Landlord and tenant – Assignment – Consent – Lese of retail premises – Proposed assignment and change of use – Landlord defender accepting that proposed assignee of sound financial standing and capable of fulfilling tenant’s obligations in respect of lease – Whether entitled to require further information of any rent subsidy or reverse premium to be paid by the pursuer as existing tenant to the assignee – Whether unreasonably withholding consent – Action dismissed
The pursuer was the tenant and the defender was the landlord under a lease of retail premises in a retail park in Falkirk for a term of 25 years from November 1995. The lease permitted the use of the premises as a DIY store or such other Class 1 non-food retail as the landlord might approve in writing. There was a covenant against assigning the lease without the landlord’s consent, which was not to be unreasonably withheld in the case of an assignee “of sound financial standing demonstrably capable of fulfilling the Tenant’s obligations” under the lease.
The pursuer entered into an agreement to assign its interest in the lease, subject to obtaining the defender’s consent to the assignment and to a proposed change of use to permit the retail sale of goods not falling within the existing permitted use. The defender was advised that the agreement involved the pursuer making payments to the proposed assignee as consideration for the assignment. It indicated that it was not willing to give its consent without first being given details of the terms of the agreement so far as they dealt with the payment of any premium or otherwise related to the payment of sums due under the lease.
The pursuer took the view that the defender was not entitled to the requested information. It asserted that any payment passing between the pursuer and the assignee was irrelevant to the defender, which should be concerned only with the identity and character of the proposed assignee and its ability to comply with the tenant’s obligations under the lease. Although the pursuer disclosed the requested information on a confidential basis, it maintained that it was doing so only as a gesture of goodwill and that the defender was unreasonably withholding consent by demanding that information prior to making a decision.
The defender accepted that the proposed assignee was of sound financial standing and demonstrably capable of fulfilling the tenant’s obligations in respect of the lease. The central issue was whether the requested information was a relevant consideration for the purposes of the defender’s decision on whether to consent to the assignment and change of use.
Held: The action was dismissed.
The covenant against assignment required the application of a two-stage test. The first stage involved a determination of whether the proposed assignee met the financial requirements specified by the lease, namely whether it was of sound financial standing and demonstrably capable of fulfilling the tenant’s obligations. That determination had to be made on an objective basis and, if the proposed assignee failed to meet that test, the landlord had an absolute right to withhold consent without any issue of reasonableness arising. Only if the first test was met did the second stage, asking whether it was reasonable to withhold consent, came into play: Bates v Donaldson [1896] 2 QB 241 applied.
That construction of the covenant accorded with commercial common sense. There might be good reasons, unconnected with the financial standing of the proposed assignee, why a landlord wish to withhold consent, although it would not be entitled to do so if the reasons had nothing to do with the relationship of landlord and tenant in regard to the demised premises. The terms of the covenant in the instant case were not unusual and protected the landlord from having its premises used or occupied in an undesirable way: International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513; [1986] 1 EGLR 39; (1986) 277 EG 62 applied.
The defender was entitled to withhold consent on the ground of the tenant’s refusal to provide information as to whether it had agreed to make any payment to the proposed assignee by way of rent subsidy or reverse premium. The defender’s request for the information was reasonable, entitling it to withhold consent unless and until the information was supplied. The payment of a rent subsidy or reverse premium was capable of affecting the rental value of the property, for example by affecting the rent determined at the time of the next letting of the premises. Where the landlord’s concern related to the effect of a rent subsidy or reverse premium on the level of rental likely to be obtainable in future for the same property, that was not an irrelevant collateral matter having nothing to do with the relationship of landlord and tenant of the premises in question. If the payment of a rent subsidy or reverse premium was a matter which might reasonably affect a landlord’s decision on whether to consent to a proposed assignment, then it was reasonable for the landlord to require information on that matter before making its decision. It followed that the defender was not acting unreasonably in withholding consent either to the assignment or to the change of use on the ground that the pursuer was refusing to supply the requested information: International Drilling, Norwich Union Life Insurance Society v Shopmoor Ltd [1999] 1 WLR 531; [1998] 2 EGLR 167 and Burgerking Ltd v Rachel Charitable Trust [2006] CSOH 13; 2006 SLT 224 applied.
Mark Lindsay QC (instructed by DWF LLP, of Edinburgh) appeared for the pursuer; Roddy Dunlop QC (instructed by Brodies LLP, of Edinburgh) appeared for the defender.
Sally Dobson, barrister
