the courts have consistently given the strict meaning to such covenants as was adopted in unreserved terms by the Privy Council in the Lam Kee Ying case[1995] AC 247 , and in the five cases therein referred to, at pp. 255/256. 25. Accordingly, while one cannot lay down any immutable rule as to how a particular word or expression is to be construed in every document or lease, I consider that any court must be very cautious before construing the word "possession" as extending to occupation which does not amount to possession, especially in a familiarly expressed covenant against parting with possession in a detailed professionally drafted commercial lease, such as that in the present case. 26. In these circumstances, I consider that it would require a very strong and clear case before a covenant against parting with possession should be construed in any way other than that adopted by the Privy Council in the Lam Kee Ying case, particularly in the light of the consistent approach taken in the earlier authorities cited therein. In agreement with Judge Dean QC, therefore, I would hold that the covenant against parting with possession of the whole or part of the premises in the present case should be given its normal, and technically legally correct, meaning, unless there is any good reason to construe it in some other way. 27. I turn to the covenant against sharing possession. On the face of it, one would expect the word "possession" to have the same meaning each time it appears in clause 4.18, particularly in light of the fact that it is a word which is familiar, especially in the context of leases, to lawyers. The only reason for not giving the word "possession" its normal technical meaning in a covenant against sharing possession appears to be that identified by Sir Douglas Frank QC, namely that possession is, as it were, unitary and cannot be shared. 28. I do not accept that possession cannot be shared. … as a matter of ordinary language, a lessee who lets another person into possession of the demised premises, so that they are both in possession, can properly be said to "share" possession with that other person. … 29. … [The covenant] has a real effect, namely to prevent the conversion of a tenancy to a single lessee into what, in practical terms, will amount to a joint tenancy. 30. It may be said that this conclusion will result in a covenant against sharing possession having relatively little value. The answer to that point may be said to be the same as that given in the Lam Kee Ying case[1975] AC 257 , 256C, namely that "the words of the covenant must be strictly construed, since if the covenant is broken a forfeiture may result". That approach may well be a little less powerful than it was 30 years ago, on the basis that such canons of construction are now given rather less weight. Nonetheless, the modern approach, namely that such covenants should be given what is, in their documentary, factual and commercial context, their natural and commercially sensible meaning, indicates, to my judgment, the same result. Further, I do not think one should lean in favour of giving a wide meaning to an absolute covenant (i.e. one which is not subject to a proviso that consent cannot be unreasonably withheld).”
“A covenant which forbids a parting with possession is not broken by a lessee who in law retains the possession even though he allows another to use and occupy the premises.”
“Unless his agreement with his licensee wholly ousts him from the legal possession … nothing short of a complete exclusion of the grantor or licensor from the legal possession for all purposes amounts to a parting with possession.”
“… there are two elements necessary for legal possession: (1) a sufficient degree of physical custody and control ("factual possession"); (2) an intention to exercise such custody and control on one's own behalf and for one's own benefit ("intention to possess").” (1) a sufficient degree of physical custody and control ("factual possession"); (2) an intention to exercise such custody and control on one's own behalf and for one's own benefit ("intention to possess").”
“… possession is synonymous … with exclusive occupation - that is to say occupation (or a right to occupy) to the exclusion of all others, including the owner or other person with superior title.”
“The principle is a very simple one. A man may transfer his property, without valuable consideration in two ways: he may either do such acts as amount in law to a conveyance or assignment of the property, and thus completely divest himself of the legal ownership, in which case the person who by those acts acquires the property takes it beneficially, or on trust as the case may be; or the legal owner of the property may, by one or other of the modes recognised as amounting to a valid declaration of trust, constitute himself a trustee, and, without an actual transfer of the legal title, may so deal with the property as to deprive himself of its beneficial ownership, and declare that he will hold it from that time forward on trust for the other person. It is true he need not use the words, “I declare myself trustee”, but he must do something which is equivalent to it, and use expressions which have that meaning, for, however anxious the court may be to carry out a man’s intentions, it is not at liberty to construe the words otherwise than according to their proper meaning.”
“A bare (or simple) trust is one in which the property is vested in one person on trust for another, the nature of the trust imposing no active duties or powers of management on the trustees. … In such a case T’s sole duty is to B to enjoy the property and to obey any direction he may give as to how the property should be disposed of.”
“… It seems to me to be clear that a covenant in a lease against assigning the demised premises, in the absence of any context showing that the covenant is to have an extended meaning, covers only a legal assignment. The covenant against assignment is, therefore, not broken by anything short of a legal assignment. In my opinion such a covenant is not broken by the lessee executing a declaration of trust of the demised premises.”
“The fact that the alienation provisions in the lease restrict several, specified forms of alienation leads me to the conclusion that the parties intended that only those forms of alienation should fall foul of the alienation restrictions: the express inclusion of several excludes the implication of other forms of alienation.”
“13. Neither in form nor in substance did the Virtual Assignment amount to an underletting. Perhaps the most formidable objection to treating it as such is the fact that it neither reserves nor purports to reserve, any reversion to the defendant.”