Long development lease – Lessee required to create development for uses defined by reference to Use Classes Order – Claimant taking assignment of part of land – Landlords refusing consent to further assignment on ground that use proposed by assignee prohibited by lease – Whether covenant to build contained a restriction on user – Whether landlords’ refusal necessarily unreasonable
In April 1969 the respondent council granted to a developer a 114-year lease of around 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) of the lease 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 a plastics company 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 1993 the plastics company transferred the premises to the claimant (AFL). In May 1997 the council, as the local planning authority, granted a prospective assignee of the premises, MMC, planning permission for the use of the premises for metal recycling. Shortly thereafter, AFL applied to the council, as its landlords, for a licence to assign to MMC. By letter dated 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 whether: (i) the building obligation in clause 2(iii)(a) had also operated as a restriction on uses falling outside the use classes referred to therein (the construction question); and (ii) 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 (the reasonableness question).
At a hearing before the Court of Appeal (see [2000] EGCS 3), the reasonableness question was decided in favour of AFL and the construction question in favour of the council. Both issues were taken to the House of Lords by way of a main appeal by the council and a cross-appeal by AFL (on the construction question). The council’s principal submission on the main appeal point was that the case of Killick v Second Covent Garden Property Co Ltd (1973) 227 EG 1849 had been wrongly decided.
Held:
1. AFL succeeded on its cross-appeal.
2. But for the outcome of the cross-appeal, the council would have succeeded on the main appeal.
Per Lord Browne-Wilkinson, Lord Hoffmann and Lord Scott: Looking at the lease as a whole, there was no case for spelling out the alleged restriction from the essentially positive provisions of clause 2(iii)(a). (Lords Bingham and Rodger dissenting.)
As regards the main appeal, the view taken by the Court of Appeal had to be rejected, being based upon the decision of the same court in Killick. Contrary to what that case was supposed to have decided, it could not be said, as a matter of law, that a refusal of consent was necessarily unreasonable where it was founded on the landlord’s belief, reasonable or otherwise, that the proposed assignee intended to use the demised premises for a purpose that would give rise to a breach of a user covenant. The correct approach was to consider what the reasonable landlord would do when asked to consent in the particular circumstances. It could not be assumed that such a landlord would invariably be comforted by the fact that the assignee would be in the same legal position as the current lessee. The rule of law derived from Killick introduced an unacceptable rigidity. Reasonableness had to be read in a general sense: see per Viscount Dunedin in Viscount Tredegar v Harwood [1929] AC 72 at p78 and per Lord Denning MR in Bickel v Duke of Westminster [1977] QB 517 at p524.
Kim Lewison QC and Edward Peters (instructed by Rowe & Maw) represented the cross-appellant (and original respondent); Christopher Pymont QC and Andrew Westwood (instructed by Sharpe Pritchard, as agent for the solicitor to Gloucester City Council) represented the cross-respondents (and original appellants).
Alan Cooklin, barrister
