Tenant claiming damages under Landlord and Tenant Act 1988 for unreasonable refusal of consent to sublet — Landlord contending Act inapplicable — Landlord advancing alternative arguments based upon reasonableness and want of causation — Landlord succeeding on causation issue — Claim dismissed
The claimant tenant occupied retail premises under a 25-year lease granted by a predecessor of the defendant landlord in June 1990. The lease reserved an annual “basic rent”, which was defined as £95,000, to be increased from time to time upon upwards-only review. The fourth schedule to the lease contained an absolute prohibition against subletting part of the premises. Regarding the property as a whole, the tenant gave separate covenants not to sublet at a rent that was less than the full rack-rental value of the premises (the market rent restriction), nor at a rent less than the basic rent “unless the Landlord shall otherwise agree (such agreement not to be unreasonably withheld if the proposed rent is the full rack rental reasonably available on the open market)” (the basic rent restriction). The same schedule contained a further covenant restricting the use of the premises to a greeting card shop unless the landlord consented to another trade, such consent not to be unreasonably withheld.
Beginning in late 1997, the tenant made strenuous, but fruitless, attempts to market the premises. Eventually, it received an expression of interest from a mobile telephone retailer, O, which, in February 1999, made a formal offer to take a sublease at a rent of £75,000 pa. Having accepted the offer, the tenant applied to the landlord for a licence to sublet on the terms agreed. The landlord refused, on the grounds that: (i) the proposed rent was below the basic rent, which was itself less than the market rent; (ii) the change of use would, contrary to the principles of good estate management, duplicate the use of an adjacent unit. In September 2000, the tenant learned that the landlord had consented to the assignment of other nearby premises to O, which confirmed that it was proceeding accordingly.
The tenant brought proceedings under section 4 of the Landlord and Tenant Act 1988, claiming damages for breach of the landlord’s duty, under section 1 of the Act, not to withhold its consent without reasonable grounds. The landlord denied that the Act applied to the relevant covenants, and contended that it had acted reasonably. The landlord further submitted that even if it had been obliged to consent to the subletting, O would still have refused to proceed because of difficulties posed by the user covenant (the causation issue).
Held: The claim was dismissed.
1. While the market rent restriction (not being qualified as to reasonableness) undoubtedly fell outside the Act, the basic rent restriction was, upon its true construction, a qualified covenant to which the Act applied: see, in particular, the words “whether or not [the covenant] is also subject to any other qualification”, as used in section 1(1)(b) of the Act; see, further, Blockbuster Entertainment Ltd v Leakcliff Properties Ltd [1997] O8 EG 139.
2. The landlord had failed to show that it had reasonable grounds for refusal, there being compelling evidence (including the extensive marketing efforts made by the tenant) that £75,000 was indeed the best rent reasonably obtainable.
3. The landlord succeeded on the issue of causation. The agreement with O was not binding. The tenant had failed to show that O would, on the balance of probabilities, have adhered to the agreement in the face of the landlord’s objections, whether wrongful or otherwise, based upon the user restriction.
David di Mambro (instructed by Romain Coleman & Co) appeared for the claimant; Timothy Dutton (instructed by Maples Teesdale) appeared for the defendant.
Alan Cooklin, barrister
