Landlord and tenant–Claim by tenants of an industrial site holding on a building lease expiring at the end of the year 2068 that their local authority landlords had unreasonably withheld consent to a subletting and change of use–Question turned mainly on restriction of user clause in lease–After providing that consent should not be unreasonably withheld the clause stated that it should not be treated as so withheld if the trade or business proposed to be carried on was considered by the landlords to be in conflict with their interpretation of good estate management–Whether landlords’ refusal was covered by this provision–Only reason for refusal which was not plainly bad related to possible traffic difficulties–No evidence that proposed trade or business was ever considered by landlords at all, still less that it was considered to be in conflict with their interpretation of good estate management–Consent held to have been unreasonably withheld–County court judge’s decision reversed
This was an
appeal by Stephen Berenyi and John Henry Tyler (trading as Twin Engineering Co)
from a decision of Deputy Judge Newman at Watford County Court refusing
declarations that Watford Borough Council as landlords had unreasonably
withheld consent to a proposed subletting and change of use. The property in
question, of which the appellants were the tenants and the respondent council
the landlords, was an industrial site at 25 Caxton Way, Holywell, Watford. The
facts and submissions are fully stated in the judgment of Sir Patrick Browne.
John Colyer QC
and David Van Hee (instructed by Ellis & Fairbairn, agents for Claude
Barker & Partners, of Watford) appeared on behalf of the appellants; J C
Harper (instructed by M A Raybould, Administration and Legal Officer, Town
Hall, Watford) represented the respondents.
Giving the
first judgment at the invitation of Megaw LJ, SIR PATRICK BROWNE said: This is
an appeal from a decision of Deputy Judge Newman given in the Watford County
Court on February 27 1979. The appellants are the tenants, and the respondents
are the landlords, of an industrial site at 25 Caxton Way, Holywell, Watford. I
understand that it is part of an industrial estate owned by the corporation.
The claim of the appellants, who were the applicants below, was for a
declaration that the respondents, the council, had unreasonably withheld their
consent to a subletting and change of use of part of the premises at 25 Caxton
Way.
The appellants
carry on business in precision engineering. The proposed subtenants are a firm
called Watford Print Finishers, who carry on the business of print finishing
and packing. The proposed subletting is of a part of the site occupied by the
tenants, the area to be sublet being about 65 ft by 60 ft in area. The tenants
hold the property under a lease dated February 5 1971. The appellants are
described as Mr Berenyi and Mr Tyler ‘trading together as Twin Engineering
Company,’ at that time at another site in Watford.
Clause 1
witnesses: ‘In consideration of the expense to be incurred by the Lessee in
erecting factory premises upon the land hereby demised . . . containing in the
whole’ just under half an acre, together with buildings, and so on, the
landlord demised to the tenants the land for a term commencing on February 5
1971 and expiring on December 31 2068: that is, approximately a 97-year lease.
As Mr Colyer emphasised, of course, this is a building lease for that very
substantial period. There were provisions as to the rent payable, which was
small to begin with and then going up later, and there was a rent review
clause.
Clause 2
provides: ‘The Lessee hereby covenants with the Corporation as follows: . . .
(3) Forthwith to construct and erect to the satisfaction of the Borough
Engineer and Surveyor’ the building described in the lease. Then subclause (11)
(which is the clause with which we are chiefly concerned in this case):
To use the
demised premises for the purposes of precision engineering with ancillary
office and warehouse accommodation and not use the demised premises or suffer
or permit the same to be used for any other purpose whatsoever except with the
previous consent of the Corporation which consent shall not be unreasonably
withheld howsoever (without prejudice to the generality of the foregoing) that
the Corporation’s consent shall not be treated or construed as being
unreasonably withheld if it is withheld on the grounds or any of the grounds
following that is to say, (i) that the trade or business proposed to be carried
on is not one which the Corporation consider to be quiet and inoffensive or is
not one which the Corporation consider to be free from the possibility of
causing a nuisance or annoyance to the owners or occupiers of neighbouring or
adjacent premises (ii) that the trade or business proposed to be carried on is
considered by the Corporation to be one which would be in conflict with the
Corporation’s interpretation of good estate management (iii) that the carrying
on of the trade or business proposed would constitute a change of use involving
development within the provisions of any Town and Country Planning Act Order
Plan Regulation Permission Consent or Direction for the time being in force or
a change of use which although not constituting development would prevent
reversion to the then existing use of the demised premises.
The provision
with which we are concerned in this case is the substantive part of the clause
at the beginning and exception (ii).
Subclause
(23) provides:
Not without
the previous consent in writing of the Corporation such consent not to be
unreasonably withheld to assign underlet or grant any licence in respect of the
demised premises or any part thereof nor part with or share the possession
thereof or of any part thereof.
