Landlord and tenant – Subletting – Consent – Pursuer holding tenancy under which subletting permitted only with prior written consent of landlord – Consent not to be unreasonably withheld to “respectable and responsible” subtenant – Defender landlord refusing consent for subletting to new company with no track record or landlord’s references – Whether consent reasonably withheld – Whether subtenant satisfying test of being respectable and responsible where related company and owner having such status – Action dismissed
The pursuer was the tenant and the defender was the landlord of commercial premises in Kilmarnock comprising a fast-food restaurant and surrounding land including car parking spaces. The pursuer proposed to sublet the premises to a company to which it had recently sold its Burger King business in Scotland, comprising the operation of 26 existing Burger King restaurants, and which had the exclusive right for future Scottish openings. Under the terms of its lease, the pursuer could not proceed with the subletting without the prior written consent of the landlord, which was “not to be unreasonably withheld or… delayed to a sub-tenant who is respectable and responsible”.
In August 2012, the pursuer submitted a request for the necessary consent. It enclosed a note prepared by the proposed subtenant, indicating that that company proposed to open 50 Burger King restaurants over the next five years and that its business had an estimated turnover of £25m. The note further stated that the owner of the proposed subtenant had owned and operated numerous Burger King restaurants since 1993 and, in 2004, had acquired the oldest UK Burger King franchisee, with the result that by 2011 he was operating 54 restaurants with a combined turnover of £44m. It attached details of the existing 54 restaurants and a statement from the owner attesting to the excellent relationship that his company had with its landlords.
The defender none the less declined to give its consent to the proposed subletting unless the head company in the proposed subtenant’s group guaranteed its obligations. The defender’s objection related to the inability of the proposed subtenant to provide three years’ audited accounts, or references from landlords, owing to the fact that it was a new company formed in 2011 and had been dormant until acquiring the pursuer’s Scottish business. It took the view that, in those circumstances, they had no evidence that the proposed subtenant was “respectable and responsible”. The pursuer claimed that the defender had unreasonably withheld its consent to the subletting.
Held: The action was dismissed.
It was appropriate to take a two-stage approach when determining whether the requirements of the lease were met with regard to the proposed subletting. First, it had to be determined whether the proposed subtenant was respectable and responsible. If it was not, then the landlord was entitled to refuse consent on that ground alone without needing any further justification: Bates v Donaldson [1896] 2 QB 241 applied.
The issue was therefore whether, at the time when the defender refused consent, the pursuer had provided material which established that the proposed subtenant was “respectable and responsible”. The expression “respectable and responsible” was to be construed having regard to the relevant surrounding circumstances, which were those reasonably within the knowledge of the parties to the lease at the time when it was granted and included the way in which the courts had interpreted that commonly used expression. Accordingly, the word “respectability” referred to the manner in which the company conducted its business and to its reputation, while “responsibility” referred to financial capacity: Wilmott v London Road Car Co Ltd [1910] 2 Ch 525 applied.
Those characteristics had to be borne by the particular entity that was proposed as a subtenant. That was particularly so with regard to responsibility. By using the word “responsible”, the parties had agreed that the landlord would be entitled to be satisfied as to the financial solidity of any proposed subtenant. A landlord that stipulated that a proposed subtenant had to be responsible was reserving to itself the right to be satisfied as to the financial soundness of the subtenant itself and not of other individuals or entities who might or might not provide assistance in the event of financial difficulty. So far as respectability was concerned, little might be required to satisfy to satisfy the landlord, but, again, the evidence of respectability had to relate to the proposed subtenant itself. A company did not acquire respectability automatically on incorporation. Although it might not take long before its mode of carrying on business afforded sufficient indication of respectability, that was not the same thing as an assessment of the respectability of the company’s owners, or of other companies in common ownership.
In the instant case, while there was no positive indication that the proposed subtenant lacked either respectability or responsibility, that was not sufficient to satisfy the test. In assessing respectability and responsibility, it was necessary to have regard to the track record of the proposed assignee or subtenant itself: Royal Bank of Scotland plc v Victoria Street (o 3) Ltd [2008] EWHC 579 (Ch) applied. Had the purser provided material demonstrating even a successful few months’ trading by the proposed subtenant, including landlords’ references, it might have been difficult for the defender to justify any refusal of consent, but it had not done so.
Gavin MacColl (instructed by Davidson Chalmers LLP, of Edinburgh) appeared for the pursuer; David Thomson (instructed by Burness Paul LLP, of Edinburgh) appeared for the defender.
Sally Dobson, barrister
