Lessee under long development lease required to create development for uses defined by reference to Use Classes Order – Plaintiff tenant taking assignment of part of land – Landlords refusing consent to further assignment on ground that intended use by assignee prohibited – Whether user restriction to be read into the terms of the covenant to build – Whether reason advanced by landlords necessarily unreasonable because of their ability to enforce restriction against assignee – Judgment for landlords on preliminary issues
In April 1969 the defendant council granted to a developer a 114-year lease of some 14.5 acres of land at the Old Cattle Market site in Gloucester. By clause 2(iii)(a) of the lease the lessee covenanted to complete, within certain time-limits and according to certain specifications, the erection of a “building development for uses within Use Classes III, IV or X of the Town and Country (Use Classes) Order 1963”. Clause 2(vi) listed a number of uses that were specifically prohibited. Clause 2(viii) required the lessee to reinstate any buildings, erections or structures in the event of damage or destruction by fire. The lease contained a standard lessee’s covenant not to assign without the landlords’ consent, such consent not to be unreasonably withheld.
In 1973 the plaintiff (AFL) took an assignment of a small part of the demised land (the premises), which it thereafter held as a direct tenant of the council at an apportioned rent. In May 1997 the council, as local planning authority, granted planning permission for the use of the premises for metal recycling, the application having been made by MMC, a prospective assignee of AFL. Shortly thereafter, AFL applied to the council, as its landlords, for a licence to assign to MMC. By letter dated 16 September 1997 the council refused consent on the ground that the intended use of the premises would breach the user restrictions. On an application by AFL for a declaration that consent had been unreasonably withheld, certain preliminary questions fell to be determined, notably: (i) whether the building obligation in clause 2(iii)(a) also operated as a restriction on uses falling outside the use classes referred to; and (ii) whether, if the intended use was prohibited by the lease, the council’s refusal was, as AFL maintained, necessarily unreasonable, because it would have the same remedies against the assignee as it had against the assignor.
Held Both issues were resolved in favour of the council.
1. Reading the lease as a whole, the words “for uses in Classes . . .” were, despite the lack of an appropriate verb, an adequate formula to impose the alleged restriction. Given the absence of any lessee covenant not to alter or rebuild, the implication of AFL’s contention was that the lessee was free, if it so wished, to raze the buildings to the ground. The presence of the obligation to reinstate in case of fire was a powerful pointer to the contrary. The fact that the council could impose control in their capacity as planning authority was immaterial, as their planning committee could not properly have regard to the council’s commercial interests as landlords. Nor could AFL contend that the specific restrictions in clause 2(vi) were intended to be exhaustive, as it was clear from the background to the lease that those restrictions had the specific and targeted purpose of protecting existing tenants of adjoining land from new competition.
2. The decision of the Court of Appeal in Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 638 was no authority for the proposition that a landlord’s fear of a breach on the part of the proposed assignee was not a proper ground for refusing consent to the assignment. Given that a landlord might reasonably object to a non-prohibited proposed use (see International Drilling Fluids Ltd v Lousiville Investments (Uxbridge) Ltd [1986] 1 EGLR 39), it would be surprising to conclude from Killick that a landlord should be forced into a law suit simply because he had a right to sue. Such a conclusion was not compelled by the leading judgment in Killick, where the passage relied on by AFL was directed solely to a particular point raised by the landlord in that case.
3. There would be a further hearing to determine whether the proposed use would amount to a breach and whether the council’s refusal was unreasonable in all the circumstances.
Kim Lewison QC (instructed by Rowe & Maw) appeared for the plaintiff; Nigel Davis QC and Andrew Westwood (instructed by the solicitor to Gloucester City Council) appeared for the defendants.
Alan Cooklin, barrister