Landlord’s Consents
UK Cases
Hampshire v Wickens
HAMPSHIRE V. WICKENS
(1878) 7 Ch. D. 555
Jessel M.R.: Usual covenants may vary in different generations. The law declares what are usual covenants according to the then knowledge of mankind. Lord Eldon, in Church v. Brown, puts it thus:
Before the case of Henderson v. Hay, therefore, upon an agreement to grant a lease with nothing more than proper covenants, I should have said they were to be such covenants as
were just as well known in such leases as the usual covenants under an agreement to convey an estate.
Now what is well known at one time may not be well known at another time, so that you cannot say that usual covenants never change. I have therefore looked at the last
edition of Davidson’s Precedents in Conveyancing, to see whether the usage is said to have changed. He says:
The result of the authorities appears to be that in a case where the agreement is silent as to the particular covenants to be inserted in the lease, and provides merely for the lease containing ‘usual covenants,’ or, which is the same thing, in an open agreement without any reference to the covenants, and there are no special circumstances justifying the introduc
tion of other covenants, the following are the only ones which either party can insist upon, namely,
Covenants by the lessee
1. To pay the rent.
2. To pay taxes, except such are expressly payable by the landlord.
3. To keep and deliver up the premises in repair, and
4. To allow the lessor to enter and view the state of repair.
And the usual qualified covenant by the lessor for quiet enjoyment by the lessee.
When he refers to “special circumstances” he means peculiar to a particular trade, as for example, in leases of public-houses, where the brewers have their own forms
of leases, the “usual covenants” would mean the covenants always inserted in the leases of certain brewers.
Marks v Warren
[1979] 1 All E.R. 29; (1978) 37 P. & C.R. 275; (1978) 248 E.G. 503
Browne-Wilkinson J.: In my judgment, on the facts of this particular case, it is clear that what was involved in this assignment did necessarily involve a parting with possession, and I do not think counsel for the defendant really disagreed with that as being the normal meaning of the words read out of context. What he argues in this case is that covenants against assigning, underletting and parting with posses sion have a very long and very well k11Qwn legal history and are to be construed on the basis that if one of the limbs of the covenant is omitted its omission is to be treated as a significant factor. He sa:ys, and in my judgment quite rightly on the authorities, that if a landlord wishes to restrict the free alienation by his tenant of the estate that has been granted to him, the burden lies on the landlord to express that restriction in clear terms, so that there, can be no doubt as to what the restriction consists of, especially as the penalty for a breach is forfeiture. (… )
But that does not, in my judgment, mean that one has to distort the ordinary meaning of words so as to depart from their ordinary meaning. Here the parting with possession which is involved falls within the obvious meaning of the words. There is no reason to treat, as counsel for the defendant suggests I must, each of the limbs ofa covenant not to assign, not to underlet and not to part with possession as being three mutually exclusive areas. They are, as he points out, to be treated as three separate covenants; but it does not follow that an act which would constitutea breach of one of those covenants may not also constitute a breach of another of those covenants. He has not shown me any authority to that effect.
It is an open question, which I do not need to resolve, whether a covenant against underletting alone precludes an assignment. Woodfa/1 on Landlord and Tenant states that it does. But in my judgment the decision of the Irish Court of Appeal in Re Doyle and O’Hara’s Contract shows that is by no means a concluded question and it very much depends on the actual words used in each covenant. But when it comes to the words ‘part with possession’ in my judgment the decision of the Court of Appeal in Russell v Beecham, which I have already referred to, strongly suggests thata covenant against parting with possession does preclude not only parting with possession simpliciter, without any underletting or assigning, but also a parting with possession under an underletting and, in my judgment, under an assignment. ( … )
So in this case it seems to me that the assignment by the defendant to the plaintiff necessarily involved a parting with possession, and, therefore, as it falls within the fair, ordinary, normal meaning of the words, undistorted and unstrained, it constituted
a breach of the covenant, unless the landlord’s permission was obtained or unreasonably withheld.
Bocordo SA v S&M Hotels Limited
BOCARDO SA V. S. & M. HOTELS LTD
(Court of Appeal)
[1980] 1 W.L.R. 17; [1979] 3 All E.R. 737; (1979) 39 P. & C.R. 287; (1979) 252 E.G. 59
Megaw L.J.: What was section 19(1) of the Act of 1927 intended to achieve? I think, in the end, that it must be taken to have had a very limited objective. Apart from legislation, a landlord and a tenant had freedom of contract, in agreeing the terms oftheir lease, to permit or to limit or to abrogate the right of either or both of them to assign their respective interests. Section 19(1) did not purport to destroy that freedom of contract of the parties to agree to forbid assignment by the tenant. That proposition is accepted by both parties before us, though counsel were unable to identify any decided case to that effect, such as Hilbery J. appears to have had in mind in his judgment in Adler (1957] 1 W.L.R. 227, 230, when he says, “It is clear and has been decided … ” Neither of the parties before us asks us to give effect to the doubts on that point expressed by Danckwerts L.J. in Property & Bloodstock Ltd
v. Emerton [1968] Ch. 94, 119-120. It is hard to see how the words of section 19(1), “In all leases … containing a covenant … against assigning … demised premises … without licence or consent … ” could fairly be construed as applying to leases which contain a simple covenant against assigning, with no reference whatever to “without licence or consent.” I do not pursue that question because it is accepted before us that clause 19(1) has no application where there is a prohibition of assignment.
On the other hand, if one is to assume, as for the reasons which I have given it seems to me right for us to assume, that section 19(1) does not prevent or limit freedom of contract to ban assignments altogether by agreement in the lease, why should the subsection be treated as having the effect of preventing or limiting freedom of contract to ban assignments during a part of the lease? Counsel for the landlords, I think rightly, submitted that the courts could not treat section 19(1) as invalidating a contractual proviso that no assignment should be made – that no question of assignment by consent should arise – during, say, the first, or the last,
Creer v. P. & 0. Lines of Australia Pty Ltd (1971) 125 C.L.R. 84. That case involved, directly and indistinguishably, the correctness of Hilbery J.’s decision in Adler. The case arose on section 1338(1) of the Conveyancing Act 1919-1969 (New South Wales). The statutory terms are identical with section 19(1). The High Court, with closely reasoned judgments by Sir Garfield Barwick C.J., Menzies J. and Windeyer
J., approved and followed Adler.
I would do the same. In the balance of conflicting arguments, I reach that con-
clusion substantially for three reasons. First, the respect due to the decision of the High Court of Australia, and to the reasoning of the judgments therein; secondly (as is, indeed, a ground which clearly strongly influenced Menzies J. in that case), the fact that the Adler decision has stood, and has been acted on, for so many years; and thirdly (a ground which makes me feel able to place much greater reliance on the second ground than I should otherwise have done), the fact that I cannot see any good argument of policy for interfering, more than is essentially required by the words of the statute or by binding authority, with freedom of contract in respect of an agreement between the parties that the landlord should be entitled to the option of requiring a surrender of the lease, where the tenant desires to be freed from his obligation under the lease; bearing in mind that the legislature did not in 1927 consider, and has not since considered, that policy requires infringement of freedom of contract between a potential landlord and a potential tenant validly and effectively to agree that there shall be no right of assignment at all, however reasonable the
tenant’s subsequent desire to assign may be.