The building
was built in or shortly after 1971 and the subsequent history was that the
appellants’ business apparently prospered and they needed more space for their
business. They needed some more space at once and they foresaw, in about five
or six years’ time, they would need more space still. They took the view, which
the judge clearly thought was sensible, that it would not be good policy to
have to build two extensions at different times; that the sensible thing to do
was to build at once the whole extension which they would need at once and also
which they expected to need in five or six years. Accordingly, they applied for
planning permission to cover both those extensions–the immediate extension and
the foreseen extension in five or six years’ time.
That
permission was granted on January 25 1977. That granted permission for the
development for which the tenants had asked, subject to a number of conditions.
The only one which is now relevant is no (5): ‘The extension hereby permitted
shall only be used in conjunction with the use of the adjoining existing
premises and shall not be separately let or otherwise occupied without the
prior approval of the local planning authority.’ The reason given for that condition was: ‘The
premises are considered unsuitable for dual use having regard to the restricted
access to and from the rear of the site.’
The tenant, of course, needed planning permission for the new building,
but it is common ground that no planning permission is needed for the change of
use which would be involved in this case by a subletting to this particular
subtenant.
The tenants
appealed against condition (5) and a public local inquiry was held into that
appeal by an inspector, to whom had been delegated, under the relevant powers,
the actual decision of the appeal. We have a copy of the inspector’s report. I
think it is only necessary to read two paragraphs of that, stating his
conclusion; that is, paragraphs 12 and 13:
(12) It seems to me that in this instance the
council are being unduly restrictive. The extension is to an existing
industrial building in a recognised industrial area. The existing premises are
not large and the proposal would mean that they would become slightly more than
double in size. I cannot think that whatever the industrial occupation of the
completed building, it would significantly affect the employment potential and
traffic generation. The council are aware of the modest use of the curtilage by
the appellant company, and this should perhaps have balanced their fears of a
more intensive user coming along to occupy part of the proposed extension. Even
with the parking areas fully taken up there would be at least 10 ft along the
flanks of the completed building and over twice this distance at the rear. Too
many large vehicles arriving at the same time might present temporary
difficulties within the site, but this would be a matter for the firms
themselves to overcome.
(13) If encouragement is to be given to industrial
firms there must be a degree of flexibility: the new extension is required by
the appellants for their immediate and future needs and it is their assessment
of the situation, particularly the financing and cost of building, that the
whole extension be erected as one operation. In this instance, though the
council are not seeking to prevent dual use but merely to approve in advance of
any subletting the details of the incoming firm, it is to my mind too
restrictive and not an essential planning factor in ensuring satisfactory
development of the site in question.
Accordingly,
the inspector allowed the appeal and discharged condition (5).
However, the
council having missed with the first barrel, then discharged the second barrel.
The next thing that happened was that, having succeeded in that appeal, the
tenants applied to the council for permission to sublet. The correspondence I
do not think I need pursue in great detail, but I shall have to refer to
several of the letters, beginning with a letter of May 31 1978. That did not
ask for permission to sublet but merely said, could they now go ahead with the
building of the extension under the terms of the planning permission? I should have said that we did have before us
a plan showing the proposed extension, which has now been built, but I do not
think it is necessary to look at that in any detail.
That letter of
May 31 was followed up on June 8 by the letter to the solicitor to the
corporation, which says this: ‘Our client informs us that he has now found a
tenant for part of the extension. The tenant’s name is Watford Print Finishers
and its present address’ is another unit in the industrial estate. ‘The part of
the extension to be sublet is an area of some 3,900 sq ft and the work to be
carried out by the firm is the sorting and packing of printed papers. We are therefore
instructed by our client to request the council’s additional consent as to: 1.
The subletting of the premises to Watford Print Finishers. 2. The change of use
of that part of the premises, to enable that firm’s work to be carried on. We
look forward to hearing from you with your requirements in this respect.’
On June 20 the
tenants’ solicitors wrote giving references for the proposed subtenant and also
said this: ‘The use of the part of the extension to be sublet is for print
finishing and packing–within a light industrial use’. As I have said, it is
common ground that this subletting would not involve any such change of use as
would constitute development within the Town and Country Planning Acts. Then,
as a postscript to that letter, they gave again the extent of the subletting
and the area which would be covered.
I think I can
now go to the minutes of the corporation’s estates subcommittee. That was a
meeting on August 23 1978 and the decision on that occasion was that the matter
be deferred pending further information.
On October 4
the estates subcommittee resolved: ‘The lessees of this plot had requested the
council’s consent as landlord to sublet part of their extension and to seek a
change of use of that part of the premises. Recommended–that consent be
refused.’ According to the certificate
on that document, that resolution (subject to immaterial amendments) was
approved by the management committee on October 23 and by the council on
November 6.
Those
decisions having been reached, on October 27 the council wrote to the tenants:
‘Further to my letter of July 5 1978, your client company’s application for
landlords’ consent to sublet part of the extension building at the above
premises to Watford Print Finishers has now been considered by the council’.
That was not right, it had been considered by the estates subcommittee and the
management committee. But then going on, ‘I have to advise you that the estates
sub-committee were not prepared to grant landlords’ consent for the proposed
subletting’. When we come to the pleadings in the action, it will be seen that
the tenants rely on that letter as being the refusal or withholding of consent.
On October 30
the tenants’ solicitors wrote acknowledging that letter and going on: ‘Bearing
in mind the terms of the lease, we would be obliged if you would kindly let us
know in general terms for what reason the application has been rejected.
Particularly, we would like to know whether or not it was the use to which the
proposed subtenants were to put the part of the building to be let to them, and
if so what use the council would accept for a proposed subtenant.’ They wrote again on November 6 threatening
proceedings, not having received any reasons by that time.
On November 8
the administration and legal officer of the council replied saying that the
matter was going to be further considered and asking for further time, and on
November 13 the tenants’ solicitors agreed that they would postpone taking
proceedings for a few days.
Then on
November 21 a further letter was written by the administrator to the solicitors
to the tenants, but before reading that I think I should refer to what purports
to be a recommendation of the estates subcommittee on November 15, that is,
before the letter I am just going to read, and approved by the management
committee on December 4 and by the council on December 18. I shall have to come
back later to this
moment I only refer to this to show that the estates subcommittee had made its
decision before the letter of November 21 was written. According to the papers,
the decision of the subcommittee was:
The
Subcommittee were advised that the lessee’s solicitors had given formal notice
that they intended to apply to the Court for a declaration that landlords’
consent for subletting part of the extension and change of use of that part of
the premises had been unreasonably withheld. Recommended–1. That the
Subcommittee’s previous decision be reiterated on the grounds that the
proposals would be contrary to principles of good estate management and that
the subletting was contrary to the express wishes of the Inspector on appeal.
2. That the Borough Administration and Legal Officer be authorised to instruct
Counsel.
There are
various observations to be made about that minute. The first one is that what
it purports to say is that the previous decision was reiterated and I infer
from that that what it means is that the reasons for which they had refused on
October 27 were the same as the reasons stated in this reiteration on November
15. The second point is that, of course, this wording, at any rate, does not
purport to follow the wording of clause 2(11)(ii) and say ‘In the opinion of
the council’ or ‘The council consider that it would be contrary to the
principles of good estate management.’
It asserts as a fact that it would be contrary, which I take to mean
that, applying the objective test, the council were saying that it would be
contrary. The final point is that the second reason, ‘that the subletting was
contrary to the express wishes of the inspector on appeal’, was wholly
misconceived. In fact it was exactly the opposite of what the inspector said in
his report, which I have already read. I shall have to come back again to the
effect of their having given a wholly wrong reason as one of the two reasons on
which the decision was based.
Then going
back to the letter of November 21, it reads:
Adverting to
your letter of November 13, a further report upon your client’s application for
landlords’ consent to sublet part of the rear factory extension at the above
premises and for consent to a change of user of that part of the premises was
placed before my Council’s Estates Subcommittee at its meeting on Wednesday
evening last. The Subcommittee, having given further consideration to the
applications and to the further advice given by its officers, decided to
reiterate its earlier decision to refuse consent to both applications because
of fears that the proposals could cause estate management problems. This
decision, however, requires to be ratified by the Council’s Management
Committee, who may of course vary or not approve the recommendation of the
Subcommittee. The next meeting of the Council’s Management Committee is to be held
on Monday, December 4, and I shall, of course, inform you of the result of that
meeting as soon as possible thereafter.
Again various
comments immediately spring to the mind on that. It refers to a report,
presumably by the officers, and to advice given by the officers to the
subcommittee. That report has not been disclosed, possibly very justifiably,
but the point is that that letter does not repeat the reasons recorded in the
minutes. It makes no reference to the totally bad reason about the inspector’s
view. We were told by Mr Harper, on instructions, that that was a point which
had been raised by some member of the committee whose memory was at fault. No
evidence was called of that, but this is what Mr Harper told us. This letter,
of course, implies that the decision was taken on the advice of the officers
and it seems to me, I am bound to say, that it is a most misleading passing on
of what the subcommittee had in fact decided on November 15.
On November 30
the appellants’ solicitors wrote that they were going to start proceedings. On
December 1 the originating application in these proceedings was issued. I will
come back to the terms of that later.
We now come to
what I find a very baffling situation arising from the documents. [A page] to
which I have already referred sets out the recommendation of the estates
subcommittee on November 15 and it says ‘approved by the Management Committee
at its meeting on December 4 1978 and by the Council at its meeting on December
18 1978.’ However, [another page] is
headed ‘Management Committee: Resolution of the above Committee dated December
4 1978. Approved by the Council at its meeting on December 18 1978. The
Committee’–that is, the management committee–‘considered the recommendation of
the Estates Subcommittee and noted the contents of a subsequent letter received
from the lessee’s solicitors.’ That was
the letter saying they were going to start proceedings but asking the council
to reconsider.
Resolved–1.
That landlords’ consent to the proposed change of use of part of the premises
be refused on the ground that the proposal would be in conflict with the
Council’s interpretation of good estate management in that it would lead to an
over-intensification of the use of the site, causing traffic congestion and manoeuvring
difficulties. 2. That landlords’ consent to the proposed subletting be refused
accordingly. 3. That the Borough Administration and Legal Officer be authorised
to instruct Counsel.