Norfolk Capital Grou v Kitway Limited
NORFOLK CAPITAL GROUP LTD V. KITWAY LTD
(Court of Appeal)
[1977] Q.B. 506; [1976] 3 All E.R. 787; (1976) 34 P. & C.R. 32
Megaw L.J.: The way in which that argument is presented is this. We have been taken through a line of authorities dealing with the question whether or not a landlord is unreasonable in refusing his consent to an assignment of a lease in cases in which the effect of the assignment, if it were to be made, would be that the assignee would obtain thereafter, or would be likely to obtain thereafter, the protection given by the Rent Acts to a “protected,” or a “statutory,” tenant. Those cases, it is said, have produceda principle which I shall seek to state in a moment. That is the first stage of the argument.
The second stage of the argument is that that principle, which has been so evolved by the courts in relation to the question of Rent Act protected tenancies, is of general application, and is thus applicable where the effect of an assignment re quested would be to enable the assignee thereafter to have the benefits of the Leasehold Reform Act 1967, whereas the assignor, had he not been permitted to make the assignment, would not have had those benefits.
The Rent Act cases, if I may so describe them, to which we have been referred are: Lee v. K. Carter Ltd [1949] 1 K.B. 85, a decision of this court; Swanson v. Forton [1949] Ch. 143, another decision of this court; Dollar v. Winston [1950] Ch. 236,a decision of Roxburgh J. at first instance; and finally Thomas Bookman Ltd v. Nathan [1955] 1 W.L.R. 815, a decision of this Court.
The principle which it is claimed is to be derived from an analysis of those decisions and the developments resulting from one decision to another, is this: that where the effect of the desired assignmer,t of the lease is likely to be that the pro posed assignee will thereafter gain the protection of the Rent Acts, whereas the assignor either could not or would have1been unlikely to have had those benefits in the absence of an assignment, the landlord is not entitled to refuse such an assign ment if that assignment is to be regarded as a “normal” assignment: he would be
acting unreasonably if he so refuses: he will not be acting unreasonably, however, if such an assignment is an “abnormal” assignment.
The definition of “abnormal” which Mr Barnes submits is to be derived from the cases to which I have referred is, for this purpose, that such an assignment is abnormal where the sole intention (I think on the part of the intended assignor and the intended assignee) is to give to the intended 9-Ssignee statutory protection under the Rent Acts which would not be available to the assignor. It is a question of the intention. If, however, the effect of the proposed assignment would be to give such a protection, it is nevertheless unreasonable, as a matter of principle, for the landlord
to refuse consent, provided only that that effect was not within the intention of the parties to the assignment.
I do not propose, with all respect to Mr Barnes’ argument, to go into the authorities on which it is said to be based. It does, in my judgment, involve very many difficulties, both of law and, if the principle as stated be right, of practical application. But I am content, for the purposes of this appeal, because I think it is unnecessary to do otherwise, to assume that the principle to be derived from those cases in respect of whatI may call the Rent Act position is as it has been put by Mr Barnes. That indeed, asI understand it, was the way in which it was dealt with by Judge Leslie in the court below. But, like Judge Leslie, it is my opinion that the argument put forward on behalf
of the tenants fails at the second stage, even making that assumption in respect of the first stage of the argument.
There is no authority to the effect that, and I can see no valid reason why, that principle of “normal” and “abnormal” assignments, said to exist in relation to the Rent Acts, should be carried into the different sphere with which we are concerned in this case, namely, the case where there is a potential serious disadvantage to the landlord in the proposed assignment by virtue of the provisions of the Leasehold Reform Act 1967. The principle – if principle it be – is one which, for my part,I think
ought not to be extended beyond the sphere to which it has been applied, if it has indeed been so applied.
The considerations that arise in relation to the potential disadvantage to the landlord under the Leasehold Reform Act 1967 are matters different in kind, as I see it, from those relating to such disadvantage as may possibly potentially arise in respect of the assignee gaining the benefits of the Rent Acts. Under the Leasehold Reform Act 1967 the proposed assignee would in course of time obtain the right to deprive the landlord of the ownership of the property; and I see no reason why the landlord should be said to be acting unreasonably in refusing to give his consent to a transaction which would, or would be likely to, bring about for him that potential serious disadvantage, which is different in kind, in my judgment, from that which the courts have had to consider in relation to the Rent Acts.
In my judgment, the case ends where it began. Looking at it as a matter of ordinary common sense and the ordinary use of words, from which I do not think that the law ought to be regarded as departing unless there is clear authority that requires one so to hold, the refusal of the landlord, in the circumstances of this case, to give his consent to an assignment which has the potential effect that this assignment would have is something that cannot be fairly described as being “unreasonable”. Accordingly, I would dismiss the appeal.
Bickel v Duke of Westminister
(Court of Appeal)
[1977] Q.B. 517; [1976] 3 All E.R. 801; (1977) 34 P. & C.R. 22
Lord Denning M.R.: Two propositions have been canvassed in this case as if they were propositions of law. The first proposition is that, in order to be reasonable, the landlord’s refusal must be based on (i) either the personality of the assignee or (ii) the user or occupation of the premises. If his reasons have nothing to do with either, then his refusal is unreasonable. Such is said to be the ground of the decision in In re Gibbs and Hou/der Brothers and Co. Ltd’s Lease [1925] Ch. 198, 575, which was doubted in the House of Lords in Viscount Tredegar v. Harwood [1929] A.C. 72, 82; but is said to be still binding in this court.
If such be the law, then it follows that Grosvenor Estate cannot reasonably refuse consent to the assignment by the Foresters to the lady. The personality of the assignee cannot be impeached on any score, and her user and occupation of the premises cannot be criticised in any respect.
The other proposition is that, where a house is subject to the Rent Acts, the landlord cannot reasonably refuse his consent to a normal assignment during the contractual term, even though it means that the assignee will be able to stay on after wards as a statutory tenant. Such is the result of Thomas Bookman Ltd v. Nathan [1955] 1 W.L.R. 815. But he can reasonably refuse it in the case of an abnormal assignment of the “fag end” of the contractual term, made for the purpose of giving the assignee the benefit of the Acts. Such is said to be the result of Lee v. K. Carter Ltd [1949] 1 K.B. 85; Swanson v. Forton [1949] Ch. 143; Dollar v. Winston [1950] Ch.
236. Those decisions are said to be binding on this court. If they are good law, they bear a close analogy to the present case. This is an absolutely normal assignment of the lease for the last seven years of the term. It is not the “fag end” of the lease. There is nothing abnormal about it. The Grosvenor Estate cannot, therefore, reason ably refuse their consent, even though it means that the lady will be able afterwards to enfranchise the premises under the Leasehold Reform Act 1967.
If those cases can properly be regarded as laying down propositions of law, I would agree that we ought to hold the landlords’ refusal to be unreasonable. But I do not think they do lay down any propositions of law, and for this reason. The words of the contract are perfectly clear English words: “such licence shall not be unreason ably withheld.” When those words come to be applied in any particular case, I do not think the court can, or should, determine by strict rules the grounds on which a land lord may, or may not, reasonably refuse his consent. He is not limited by the contract to any particular grounds. Nor should the courts limit him. Not even under the guise of construing the words. The landlord has to exercise his judgment in all sorts of circumstances. It is impossible for him’. or for the courts, to envisage them all. When this lease was granted in 1947 no one could have foreseen that 20 years later Parlia ment would give a tenant a right to buy up the freehold. Seeing that the circum stances are infinitely various, it is impossible to formulate strict rules as to how a landlord should exercise his power of refusal. The utmost that the courts can do is to give guidance to those who have to. consider the problem. As one decision follows another, people will get to know the Jikely result in any given set of circumstances. But no one decision will be a binding precedent as a strict rule of law. The reasons given by the judges are to be treated as propositions of good sense – in relation to the particular case – rather than propositions of law applicable to all cases. It is rather like the cases where a statute gives the court a discretion. It has always been held that this discretion is not to be fettered by strict rules: and that all that can be properly done is to indicate the chief considerations which help to arrive at a just conclusion: see Blunt v. Blunt[1943] A.G. 517; Ward v. James [1966] 1 Q.B. 273.