I am quite
unable to understand what did happen. Both these minutes, which are not in the
same terms, purport, on the face of the documents, to have been approved by the
council at its meeting on December 18. Mr Harper suggests that in fact the
notation on [the first page] is wrong and that all that was approved by the council
on December 18 and by the management committee on December 4 was [as stated on
the later page]. I am personally prepared to assume, for present purposes, that
that is right, but I do find the form of the documents and the certificate on
them extremely unsatisfactory. There is one other observation I should make on
[the last-mentioned] page. Here, for the first time, appears what has been
called in the argument the subjective test, that is, that the proposed change
of use would, in the opinion of the council, be contrary to good estate
management, thereby for the first time, as it seems to me, making an attempt to
bring the refusal within the terms of clause 2(11)(ii).
The
originating application claims:
(i) A declaration that the respondents have unreasonably
withheld their consent to the applicants subletting a part of the premises 25
Caxton Way, being an area of 65 ft long and 60 ft wide at the rear thereof to
Watford Print Finishers for a term of six years and that the applicants are
entitled to sublet the said part of the premises to the said Watford Print
Finishers notwithstanding the absence of the respondents’ consent. (ii) A
declaration that the respondents have unreasonably withheld their consent to a
change in use of the said premises, that is to say, to the use of the part of
the premises defined in subparagraph (i) above for the purposes of print
finishing and packing and that the applicants and/or the said Watford Print
Finishers are entitled to use the said part of the premises for that purpose
notwithstanding the absence of the respondents’ consent.
Then there are
set out particulars of the property and clause 2, subclauses (11) and (23). It
is alleged that the applicants had requested consent and it had been refused.
Paragraph 3(d):
On October 27
1978 the respondents refused the applicants’ requests for their consent. The
said refusal was unreasonable and the applicants are accordingly entitled to
the declarations asked for herein.
The council’s
answer is dated December 29–that is, of course, after the resolution of the
council on December 18:
I, Maurice
Alfred Raybould, Solicitor and Borough Administration and Legal Officer of the
Respondents herein in answer to the application of Stephen Berenyi and John
Henry Tyler herein say that: I dispute that the respondents’ refusal to consent
to the subletting by the applicants of the said part of their said premises is
unreasonable and furthermore dispute that the applicants are entitled to any of
the relief sought herein. The ground upon which I oppose the application is
that the proposed subletting would involve a change of use of part of the
premises demised by the said lease and this change of use would be in conflict
with clause 2(11)(ii) of the said lease (which is concerned with good estate management)
in that it would lead to an over-intensification of the
That again
seems to go back to what has been called the objective test–‘it would
lead to an over-intensification.’ However,
one would be very reluctant to decide a case of this sort on a pleading point
and Mr Harper tells us that in fact the whole case was argued in the county
court on the basis of what has been called the subjective test, that is, that
whether or not in fact it would be contrary to good estate management, because
it would lead to over-intensification, the council considered that it would and
that was good enough to bring the matter within clause 2(11)(ii).
There was a
notice to admit facts, to which I do not think I need refer in detail. What it
shows is that the council had, in the case of certain other properties on this
estate, agreed to dual or multiple occupation and, at least in one case, to the
subletting of part.
The hearing
took place on January 15 1979. For the applicants, Mr Berenyi, one of the
partners, gave evidence. Mr Barker, a partner in the proposed sublessees’ firm,
gave evidence. Mr Pain, a traffic expert, also gave evidence for the
applicants. The respondents called no evidence. The judge reserved judgment,
which he gave on February 27 1979. Having set out the nature of the case and
the facts, which I do not think I need repeat, but I hope I have stated them
sufficiently already, he says: ‘Mr Berenyi in his evidence told me that this was
the third application he had made and that a previous application to sublet to
another engineering tenant which involved no change of use had also been turned
down by the respondents who have refused their consent again in respect of
Watford Print Finishers.’ Then he sets
out the grounds of the refusal and the facts as to the nature of the business
and the number of employees and the amount of traffic involved with both the
appellants and the proposed subtenants, and refers to the notice to admit
facts. Then:
I must now
refer to the planning appeal. Permission was granted for the extensions to the
premises by the respondents in their capacity of local planning authority but
subject to two conditions relevant to this application, these are nos 5 and 7 .
. . . Only condition 5 was appealed against. In his decision the planning inspector
observed
–and then he
quotes a passage from paragraph 12 of the decision, which I have already read,
saying, in effect, he did not think there would be any serious traffic problem.
The judge went on–
on the
evidence before me I find myself entirely of the like mind with that conclusion
and see no problem giving rise to traffic congestion and manoeuvring
difficulties which could not be easily overcome for example in the manner
suggested by Mr Pain. However, Mr Harper for the respondents submits that it is
not open to me to substitute my views for those of the respondents in view of
the wording of clause 2(11)(ii). He further submits that section 19 of the
Landlord and Tenant Act 1927 does not provide for change of use but concerns
only underletting and that therefore the provisions of clause 2(11) of the
lease above governs this leg of the application: in this latter he is clearly
correct.
I pause there
to say that Mr Colyer entirely accepts that. The judge goes on:
As to his
former submission the agreed terms of the lease are that the respondents’
consent shall not be treated or construed as being unreasonably withheld if it
is withheld on the ground (ii) that the trade or business proposed to be
carried on is considered by the respondents to be one which would be in
conflict with the respondents’ interpretation of good estate management.
It cannot be said that the respondents’ interpretation of good estate
management is at fault in considering matters of over-intensification of the
use of the site and traffic congestion and manoeuvring difficulties, but it is
open to me exercising the jurisdiction given by section 53 of the 1954 Act to
find that consent has been unreasonably withheld having regard to the wording
agreed by the parties to the lease in clause 2(11). Reluctantly I feel
compelled to find that it is not open to me to substitute my own views for
those taken by the respondents even though I feel that they have fallen into
the same error as that which was corrected by the planning appeal inspector. My
reasons are these
and then he
refers to the minute [of the management committee’s resolution approved on]
December 18 1978.
He then says:
‘No authorities were referred to by counsel,’ but he had himself done some
research and he mentions three planning cases and the well-known case of Associated
Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB
223. He goes on:
If by analogy
these were the right principles to apply when considering the respondents
acting as landlord only, exercising their discretion expressly reserved to them
by the parties to the lease under clause 2(11) I am unable on the evidence to
find that no reasonable authority could have come to that conclusion and
further, although urged to do so by the applicants, to find that they acted
with some ulterior object and with bad faith–despite the previous refusals of
consent and their failure to make enquiries until three days before the
hearing, the evidence falls far short of persuading me that this is a
vindictive decision taken mala fides.
Pausing there,
Mr Colyer, before us, does not now suggest there was any question of bad faith
here.
I do not think
I need read the next part of the judgment: he is stating the facts as to the
traffic access. The judge concludes:
While,
therefore, I have formed the view, as did the planning inspector, that these
are matters capable of easy resolution I am unable to find that no reasonable
authority could not have concluded differently and found as the respondents
have found. In view of the above conclusion it is unnecessary for me to find
whether Mr Harper’s full submission that the court could not go behind the
respondents’ decision in any circumstances is good in law.
Then he refers
to a case in the divisional court, to which we have not been referred.
Finally I was
referred by Mr Van Hee to p 484 of the 28th edition of Woodfall which he
adopted in support of his submission that the burden of proof shifted to the
respondent to show reason for the refusal to consent to a subletting in the
absence of any reason. However, there is evidence of the respondent’s reasons
in the agreed minutes where the second resolution shows that the landlord’s
consent to the proposed subletting follows from the reason set out in the first
resolution. It follows that I must refuse both the declarations sought and
dismiss the application.
A number of
interesting points were raised in the course of the argument and we were
referred to various statutory provisions and to various authorities. I do not
find it necessary to read section 19 of the Landlord and Tenant Act 1927 nor
section 53 of the Landlord and Tenant Act 1954. Mr Colyer accepts that the
purpose and effect of section 53 of the 1954 Act is simply to give the county
court power to give declaratory relief, a power which it would not otherwise
have. Nor do I find it necessary to refer in any detail, or to refer at all
really, to the two authorities cited by Mr Colyer–Berton v Alliance
Economic Investment Co Ltd [1922] 1 KB 742 and Marquess of Zetland v
Driver [1937] 3 All ER 795 before Bennett J and [1939] Ch 1 in the Court
of Appeal. I think the relevant parts of those authorities are correctly
summarised in Preston and Newsom on Restrictive Covenants (6th ed) pp
117-119, except for the reference to ‘Chips’ in the Zetland case. In
both those cases there was a clause referring to the ‘landlord’s opinion’. In
each case, I think, the landlord was the plaintiff, and in one case the
chairman of Governors of Dulwich College, who were the landlords, gave evidence
to prove what opinion they had formed, and in the other the plaintiff himself.
I do not find it necessary, as I say, to go into all the points raised or to
refer to those authorities, because, in my judgment, in the end this case comes
down simply to a question of the construction of clause 2(11) in relation to
the facts of this case.
It is
submitted by Mr Colyer that the judge was wrong to apply to this case the
analogy of what are sometimes called
again, it seems to me that we have not got to give any decision about that in
this case, because this is simply, in my judgment, a question of the
construction of the contract and of the resolutions of the council. Nor do I
think it is necessary to lay down, or try to lay down, any general principles
about the grounds on which a decision under a clause leaving something to the
opinion of the landlord can be attacked.
Therefore, I
come back to the actual clause, It is quite plain that in the earlier part of
the clause (what one may call the substantive part) the test is an objective
one: the tenant is not to change the use ‘except with the previous consent of
the corporation which consent shall not be unreasonably withheld’. It seems to
me quite plain that in this case, so far as that provision is concerned, the
tenants established, without any doubt, that consent was unreasonably withheld.