I have studied all the previous cases and find little guidance in any of them to solve our present problems. The reason is simply because it is a new situation, con sequent on the Leasehold Reform Act 1967, which was never envisaged before. I would test it by considering first the position of the landlords – the Grosvenor Estate. They hold a large estate which they desire to keep in their hands so as to develop it in the best possible way. This would be much impeded if one house after another is bought up by sitting tenants. Further, if they are compelled to sell under the Lease hold Reform Act, they will suffer much financial loss, because the price is much less than the value of the house. Test it next by considering the position of the tenants – the Foresters. They hold the premises as an investment and want to sell it. It matters not to them whether they sell to the landlord or to sub-tenants, so long as they receive a fair price for it. The landlords say they are willing to negotiate a fair price for it. They will give the Foresters a sum equivalent to that offered by the sub-tenants. Test it next by considering the position of the sub-tenant herself. When she took her sub lease, she had no possible claim to enfranchisement. It was at a high rent, outside the Act of 1967. She is quite well protected by the Rent Acts so far as her own occu pation is concerned. She will not be evicted at the end of her term. The only result
on her of a refusal will be that she will not be able to buy up the freehold for a very low figure.
Taking all these circumstances into account, I do not think the Grosvenor Estate are withholding their consent unreasonably.
Orr L.J.: I agree that this appeal should be allowed and would only add a brief reference to certain authorities to which we were referred.
In In re Gibbs and Houlder Brothers and Co. Ltd’s Lease [1925] Ch. 198 and 575, which was relied upon for the respondents, lessees sought permission to assign to a company which was in occupation of adjoining premises under a tenancy granted by the same lessor, and the lessor’s refusal of consent was on the ground that he would have difficulty in re-letting the adjoining premises. Tomlin J. and, on appeal, all three members of this court, while expressing themselves in somewhat different
language, held the refusal unreasonable on the ground that it did not relate to the personality of the tenant or the effect of the proposed assignment on the user and occupation of the premises or (perSargant L.J. at p. 587) to the subject matter of the demise. The decision was criticised in the House of Lords in Viscount Tredegar v. Harwood [1929] A.G. 72, on the ground that it involved adding glosses to the words of the covenant, but it has subsequently been referred to as a decision binding on this court, and I so accept it. It has, however, been distinguished by this court in the later cases of Lee v. K. Carter Ltd [1949] 1 K.B. 85, Swanson v. Forton [1949] Ch. 143 and Pimms Ltd v. Tallow Chandlers Co. [1964] 2 Q.B. 547.
In the first of these cases the lessor of a flat to a limited company refused consent to an assignment of the lease to a director of the company on the ground that she would be entitled to hold over, after expiry of the lease, as a statutory tenant under the Rent Acts, and this refusal was held reasonable. In the course of his judgment Tucker L.J., with whom the other members of the court agreed, accepted In re Gibbs and Houlder Brothers and Co. Ltd’s Lease as a binding authority, but came to the conclusion that on the facts before him the refusal was connected with the person ality of the proposed assignee and also directly affected the subject matter of the contract, and he referred to the contractual relation which would have existed had consent been given to the assignment as being “pregnant with future possibilities,” a phrase subsequently quoted with approval by Lord Greene M.R. in Swanson v. Forton and by Danckwerts L.J. in Pimms Ltd v. Tallow Chandlers Co.
In Swanson v. Forton, where the tenant of a dwelling-house, having gone out of occupation, had applied for the landlord’s consent to assign, and consent was re fused on the same ground as in Lee v. K. Carter Ltd, this court held the refusal to be reasonable, Lord Greene M.R. accepting In re Gibbs and Houlder Brothers and Co. Ltd’s Lease as a binding authority but distinguishing it on the same reasoning as had been applied in Lee v. K. Carter Ltd, and rejecting, on the ground that it begged the question, an argument that the withholding of consent would, in the circumstances, be a violation of the spirit of the Rent Acts.
In both these cases the request for consent to the assignment had been made near the end of the term, and Lord Greene M.R. in Swanson v. Forton [1949] Ch. 143, 152, said that nothing in his judgment was to be taken as applying to what had been referred to in the argument as a “normal” assignment, the assignment in ques tion being abnormal in that it was sought at the tail-end of the term and was not for the purposes of conferring a right of occupation for the remainder of the term but to enable the assignee to remain in occupation after the expiry of the term as a statu tory tenant.
In Pimms Ltd v. Tallow Chandlers Co., where it was the object of the proposed assignee, a development company, to take advantage of the nuisance value of the unexpired period of the lease so as to obtain participation with the landlords in a pro posed redevelopment scheme, this court again distinguished In re Gibbs and Houlder Brothers and Co. Ltd’s Lease, on the same basis as in the earlier cases, and held, further, that the proposed assignment was not a normal one but (in the words of Tucker L.J.) “pregnant with future possibilities.”
On these authorities, in my judgment, the withholding of consent in the present case was reasonable because it related to an attribute of the personality of the pro posed assignee in that he would be eligible in due course to acquire the freehold byvirtue of the Leasehold Reform Act 1967, and to the effect of the proposed assign ment on the user and occupation of the premises, and to the relationship of landlord and tenant in regard to the subject matter of the demise, and because, on the evi dence, the object of the refusal was based on views which a reasonable man could well entertain as to the proper management of the lessor’s estate of which the pre mises in question form part.
For the reasons I have indicated, I also consider that the judge was in error in
holding that the proposed assignment was, for the present purposes, a normal and not an abnormal one, and wrongly attached importance in this connection to the fact that the request for consent was not made at the tail-end of the tenancy, which would have been a relevant consideration as respects the rights conferred by the Rent Acts, but cannot, in my judgment, be a factor of any importance where the object of the assignment is that rights should be acquired under the Leasehold Reform Act 1967, which requires five years’ occupancy for that purpose.
Waller L.J.: In my opinion, in the present case the proposed assignment would be pregnant with future possibilities because the present lessees are not in a position to enfranchise their leasehold interest. If, however, this assignment were permitted, then the assignee would be in a position•to enfranchise his leasehold interest. In my opinion, this clearly affects the property which is the subject matter of the lease and the relationship between the landlord arid the tenant, and accordingly, in my view, the landlord was entitled to refuse consent to an assignment and that refusal is wholly within the principles set out in /q re Gibbs and H<:JUlder Brothers and Co. Ltd’s Lease and within the principles of the other two cases which I have cited.
Bromley Park Garden Estates Limited v Moss
BROMLEY PARK GARDEN ESTATES LTD v. MOSS
(Court of Appeal)
[1982] 1 W.L.R. 1019; [1982] 2 All E.R. 890; (1982) 44 P. & C.R. 266;
–
Cummrng-Bruce L.J.: Mr Belben submitted that the withholding of consent had as its object and consequence a return of the premises to unified possession which he described as the status quo, but he could not bring his suggested status quo within the contemplation of the parties to the grant to Miss Wynn-Higgins or Brown, as the shop was then used as a restaurant by the Muttis and there was no evidence of the date when the whole house had last been in single occupation. I would there fore ho1d that ti-le statement in Woodfall, Landlord and Tenant, 28th- edn (1978),
188 Assigning, Subletting and Parting with Possession
p. 485, para. 1181 is misleading, and its reference to good estate management as a valid reason for withholding consent is altogether too wide; it does not represent the true effect of the judgments in the cases to which I have referred.