Indeed, I do not think Mr Harper really seriously disputes that. The only
reason given for refusing consent was traffic problems, and on the
uncontradicted evidence and on the judge’s findings of fact that was a wholly
unjustified ground. I do not want to confuse this judgment by talking about
burdens of proof and shifting burdens of proof, but is is quite plain, it seems
to me, that, the tenant having established that much, it is for the landlord to
bring himself within one of the exceptions in the clause. The only one on which
he relies is (ii).
Mr Harper’s
submission is really very simple. He says: Well, look at the resolution [of the
management committee]: that shows that the case does come within exception (ii)
in clause 2(11). I am prepared to assume, for the purposes of this judgment,
that the council is entitled to rely on the reasons given there, although [in approving
the recommendation of the estates subcommittee] they have given a second reason
which is clearly bad. Mr Harper submits that that was not really a reason that
was decisive and the real reason was the other one, but no evidence was called
to establish that. However, as I say, I am prepared to assume that the reason
given [in the management committee’s resolution] is not vitiated by the bad
reason added. I am certainly not to be taken as saying that that assumption is
necessarily right.
I need not
read [the resolution] again, but it is quite plain that the ground is that it
would be in conflict with the council’s interpretation of good estate
management in that it would lead to over-intensification of use and traffic
congestion. Again I am prepared to assume that the putting in of that
resolution is sufficient evidence that the council was of the opinion stated in
the resolution. The council, as I have said, called no evidence, but Mr Harper
submits that that resolution is sufficient evidence of what they did consider
and I am prepared to assume that.
But even if
that resolution is sufficient evidence that the council considered that the
proposed change of use would have the effect stated in the resolution this
would not, in my view, bring the case within the exception. The only reason
given relates to traffic difficulties, both in this resolution and in the
answer, but if one looks at clause 2(11)(ii), the ground on which the council
is entitled to refuse is ‘that the trade or business proposed to be carried on
is considered by the corporation to be one which would be in conflict with the
corporation’s interpretation of good estate management.’ There is no evidence here that the trade or
business proposed to be carried on by Watford Print Finishers was ever
considered at all by the council, still less that they considered it would be
in conflict with the council’s interpretation of good estate management. There
is no suggestion that the council took any objection to that trade or business
as such.
It seems to me
that what the clause is directed to is the nature of the trade or business that
is going to be carried on. It is said by Mr Harper that any trade or business
carried on is bound to cause traffic intensification, but I cannot accept that.
The council gave planning permission for the whole extension, no doubt assuming
that the whole proposed building would be occupied by somebody, and I cannot
see that whether it is occupied by the original tenants or by the original
tenants and someone else is necessarily going to make any difference to the
amount of traffic. I quite see that traffic difficulties might perhaps in some
cases be a valid ground for refusing consent to sublet, but in this particular
case, on the judge’s findings of fact, that would have been a wholly
unreasonable refusal under clause 2(23) and section 19 of the Landlord and
Tenant Act.
In my
judgment, traffic difficulties, in the circumstances of this case, are not a
ground justifying refusal under clause 2(11)(ii). I base my decision entirely
on the construction of this clause and the construction of the resolution of
the council. It is, therefore, I think, not necessary to consider how far one
should apply the analogy of what I may call the Wednesbury cases to a
lease of this sort. So far as this case is concerned, the corporation, though a
local authority, is simply a landlord and the case must be decided on the
ordinary principles of landlord and tenant. There is, for the purposes of this
case, no statutory provision relevant to the relationship of the landlord and
the tenant. Nor, as I have said, do I think it necessary to try to lay down any
general principles as the grounds on which a decision by a landlord under a
clause of this type can be attacked. As I say, I base my decision simply on the
construction of the lease and of the resolution of the council.
In my
judgment, therefore, the council cannot successfully rely on exception (ii) as
a ground for withholding consent for change of use. Once that subclause is out
of the way, on the uncontradicted evidence and the finding of fact of the judge
as to the traffic problems, consent was unreasonably withheld within the first
part of clause 2(11). Accordingly, I would allow the appeal and make the
declarations claimed by the appellants.
Agreeing,
TEMPLEMAN LJ said: The Watford Borough Council have been bullying the tenants
at the expense of the ratepayers. The lease they have granted is an horrendous
document. It contains a rent review clause the effect of which is unpredictable
and inappropriate. It contains 36 long covenants by the tenants, some of them
onerous, some of them surprising to find in a grant of a term of 97 years.
Covenant (11), for example, is in two parts: the first part requires the
council to be reasonable in withholding consent for change of use; the second
part authorises the council to be unreasonable in certain circumstances. The
council now rely on that part of the covenant (11) which enables them to be
unreasonable. The county court judge acquitted the council of bad faith. Mr
Barrett acted in good faith–indeed he had a line to the Almighty–but that did
not prevent him from bullying his daughter.