The reason described by Mr Broomfield in evidence, and accepted by the judge as his ground for decision, was wholly extraneous to the intention of the parties to the contract when the covenant was granted and accepted. That reason cannot be relied upon merely because it would suit the landlords’ investment plans, or their purpose in obtaining from Miss Wynn-Higgins the surrender of her lease. It may well enhance the financial interests of the landlord to obtain a single tenant holding the whole building on a full repairing covenant with long-term capital advantage when they put the building upon the market, but that intention and policy is entirely outside the intention to be imputed to the parties at the time of the granting of the lease to Brown or the assignment to Miss Wynn-Higgins.
Dunn L.J.: I agree with Cumming-Bruce L.J. that the passage in Woodfa/1, Landlord and Tenant, 28th edn (1978), p. 485, para. 1811, on which the judge relied, states the law too widely. The cases cited in support of the proposition as stated by Woodfa/1 show that, although the question of unreasonableness depends on all the circum stances of the case, including considerations of proper management of the estate of which the demised premises form a part, in no case has it been held reasonable for a landlord to refuse his consent for the purposes of destroying the lease in question or merging it on terms with anott}er lease in the same building, even though that
would probably be good estate management and would be a pecuniary advantage to the landlord.
In West Layton Ltd v. Ford [1979] Q.B. 593, the proposal of the tenant had the effect of altering the nature of the ‘letting from a single letting of commercial property with residential property over to two separate tenancies – the commercial tenancy downstairs and a separate residential letting upstairs. This would have been detrimental to the landlord because the residential tenancy would, as a result of the Rent Act 1974, attract Rent Act protection.
Similarly, in Premier Confectionery (Lo_ndon) Co. Ltd v. London Commercial Sale Rooms Ltd [1933] Ch. 904, although there were separate tenancies of shop and kiosk, the lease of the kiosk had been granted to the same tenant as the lessee of the shop. The proposal of the tenant was to assign the tenancy of the kiosk so as to create two tenants instead of one. These would have been detrimental to the landlord because competition from the kiosk would have been likely to affect the rent they would be able to charge for the shop.
In both cases the withholding of consent to the assignments by the landlord were held not to have been unreasonable. In both cases the landlords were seeking to uphold the status quo and to preserve the existing contractual arrangements pro vided by the leases. In both cases the landlords reasonably believed that they would suffer detriment if the assignments were made. It is true that in deciding the question of unreasonableness the courts did not confine themselves to narrow considerations as to the personality of the proposed assignee or the subject matter of the lease, as had been done in some of the older cases – and it may be that the passage in Wood fall was intended to draw attention to that – but there is nothing in the cases to indi cate that the landlord was entitled to refuse his consent in order to acquire a commercial benefit for himself by putting into effect proposals outside the contemplation of the lease under consideration, and to replace the contractual relations created by the lease by some alternative arrangements more advantageous to the landlord, even though this would have been in accordance with good estate management.
West Layton Ltd v. Ford [1979] Q.B. 593 shows that in considering whether the landlords’ refusal of consent is unreasonable, the court should look first at the covenant in the context of the lease and ascertain the purpose of the covenant in that context. If the refusal of the landlord was designed to achieve that purpose then it may not be unreasonable, even in the case of a respectable and responsible assignee; but if the refusal is designed to achieve some collateral purpose wholly unconnected with the terms of the lease, as in Houlder Brothers & Co. Ltd v. Gibbs (1925] Ch. 575, and as in the present case, then that would be unreasonable, even though the purpose was in accordance with good estate management.
Slade L.J.: I agree with Cumming-Bruce and Dunn L.JJ. that the statement in Woodfa/1, Landlord and Tenant, 28th edn (1978) p. 485, para. 1181 to the effect that a landlord may properly be influenced in his decision by considerations of the proper management of the estate of which the demised property forms a part is too wide.
A landlord is not in my judgment entitled to rely on a clause, such as clause 2(5) of the tenancy agreement in the present case, for the purpose of securing a collateral benefit such as the landlords have sought to secure for themselves in the present case. The reason which influenced the landlords in the present case is in my judgment in the words of Sargant L.J. in Houlder Brothers & Co. Ltd v. Gibbs [1925] Ch. 575, 588:
a reason wholly dissociated from, and unconnected with, the bargain made between the lessor and the lessees under the lease that we have to consider, and is, from that point of view, a purely arbitrary and irrelevant reason.
International Drilling Fluids Ltd v LOuisville Investments (Uxbridge) Ltd
(Court of Appeal)
[1986] Ch. 513; [1986] 2 W.L.R. 581; [1986] 1 All E.R. 321
Balcombe L.J.: During the course of argument many cases were cited to us, as they were to the judge. I do not propose to set them out in detail here; many of the older cases were considered in the full judgment of the Court of Appeal in Pimms Ltd v. Tallow Chandlers Company (1964] 2 Q.B. 547. From the authorities I deduce the following propositions of law.
(1) The purpose of a covenant against assignment without the consent of the land lord, such consent not to be unreasonably withheld, is to protect the lessor from having his premises used or occupied in an undesirable way, or by an undesirable tenant or assignee: per A.L. Smith L.J. in Bates v. Donaldson (1896] 2 Q.B. 241, 247, approved by all the members of the Court of Appeal in Houlder Brothers & Co. Ltd v. Gibbs (1925] Ch. 575.
(2) As a corollary to the first proposition, a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease: see Houlder Brothers & Co. Ltd v. Gibbs, a decision which (despite some criticism) is binding on this court: Bickel v. Duke of Westminster (1977] Q.B. 517. A recent ex ample of a case where the landlord’s consent was unreasonably withheld because the refusal was designed to achieve a collateral purpose unconnected with the terms of the lease is Bromley Park Garden Estates Ltd v. Moss (1982] 1 W.L.R. 1019.
(3) The onus of proving that consent has been unreasonably withheld is on the tenant: see Shanly v. Ward (1913) 29 T,.L.R. 714 and Pimms Ltd v. Tallow Chandlers Company[1964] 2 Q.B. 547,564. ‘
(4) It is not necessary for the landlord to prove that the conclusions which led him to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances: Pimms Ltd v. Tallow Chandlers Company [1964] 2 Q.B. 547,564. ‘
(5) It may be reasonable for the lal”)dlord to refuse his consent to an assignment on the ground of the purpose for whic the proposed assignee intends to use the pre mises, even though that purpose is not forbidden by the lease: see Bates v. Donaldson [1896] 2 Q.B. 241, 244.
(6) There is a divergence of authority on the question, in considering whether the landlord’s refusal of consent is reasonable, whether it is permissible to have regard to the consequences to the tenant if consent to the proposed assignment is withheld. In an early case at first instance, Sheppard-v. Hong Kong and Shanghai Banking Corporation (1872) 20 W.R. 459, 460, Malins V.-C. said that by withholding their consent the lessors threw a very heavy burden on the lessees and they therefore oughtto show good grounds for refusing it. In Houlder Brothers & Co. Ltd v. Gibbs (1925] Ch. 575, 584, Warrington L.J. said:
An act must be regarded as reasonable or unreasonable in reference to the circumstances under which it is committed, and when the question arises on the construction of a contract the outstanding circumstances to be considered are the nature of the contract to be con strued, and the relations between the parties resulting from it.
In a recent decision of this court, Leeward Securities Ltd v. Lilyheath Properties Ltd (1983) 271 E.G. 279 concerning a subletting which would attract the protection of the Rent Act, both Oliver L.J. and O’Connor L.J. made it clear in their judgments that they could envisage circumstances in which it might be unreasonable to refuse consent to an underletting, if the result would be that there was no way in which the tenant (the sub-landlord} could reasonably exploit the premises except by creating a tenancy to which the Rent Act protection would apply, and which inevitably would affect the value of the landlord’s reversion. O’Connor L.J. said, at p. 283:
It must not be thought that, because the introduction of a Rent Act tenant inevitably has an adverse effect upon the value of the reversion, that that is a sufficient ground for the land lords to say that they can withhold consent and that the court will hold that that is reasonable.
To the opposite effect are the dicta, obiter but nevertheless weighty, of Viscount Dunedin and Lord Phillimore in Viscount Tredegar v. Harwood (1929] A.C. 72, 78,82. There are numerous other dicta to the effect that a landlord need consider only his own interests: see, e.g., West Layton Ltd v. Ford (1979] Q.B. 593, 605, and Bromley Park Garden Estates Ltd v. Moss [1982] 1 W.L.R. 1019, 1027. Those dicta must be qualified, since a landlord’s interests, collateral to the purposes of the lease, are in any event ineligible for consideration: see proposition (2) above. But in my judgment a proper reconciliation of those two streams of authority can be achieved by saying that while a landlord need usually only consider his own relevant interests, there may be cases where there is such a disproportion between the benefit to the landlord and the detriment to the tenant if the landlord withholds his consent to an
assignment that it is unreasonable for the landlord to refuse consent.
(7) Subject to the propositions set out above, it is in each case a question of fact, depending upon all the circumstances, whether the landlord’s consent to an assign ment is being unreasonably withheld: see Bickel v. Duke of Westminster[1977] Q.B. 517, 524, and West Layton Ltd v. Ford [1979] Q.B. 593, 604, 606-607.
In the present case, the judge, having made the findings of specific fact set out above, carefully considered the relevant authorities. He then reached the conclusion that the views of the landlords’ expert witnesses about the effect of the proposed assignment on the value of the reversion, although views which could be held by reasonable professional men, did not in the circumstances of this case, where there was no prospect of the landlords wishing to realise the reversion, constitute a ground for reasonable apprehension of damage to their interests. That was a decision on the facts to which the judge was entitled to come. He made no error of law in reaching his decision; he took into account nothing which he ought not to have considered, and he omitted nothing which he ought to have considered. In my judgment, this court ought not to interfere.
But in any event, in my judgment, the judge reached the right decision. Although
he did not expressly mention the disproportionate harm to the tenants if the landlords were entitled to refuse consent to the assignment, compared with the minimum disadvantage which he clearly considered the landlords would suffer by a diminution in the paper value of the reversion – “paper value” because he was satisfied there was no prospect of the landlords wishing to realise the reversion – he clearly recognised the curious results to which the landlords’ arguments, based solely upon a consideration of their own interests, could lead. As he said in his judgment:
It seems to me that, if Mr Lewison is right, the more substantial the lessee, the more easily the landlord would be able to justify a refusal of consent to an assignment, since unless the proposed assignee’s covenant was as strong as the assignor’s, a reasonable man might form the view that the market would consider the reversion less attractive if the lease were vested in the proposed assignee than if it were vested in the assignor. To take the matter to extremes, if a lease was made in favour of a government department it would be unassignable except to another government department; for as Mr Matthews [one of the expert witnesses] accepted in cross-examination, the market would prefer to have the government as the lessee, whether the premises were being used as serviced offices or not, even if they were standing empty, rather than a company, however strong its covenant.
In my judgment, the gross unfairness to the tenants of the example postulated by the judge strengthens the arguments in favour, in an appropriate case of which the instant case is one, of it being unreasonable for the landlord not to consider the detri ment to the tenant if consent is refused, where the detriment is extreme and dispro portionate to the benefit to the landlord.
I am also satisfied that the judge could, and should, have had regard to the fact
that the proposed serviced office user was within the only form of user permitted by the lease. I have already stated the proposition of law, derived from the cases, that it may be reasonable for the landlord to refuse his consent to an assignment on the grounds of the proposed user, even though that proposed user is permitted by the lease. But it does not follow from that that, in al! circumstances, it will be reasonable for the landlord to object to a proposed user which is not forbidden by the lease. In most of the cases cited to us in which it was held reasonable to object to the pro posed user, even though not forbidden by the lease, the user clause was, in general terms, merely prohibiting the carrying on of any noxious or offensive trade or busi ness: see, e.g., Governors of Bridewell Hospital v. Fawkner(1892) 8 T.L.R. 637 and In re Spark’s Lease [1905] 1 Ch. 456.
An exception is Premier Confectionery (London) Co. Ltd v. London Commercial Sale Rooms Ltd [1933] Ch. 904. This was a decision at first instance which is not binding on us. The facts are that there were two separate tenancies of a shop anda kiosk in the same office building, granted consecutively by the same landlord to the same tenant. Each contained a covenant by the tenant to use the demised premises asa tobacconist’s shop only. The tenancies were assigned together to a company which went into creditors’ voluntary liquidation. The liquidator applied for consent to assign the tenancy of the kiosk alone to an assignee who wished to carry on the trade of tobacconist in it. The landlord refused consent to the assignment on the grounds that it would prejudice the chances of finding anyone prepared to take an
assignment of the tenancy of the shop. Bennett J. held that the landlord’s consent was not unreasonably withheld.
It may be that the decision cari be justified on the particular facts of that case, in that the two tenancies were originally granted to the same person, and that there was no certainty (as there is here) that the landlord had security for the rent of the shop for the residue of the term: see the judgment at p. 911; but I find it difficult to reconcile this decision with the second proposition of law set out above, and if it be suggested that it is authority for the proposition that in all circumstances it is reasonable fora landlord to refuse his consent to an assignment on the grounds of the proposed user, even though the proposed user is the only user permitted by the lease, then I am not prepared to follow it. There is all’the difference in the world between the case where the user clause prohibits only certain types of use, so that the tenant is free to use the property in any other way, and the case where (as here) only one specific type of use is permitted. In my judgment, in that type of case it is not reasonable for the landlord to refuse consent to an assignment on the grounds of the proposed user (being within the only specific type of use), where the result will be that the property is left vacant and where (as here) the landlord is fully secured for payment of the rent.
Midland Bank plc v Chart Enterprises Ltd
MIDLAND BANK PLC V. CHART ENTERPRISES INC.
[1990] 44 E.G. 68; [1990) 2 E.G.L.R. 59
Popplewell J.: The first question that has to be resolved is: given that the application was made on February 15 and that no communication was made in writing, as is required by the Act, about the decision until May 5, has there been unreasonable delay? To that, there can be only one answer. There is nothing deposed to by the defendants which starts to explain the failure to give a decision more promptly. The matters which are raised in this letter are, first, the state of the premises. There is some very marginal evidence from Mr Ezekiel [director of the defendants] in his affidavit that there may be some work that needed to be done, but it is so marginal as to be non-existent. The letter suggests that a schedule of dilapidations is to be prepared. No such schedule was prepared. The condition that any work would be done was readily given by the solicitors. The removal of the safe was, it is now con ceded, a matter which could never have been required of the plaintiffs. The confirma tion that the residential tenants will be removed was, in my judgment, a condition which was totally unreasonable.