The tenants
wished to build an extension at their own expense. By covenant (6) the council
could not refuse consent to the erection of the extension unless there were
reasonable grounds and they did not allege any. The tenants made it clear that
they wanted to sublet part of the extension for a few years until they were
ready to occupy it themselves. The council then attempted to exploit planning
legislation to impose a restriction the effect of which they had not dared to
impose in the lease, and which would have been flatly contradictory to the
terms of the lease, namely, a prohibition against subletting of the extension
if the council refused their consent, whether reasonably or unreasonably. The
tenants objected. The council stood firm and the council’s case was fully
deployed before an independent inspector. The inspector found that the council
were making a fuss about nothing. The minister must have agreed, because he
ordered the council to pay the tenants’ costs, which
council’s costs.
The tenants
thereupon built the extension and applied for consent for subletting and change
of use. The only possible grounds which have been advanced, or can be advanced,
for the council’s refusal of consent are the grounds rejected by the inspector,
namely, that subletting would cause traffic problems. The traffic problems
alleged are limited to problems on this particular half-acre site. Why the
council, having demised the site for 97 years, are troubled about how many
vehicles there are on the site occupied by the tenants is a matter which is
past my comprehension. The tenants made three proposals for subletting. Each
proposal was rejected. On the third occasion the tenants, who are, of course,
suffering loss while the extension remains vacant as a result of the council’s
attitude, asked for reasons and threatened proceedings. The borough
administration and legal officer to the council gave reasons but did not
disclose that the estates subcommittee, who considered the tenants’ proposals,
had another reason apart from that alleged, namely, a bad reason: the erroneous
impression under which the subcommittee were apparently labouring was that the
subletting was contrary to the express wishes of the inspector on appeal. There
is no evidence that the estates subcommittee ever applied their mind to the
proposals free from their erroneous beliefs about the inspector’s report; no
evidence that the management committee or the council, which in terms accepted
the recommendation of the estates subcommittee, were free from such erroneous
beliefs.
In these
circumstances, I am not satisfied that the sole ground of the council’s
rejection of the proposals was the ground alleged under covenant (11)(ii),
namely, that the proposals conflicted with the corporation’s interpretation of
good estate management; and I would allow the appeal on this ground.
Mr Harper
submitted that the report of the council’s resolution was confined to one good
point and if there was a good point and a bad point the council were entitled
to rely on the good point. But, in my judgment, the council must show that the
only reasons on which they withheld consent were proper reasons within
(11)(ii). As I have said, there is no evidence that the erroneous impression of
the estates subcommittee was removed from their minds or from the minds of any
other members of the committee or the council itself.
I would also
allow the appeal on the ground that the council have indicated by their
conduct, and have not thought fit to give evidence to the contrary, that they
object to subletting and not to change of user. The council have refused three
different proposals for subletting. They are only entitled to object to
subletting if they act reasonably. They do not assert that they have been
acting reasonably. They rely, not on the covenant against subletting without
consent, but on the covenant against change of user without consent and the
special circumstances which are said to apply under covenant (11)(ii). The
council have not in fact satisfied me that they are considering the objections
to the user and not objections to subletting. Moreover, as my Lord has
indicated, it does not appear that they have power to take into account the use
of vehicles on the site for the purposes of subclause (11)(ii). That subclause
must, in my judgment, be narrowly construed, as it is an horrendous exception
to the preceding perfectly reasonable part and the council have never given any
indication ‘that the trade or business proposed to be carried on by the
subtenant is considered by the council to be one which would be in conflict
with the corporation’s interpretation of good estate management’. They have, as
I said, rejected three proposals altogether and the only reasons they have
given are those that are not relevant to the trade or business proposed to be
carried on but relevant to the idea which the council have obstinately
persisted in ever since they quarrelled with the tenants; namely, that they
were going to control the number of vehicles on the site and it was their view
of the awkwardness of living on the site with a certain number of vehicles
which should prevail over those who, for the next 97 years, will be entitled in
fact to use the property.
For these
reasons, I too would allow the appeal.
Also agreeing,
MEGAW LJ said: Assuming, as I do for this purpose, that the provisions of
subparagraphs (i), (ii) and (iii) of subclause (11) of clause 2 of the lease
are valid contractual provisions, I am satisfied that the reason, and the only
reason, which was given by the respondent authority for refusing permission is
a reason which is not within subclause (11)(ii).
The
respondents themselves seek to rely upon the minute, which [recorded the
resolution of the management committee], as giving the true reason why the
respondents refused their permission. As I say, in my judgment, even if that
were to be accepted as being the true and only reason, it is not a valid reason
within the paragraph within which it is purported to be brought. But, in
addition to that, I would hold that this appeal should succeed on another
ground, that is, the ground that a reason was given in the minute [setting out
the recommendations of the estates subcommittee], which was plainly bad and
which it is quite impossible to argue was anything other than bad; that is,
that the subletting was contrary to the express wishes of the inspector on
appeal. Having regard to the documentation in this matter, documents that were
put before the learned judge in the county court by consent, it is to my mind
impossible for the respondents to say that that bad reason was not, at any
rate, one of the reasons which was in the mind of the council in arriving at
its decision to refuse consent. That being shown, the purported refusal of
consent must be a bad refusal of consent.