The defendants’ case generally is that they were suspicious that there had been a breach of covenant not to sublet without the consent of the landlords and therefore they were entitled to take a reasonable time to make inquiry. Mr Ezekiel’s affidavit, sworn to on November 8, upon which Mr Fancourt has founded his submissions, is this. The lease between the plaintiffs and Metropolitan & City Properties referred in clause 9, in relation to the user, to this phrase: “that the subsistence of the existing non-shorthold tenancies” – I emphasise the plural – “on the second and third floors held by Jeremy Spencer Catherine Glyn and John Evans shall not constitute a breach of that covenant”; and clau.se 20(a) in the clause referring to the right of assignment says this:”… provided that the subsistence of the existing non-shorthold tenancies” – I emphasise the plural “on the second and third floors held by Jeremy Spencer Catherine Glyn and John Evans shall not constitute a breach of that covenant”. The fact that there were said to be tenancies in the original lease and that the plaintiffs were contending that there was only one tenancy led, so it is said, Mr Ezekiel to the reasonable suspicion that there had been a letting contrary to the terms of the lease and therefore there was a breach of covenant, and that would entitle the defendants not to give consent, because if they gave consent they might well have waived their right of forfeiture.
I come back, therefore, to the application for the declaration and ask: have the defendants shown that they had reasonable grounds for delaying communicating the decision? I am of the clearest view that they have not demonstrated that. Such reasons as they have given for the delay ·subsequent to May 5 relate either to the schedule of dilapidations or to the safe or to the position of Mr Spencer in relation to a service tenancy. None of those matters is relied on now as being matters which would entitle the defendants to withhold their consent. Then when I ask myself: have they unreasonably refused the consent?, that admits, in my judgment, of only one answer: they have. They failed to show any reason for refusing consent in the instant case. The matters relied on in Mr Ezekiel’s affidavit are never matters, in my judgment, which were in the defendants’ mind, and certainly not expressed at any time before November. Accordingly, I have no difficulty in this case in deciding that the declarations sought should be granted and I propose so to do.
Bromley Park Garden Estates Ltd. v Moss
(Court of Appeal)
[1982] 1 W.L.R. 1019; [1982] 2 All E.R. 890;
Slade L.J.: The judge took the view that the date of the hearing was the relevant date for the purpose of considering whether or not the landlords’ refusal of consent to the assignment of the tenancy was reasonable or unreasonable. However, in the course of argument before this court, it was conceded on behalf of the plaintiffs that the relevant date for this purpose is not the date of the hearing, but the date of the assignment, September 17, 1980, which puts a rather different complexion upon the case.
The logic of this concession appears to me inescapable. The fetter on the tenant’s right to assign which was imposed by clause 2(5) of the tenancy agreement of May 11, 1978, operated subject to a statutory proviso that the landlords’ consent to an assignment was not to be unreasonably withheld. It is well settled that a tenant holding under a lease which contains a clause of this nature is released from such a fetter, and has the right to proceed with an assignment of his lease, if the landlord has unreasonably refused his consent. It is of course open to the landlord thereafter to challenge the validity of an assignment effected in such circumstances, on the grounds that his refusal of consent was not in fact unreasonable. However, the ten ant’s right to proceed with such an assignment would be rendered more or less nugatory, if, in subsequently advancing such a challenge, the landlord were entitled to rely on facts or considerations which had not in any way influenced his mind at the date of the assignment, but were mere afterthoughts. A tenant who decides to pro ceed with an assignment following an unqualified refusal of consent on the part of the landlord, must be entitled to take this course in the light of the facts as they exist at the date of the assignment. Even on this footing, he must still accept a degree of risk in adopting this course inasmuch as he may not be aware of all the factors which have in truth influenced the landlord in his refusal.
In the present case, as at September 17, 1980, the tenant found herself faced with an unqualified refusal of consent, contained in Mr Broomfield’s letter of the previous day. The only reason for such refusal which had been given by the landlords or their agent to the intending assignor and assignee was that it was not the landlords’ practice to permit assignments of residential tenancies. As has been conceded before the judge and before this court, this was a reason which itself constituted no valid ground for the withholding of consent. It is hardly surprising that the tenant, when she was given one reason only why consent had been withheld and that reason was demonstrably a bad one, decided to proceed with the assignment.
I find it rather more surprising that, when the landlords came subsequently to question the validity of the assignment in such circumstances, they should be free to rely on reasons for their refusal which had not been mentioned to the tenant, or even hinted at, either before or in the letter of September 16, 1980, which contained the outright refusal. In the absence of authority, I would have thought there was much to be said for the view that a landlord who, by stating to the tenant one reason only for refusing his consent to an assignment – that reason being a demonstrably bad one – provokes a tenant into assigning without consent, should not thereafter be allowed to rely on unstated reasons for the purpose of attacking the validity of the assignment. However, authorities such as Sonnenthal v. Newton (1965) 109 S.J. 333, and Welch v. Birrane (1974) 29 P. & C.R. 102, appear to establish that the court, in considering questions of reasonableness or otherwise in this context, is not con fined to the reasons expressly put forward by the landlord prior to the date of the refusal. For present purposes I am content to assume, without deciding, that this is the legal position, subject only to one proviso. It seems to me clear that, in so far as land lords are allowed to rely on reasons which were not stated to the tenant, they can only be permitted to rely on reasons which did actually influence their minds at the relevant date – which in the present case is September 17, 1980. The decision of this court in Lovelock v. Margo [1963] 2 Q.B. 786 clearly establishes that in cases such as the present the court has to have regard to the landlord’s actual state of mind at the relevant time. The test is not a purely objective one, though no doubt inferences may be drawn as to his state of mind from his words and actions and all the other circumstances of the case. It is therefore necessary to consider what were the factors which actually influenced the plaintiff landlords in the present case, as at
September 17, 1980.
In Orlando Investments Ltd v. Grosvenor Estate Belgravia
Nourse L.J.: […..] submits that it is unreasonable for a landlord to with hold consent to an assignment if he will have the same rights against the assignee as he has against the assignor. As authority for that proposition Mr Blackett-Ord referred us to the decision of this court in Killick v. Second Covent Garden Property Co. Ltd. In that case both the lease and underlease of the premises containeda covenant that they should not be used for any other purpose than the trade or business ofa printer. The lessee and underlessee desired to assign the lease and underlease to a company which proposed to use the premises as offices. At the date of the assignment there had not been a breach of the user covenants, because the premises were indeed being used for the trade or business of a printer. There wasa dispute as to whether the proposed use as offices would in fact have been in breach of the user covenants. The decision of this court was that it was unreasonable for the landlord to refuse his consent, because if there had thereafter been a breach of the covenants, his remedies would have been exactly the same against the assignee as they would have been against the assignor. In my view that principle does not assist a tenant in a case where, at the date of the proposed assignment, there are long standing and extensive breaches of the covenant to repair. In such circumstances the landlord is in general entitled to refuse his consent unless he can be reasonably satisfied that the proposed assignee will remedy the breaches.
Support for that view of the matter can be found in Farr v. Ginnings. Although the decision is only briefly reported, I think that its ratio is correctly expressed in the head note, which is in these terms:
Where a lease contains a covenant by the lessee to repair and a provision that the lessor’s consent to an assignment by the lessee is not to be unreasonably withheld, the mere fact the lessee is committing a continuing breach of the covenant to repair does not necessarily entitle the lessor to refuse his consent to an assignment, at all events where the amount of disrepair is not very serious.
That was a case which went the other way. But the repairs which were necessary were not estimated to cost more than £100, which, even in February 1928, was not a very large sum. Moreover in the course of his judgment Clauson J. said:
There had been no pressure on the plaintiff to do the repairs, as nearly two years elapsed before the second application was made for the repairs to be done. It was quite different from the case of Goldstein v. Sanders, where the state of things as to repairs was “little short of being outrageous.”