There are two
other matters to which I wish to refer. One is that, for myself, I find
considerable difficulty in seeing how subparagraphs (i), (ii) and (iii) of
clause 2(11) can be reconciled with the earlier provision of the same subclause
(11), the words in parentheses, ‘without prejudice to the generality of the
foregoing’. Those words apply, plainly, on a true construction, to the
preceding words ‘which consent shall not be unreasonably withheld’. It is,
therefore, there provided that nothing that follows thereafter is to prejudice
the generality of the foregoing. That would, in the ordinary sense, I should
have thought, mean that nothing that follows thereafter, whatever it may appear
to say, can be held to say that the corporation is entitled to withhold its
consent unreasonably. Yet, subparagraphs (i), (ii) and (iii), if they are to
have any meaning at all, must be prejudicing the generality of the provision
that consent shall not be unreasonably withheld. I do not purport to express
any concluded view on this matter, but it is at least clear that there are
problems in relation to the proper construction of a clause which contains two
provisions which, on the face of them, appear to be inconsistent one with the
other.
The other
matter which I wish to mention is that, in the course of the argument before
us, we were referred to a passage in Woodfall’s Landlord and Tenant
(28th ed), vol 1, on p 484, paragraph 1-1180, in which it is said: ‘The court
is not confined to reasons put forward by the landlord at or before the
commencement of proceedings’. One of the authorities cited for that is Welch
v Birrane (1974) 29 P & CR 102. That was a decision of Lawson J in
1974. At p 107 he is reported as having said: ‘It seems to me that that is
right in principle because the law does not require a landlord to give any
reasons at all and the matter can perfectly well go to trial in a situation in
which the landlord has not given any reasons for his refusal and the first time
that those reasons are heard of is in the course of the trial’.
I am not
concerned to consider the correctness or otherwise of the decision in that
case, but I would wish to make it clear that, in my view, while it may be
correct to say that the landlord is not obliged, in his letter refusing, to
give reasons for his refusal, if the matter is brought before the county court
for a declaration under the provisions of section 53 of the Landlord and Tenant
Act 1954, then the rules of the county court apply. The relevant rule for this
purpose is in the County Court Rules, Order 40, rule 20. That rule, which
appears at p 1876 of the current County Court Practice, provides for ‘An
application for a declaration that a landlord has unreasonably withheld his
licence or consent’ and says that it ‘shall be made by originating
application.’ Such application was
properly made by the applicants in this case in their formal application for a
declaration dated December 1 1978. Order 40, rule 20, then goes on in subrule
(2)(a) to say:
A respondent
who wishes to oppose the application or to dispute an allegation contained
therein shall, within 14 days after service on him, inclusive of the day of
service, file in the court office an answer, together with as many copies
thereof as there are other parties to the proceedings, specifying the
allegations which he disputes and stating the grounds of his opposition, and
accordingly the notice in Form 26 which is served on the respondent, pursuant
to Order 6, rule 4(2)(c), shall contain a notice.
and so forth.
Perfectly
properly, in this case the respondent council did serve such a pleading in the
proper form, that is, the pleading to which Sir Patrick Browne referred. When
proceedings come before the county court those are the pleadings. It is open to
the landlord, if he sees fit and has reason so to do, to apply for leave to
amend the reasons which he has set out in that pleading, in accordance with the
rules. The county court judge will then consider that application and, in the
ordinary way, if there is no prejudice to the other party or if it is a
prejudice that can be cured by adjournment or by costs, he will grant it. But I
would, as I see it at the moment, disagree with any suggestion, if it were to
be made, that, in proceedings of this nature in the county court, it is open to
the landlord, having served the notice required by the rules, materially to
depart from it, as a matter of right. It is a matter which should be dealt with
by amendment of the pleadings, in the same way as in any other proceedings in
the county court, and it would have to be dealt with in accordance with the
requirements of justice. Thus, if the tenant were to be taken by surprise by
any proposed change from the pleading, the tenant is entitled so to say and
entitled to have his objection considered.
Fortunately,
in this case that question does not arise in a practical manner, because we
have been told, and it certainly appears to be correct, that at the hearing in
the county court the tenants were prepared to allow the matter to proceed on
the basis of contentions by the landlord which were inconsistent with that
which had been formally taken in the document to which I refer as the statement
of defence. As no objection was taken by the party, who was represented by
counsel, it is not a matter of which complaint can be made here. But, as I say,
as the suggestion appears to have been made that a landlord can put forward any
arguments he wishes in the county court, in a matter of this sort, without
having pleaded them, I wish to express my present disagreement with any such
suggestion.
The appeal
was allowed with costs in the Court of Appeal and costs, agreed at £400, in the
court below. Declarations were made as sought in the originating application.