In Goldstein v. Sanders, a decision of Eve J., there were other matters which the landlord was able to complain of, as well as the state of repair. What Eve J. said was that “the state of things existing on the premises was little short of being outrageous.” Be that as it may, the combined effect of those two decisions is that if there are
breaches of the covenant to repair which are anything more than minimal, more especially if they are extensive and of long standing, it is not in general unreasonable of a landlord to refuse his consent to an assignment unless he can be reasonably satisfied that the proposed assignee will remedy them.
Killick v Second Covent Garden Property Co Limited
(Court of Appeal)
[1973] 1 W.L.R. 658; [1973] 2 All E.R. 337
Stamp L.J.: Mr Priday, on behalf of the landlords, submitted that a landlord may reasonably refuse consent to an assignment if the assignment would necessarily involve a breach of covenant, and I will accept that submission as being well founded. But whatever view one takes as to the construction of the user covenant, I cannot accept that, if the landlords did consent to the proposed assignments, there would as a necessary consequence be a breach of the user covenant. As a result of the assignments Primaplex would step into the shoes of the lessee and underlessee and would thereupon become subject to the user covenant. The landlords would be in the same position, neither better nor worse, to enforce the user covenant as would be the case if the present underlessee was itself proposing to seek planning permission for use of the premises as offices and proposed so to use them. On that short ground I would hold that the landlords’ withholding of consent is unreasonable.
Two authorities were cited in support of the proposition that the withholding of con sent in such a case as this necessarily involved a breach of the user covenant: namely, the decision of this court in Packaging Centre Ltd v.Poland Street Estate Ltd (1961) 178 E.G. 189, given on March 15, 1961, and Granada T.V. Network Ltd v. Great Universal Stores Ltd (1963) 187 E.G. 391. Both cases were cases in which the tenant sought the consent of the landlords to an underlease to an underlessee who under the terms of the underlease was to use the premises in breach of the user covenant in the lease. In Packaging Centre Ltd v. Poland Street Estate Ltd the under lease provided that the premises would be used exclusively as office premises, which was a breach of the user covenant in the lease. It followed that, had the landlords consented to that subletting, they could not thereafter have successfully objected to the user which the lease prohibited and they would, therefore, be prejudiced by the giving of consent. Not dissimilar was the Granada T.V. Network case, where the under letting was to be in favour of a person who would necessarily be unable to use the premises for the purposes for which they could alone be used under the terms of the head lease. Again, the giving by the landlords of consent to a subletting on those terms would have precluded them from thereafter relying on the terms of the user covenant. Those cases are, in my judgment, not applicable where, as here, the giving of consent to an assignment does not of itself preclude the landlords from thereafter
insisting that the terms of the user covenant be strictly complied with. Of course,a landlord who gives his consent to an assignment knowing that the assignee intends to use the premises in breach of a user covenant may incautiously estop himself from thereafter relying upon the covenant or may waive the right to enforce it. Buta landlord who is minded to refuse consent to an assignment on account of the user covenant is not acting incautiously; and nothing could have been easier than for the landlords here, while giving their consent, expressly to reserve their right to enforce the user covenant against the assignee. Here, be it observed, the proposed assignee was content to accept that position, relying, as I understand it, on the view that the part of the user covenant prohibiting use otherwise than for printing was qualified by the last eleven words of the user covenant and that if the landlords refused their consent to use as offices that consent would be unreasonably withheld.
For these reasons I would conclude that this appeal ought to be dismissed.
Judge Rogers took the view that on the true construction of the user covenant the qualifying words “without the lessors’ written consent which shall not be unreasonably withheld” apply as well to that part of the covenant precluding use for any other purpose than the trade or business of a printer as to the prohibition of sales by auction. Upon this view of the construction of the user covenant there could, as Mr Priday conceded, be no question of a consent to the assignments necessarily
involving breach of the user covenant.
British Bakeries (Midlands) Ltd v Testler
BRITISH BAKERIES (MIDLANDS) LTD v. MICHAEL TESTLER
& CO. LTD
[1986] 1 E.G.L.R. 64; (1985) 277 E.G. 1245
Peter Gibson J.: The tenant in seeking the consent of the landlord relied first on references and second, when it complied with the request for accounts, on accounts. There were six references: (1) the proposed assignees’ accountants, (2) their bank,
(3) their solicitor, (4) Hillier Parker, and (5) and (6) two trade references. All suggested that the proposed assignees were satisfactory persons to have had dealings with. But this was said in relation to the assignees’ business of which they had experience,that is to say of them trading as Gregory’s Steak House. Had the assignees been proposing to transfer their existing business to 89 Cornwall Street, and the obliga tions under the lease of those premises were not more onerous than they were under the lease of their existing premises, those references would have been of greater weight. But it is common ground that the assignees were proposing to embark on a further business venture by seeking the further premises. Some referees like the accountants, the bank and the solicitor, Mr Daniel, went further in saying that the assignees should prove satisfactory tenants of the new premises, but save in the case of the accountants who prepared the trading accounts of the existing business, it is not apparent – and in my judgment would not be apparent to the reasonable landlord – on what facts that opinion was based. For example, the National West minster Bank say (and it does not appear who in the bank so said): “Responsible and trustworthy; should prove good. A lease of premises with annual outgoing of £14,780 exclusive.” All the referees except the trade referees excluded liability for their statements, and, while this is common enough these days, it nevertheless detracts from the weight to be given to the references.
Mr Poulton submits that I should infer that the references from the accountants,
the solicitor and the bank were based on information such as is contained in an affi davit sworn by Mr Brennan, the solicitor of the tenant, on October 28 of this year. He deposes to Mr Vasiliou owning a £60,000 house and Mr Arghyrou owning jointly with his wife two properties each worth £37,000, but one subject to a £12,000 mortgage, and the other, as well as Mr Vasiliou’s house, subject to a £50,000 mortgage appar ently being to purchase another property in Plymouth. I do not see how I could properly infer that those referees had that information. Indeed, even with the affidavits before me, I do not see how I can infer that such information was available to such referees. None of the information was conveyed to the landlord before its decision to refuse consent and they only appeared in Mr Brennan’s later affidavit.
In any event, to my mind it is impossible to place much reliance on valuations
which are not stated to have been made by a professional valuer; nor do I see that such information would satisfy a reasonable landlord that the rents under the lease would be paid as they fell due.
Of the two trade references, one is wholly unspecific as to the amount of business transacted with the proposed assignees, while the other refers to only doing £300-
£400 worth of business per month.
Hillier Parker could only speak as to the assignees’ behaviour as tenants under a lease requiring payment of a much smaller rent.
Mr Brennan submitted in his affidavit that the various trade references for the proposed assignees which were provided to the landlord were those that might normally be expected for the location and nature of the business under considera tion. Mr Brennan appears to be a London solicitor. He does not state what is his experience to justify that submission. It is further contradicted unequivocally by Mr Testier in his second affidavit. Mr Testier deposes to the fact that he has been profes sionally engaged in the commercial property market for 18 years. He draws attention to the fact that the references do not contain much information and that notwith standing the criticisms made by him of those references in his own first affidavit, no attempt was made to meet the deficiencies. I prefer Mr Testler’s evidence on this point in the circumstances. In my judgment, a reasonable landlord would be entitled to regard the references as not justifying the giving of consent to an assignment unless there was other information available to the landlord of the assignees’ ability to meet their obligations under the new lease as those obligations fell due, in addition to their existing obligations.
The accounts, which are unaudited accounts, relate to the business of the assignees trading as Gregory’s Steak House. Because they are unaudited, the accountants must have been dependent on what they were told by the proposed assignees. The latest accounts show the position as at March 31 1983, that is to say 18 months before the refusal. No accounts or information were supplied in relation to 1984. The accounts show that in 1983 the gross takings were £138,439, leaving a net profit of
£15,654. That profit is struck before the assignees take a penny for themselves. The accountants, in their letter of September 12 1984, point out that the net profits of the business to March 31 1983 were after charging £3,120 for “wife’s wages”. Mr Poulton suggests that this was relevant because the more money that came to the family, the less the assignees themselves needed. I cannot see the relevance of this to a reason able landlord looking to the ability of the assignees to pay rent. The wives were not offered as guarantors. The accountants further refer to nearly £6,500 of refurbishment expenses and suggest that in normal trading circumstances annual profits of between
£18,000 and £20,000 would be expected. The £6,500 appear in the accounts as “repair and maintenance” and the sum is higher by about £4,000 than the previous year. But even if the figures given by the accountants as normal are correct, the profit margins are not large, particularly when the absence of any salary for the assignees themselves is taken into account. Further, the figures should be contrasted with the net profits for the previous year, which were only £8,438, again without the assignees taking a penny. A reasonable landlord may well have serious doubts as to the ability of the assignees to pay a rent of £14,780 exclusive of rates, taxes and other outgoings, as well as meeting the full repairing obl.igations under the lease, if the new venture did not prosper. No profit projections whatsoever were offered to the landlord in relatio’1 to the premises which the assignees wish to acquire. Mr Testler’s evidence, which was not challenged, was that a generally accepted test of the financial standing of any proposed assignee is that his accounts should show a pre-tax profit of not less than three times the amount payable under the lease in question. It is clear that the
assignees cannot satisfy that test. ·
The accountants in their letter of ‘September 12 also refer to the balance sheet. That showed net current assets of only £353. If the 1983 accounts had followed the practice adopted in the 1981 accounts, and shown a loan account belonging to Mrs Arghyrou and Mrs Vasiliou as current liabilities, current liabilities would exceed current assets by £13,000. The accountants suggest that the loans would not have been called in before sale, but a reasonable landlord would understand the position as being that the loans were repayable on demand. The accountants then state that the assets of the business would realise at least £100,000 on the open market. I com ment that a reasonable landlord is concerned with the tenant’s ability to meet the obligations under the lease as those obligations fall due. Many a debtor is properly made bankrupt, even though he claims he has assets which when ultimately realised would be sufficient to pay his debts.
In any event, I am not clear how the accounts have arrived at the figure of
£100,000. The accounts show that the assets of the business exceed the liabilities by some £7,000, but that ignores the loan account owned by Mrs Arghyrou and Mrs Vasiliou. Thus the true picture is that the liabilities exceed the assets.
The accountants made a general statement about the assets of the business being written down. Mr Poulton accepted that the £100,000 figure must be made up by the value of the lease and the goodwill, the values of neither of which were written down. The accountants do not say that they obtained a professional valuation of the lease and a reasonable landlord might assume that they had not done so because the accountants state that it is their opinion that the value of the business is
£100,00Q Whether there was any value in the residue of the term of the lease would depend on the relevant provisions of the lease. A major item would appear to be goodwill, but given the low margins on which the business operated, with the two assignees taking no salaries, I find it hard to accept that the goodwill ought realistically to be valued at anything like a figure which would justify the accountants’ opinion.
For the sake of completeness, I should add that Mr Brennan exhibited a copy ofa letter dated August 7 1985 addressed to Mr Arghyrou from a Mr May of May& Trout, who describe themselves as “Estate, Land and Business Agents”, but no profes sional qualifications are given. In the letter, Mr May purports to value the business at 94 Cornwall Street at £110,000, but the only figures on which that valuation appear to be based, that is to say a turnover – no figure is given for profits – of £250,000, as well as a rental of £12,250, contrast with the figures made available to the landlord at the relevant time. Indeed, it does not even accord with Hillier Parker’s statement about the rent. This is not relevant evidence, not having been presented to the landlord at the relevant time. In any event, I accept Mr Testler’s criticism of the valua tion as being one on which no reliance can be placed.
In my judgment, therefore, a reasonable landlord could properly take the view,
on the information available to the landlord, that there was a real doubt about the assignees’ ability to meet their obligations under the lease as they fell due.
Venetiam Glass Gallery Limited v Next Properties Ltd
[1989] 30 E.G. 92; [1989] 2 E.G.L.R. 42
Harman J.: The argument, however, then turns to the question of fact. Is the proposed tenant Bernard Jacobson Ltd such that a reasonable landlord could say that it was not one it would accept where the rent payable was £35,000a year and there are in addition rates of £8,000 a year currently payable?
The landlord points to the accounts of the company down to July 1987. They
show, as is so frequently the case, the most ludicrously exiguous equity base (£100) supporting a structure running into six figures of capital expenditure. It is one of the more unsatisfactory features of modern company practice that totally inadequate equity bases are used to found the trading of companies which should properly have
substantial equity to justify their borrowings.
The pre-tax profits of the company, which do seem to me to be the relevant profits
to look at, since it is those profits against which the rent will be charged, have been
£56,000 in one of the last three years, but last year, that is down to July 1987, they were only £13,500. That is not because the director has been taking enormous slices out of profits by way of director’s remuneration (as used to happen in the bad old days of tax regimes when investment income and salaries were differentially taxed). The director’s remuneration here is of a very, very modest sort, £10,000a year on the last account. So one is left with the view that the profits of the company are plainly
quite small.
The net assets have been increasing and, of course, are very mucha matter of subjective view, since they depend very largely on the valuation of the stock, and in this trade where the Gallery is dealing in modern pictures it is often the case that purchase costs and sale prices are separated by some hundreds of per cent. If one is valuing on the basis of cost or market value (whichever be the lower), which is the proper basis for stock valuation, the stock will appear in the accounts far below its true realisable worth.
The company, Bernard Jacobson Ltd, is proposing to pay £350,000 asa premium
for this lease. It is proposing to tie its proprietor, Mr Bernard Jacobson himself, asa guarantor, completely to the deal. It has recently borrowed something likea million pounds in order to increase its stock of pictures. It is plainly increasing and improving its trade at a rapid rate.
The landlord in refusing the application has looked in the affidavit exclusively at the company. In my view, although of course the covenant of the assignee is important, it is wrong to pay attention only to that. It is right to look at the whole of the situation as it stands. Here is a plain commitment by the individual behind the company to the venture. He is guaranteeing the landlord all its obligations. It is a lease very recently granted (1987) and the original covenanter (Venetian Glass Gallery) will remain liable for the rent and performance of the covenants to the landlord and its obligations are guaranteed by Mr Venerio.
The landlord’s position is, in truth, no way dependent merely upon the covenant of the proposed assignee. In my view, remembering that the former landlords (Randsworth Trust pie) had agreed to accept, given the security of the rent deposit proposed to be made and the other guarantees available, the assignee as a respectable and responsible assignee, and remembering the terms of the refusal and its, in my view, totally nit-picking concentration as a fundamental point on the mere misdirection of the assignee company, I have come to the conclusion, on balancing all the facts so far as they are known to me, that no reasonable landlord would refuse consent to this tenant on the ground that it has orily recently begun to trade into a figure where it might meet this rent out of trading profits. That is, in my view, to take far too narrow a view of the responsibility and respectability of the proposed assignee.
In my view, there is no proper criticism to be advanced that would justify a refusal, and if it were relevant I would hold that the refusal was an unreasonable refusal and direct that they do execute a licence to assign.