Agreement for lease – Superior landlord’s consent — Licence – Underlease agreement requiring superior landlord’s consent by way of licence to underletting and alterations – Defendant tenant purporting to determine agreement – Claimant landlord serving notice to complete — Whether agreement requiring tripartite completion of licences before underlease binding – Claim allowed on liability
The claimant was the landlord of a commercial property. By an agreement for lease dated September 2007, it agreed to underlet the first and second floors of the property to the defendant. The consent of the superior landlord (P) was required to the grant of leases by way of a licence to underlet and to tenant’s works by way of a licence for alterations. Under clause 3.1 of the agreement, if P’s consent had not been obtained by 5 October 2007, either party could serve a written notice to the other to determine the agreement with immediate effect.
In November 2007, the defendant served a notice under clause 3.1. By that date, the three parties had executed a licence to underlet. The licence for alterations had been executed by the claimant and P, but not by the defendant; only the defendant’s signature on the licence for alterations was required to complete.
The claimant served a notice to complete on the defendant. The defendant failed to complete and the claimant treated the agreement as terminated. An issue arose as to whether the defendant was liable for breach of the agreement. The court was also asked to construe the term “superior landlord’s consent” in the agreement.
The claimant argued that the term meant that P’s unilateral consent was sufficient to effect the agreement and that entry into the licences as tripartite agreements was not necessary, although that would follow as a matter of course. The defendant argued that the words “by way of” in the definition of “superior landlord’s consent” had been included in order to provide certainty. Completion of the licences represented a certainty that could be relied on as a point in time at which it could be said that P had consented.
Held: The claim was allowed on liability.
On the true construction of the agreement, the term “superior landlord’s consent” referred to P’s consent to the agreement and not to the completion of the licence to underlet and the licence for alterations.
The court had to ascertain the parties’ intention by examining the words they used and giving them their ordinary meaning in their contractual context. It had to start with the meaning given by the parties. Effect was to be given to every word in the order in which they appeared in the clause. Words in the clause should not be added, changed, deleted or rearranged. This might become necessary at a later stage in order to make sense of the language but not until it had become clear that the language the parties used created an ambiguity that could not be solved. The court should not divine the purpose of the contract by speculating about parties’ intention. It might only be inferred from the language used by the parties, judged against the objective contextual background: Deutsche Genossenschaftsbank v Burnhope [1995] 1 WLR 1580, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 1 EGLR 57; [1997] 24 EG 122; [1007] 25 EG 138 and Multi-Link Leisure Developments Ltd v North Lanarkshire Council [2010] UKSC 47; [20110 1 All ER 175 considered.
Unless the dispute concerned a complex document that could be assumed to have been carefully drafted, detailed linguistic analysis was unlikely to yield a reliable answer. It was preferable to read the words as whole in the context of the entire document and in the light of the commercial and factual background known to the parties in order to ascertain their intentions.
In the instant case, there were clearly to be licences. However, it did not necessarily mean that the parties contemplated that consent would not exist until there were licences. The parties had reached their agreement in the form of the underlease agreement. Their intentions had been to provide for the agreement of P and not to give themselves the opportunity to change their minds about the transaction. That was the opportunity given if P’s consent was treated as being synonymous with the completion of licences by the claimant and the defendant.
It was unlikely that the parties would reasonably have understood the words used to mean that P’s consent would not exist until licences were in place. The words “by way of” showed the way in which the consent to the grant of the leases and to the tenant’s works would exist and be recorded. However, that was not inconsistent with the scheme of that part of the agreement being that consent was given to the grant of the lease and to the tenant’s works on the basis that the consent would exist and be recorded in the form of the licence to underlet and the licence for alterations.
In property contracts, parties could contemplate identifying “consent” at a stage other than that of a completed licence, without that producing unwelcome uncertainty, or a consent on which the parties could not, to a relevant commercial degree, rely: Mount Eden Land Ltd v Prudential Assurance Co Ltd [1997] 1 EGLR 37; [1997] 14 EG 130 and Aubergine Enterprises Ltd v Lakewood International Ltd [2001] 3 EGLR 71; [2001] 39 EG 141 applied.
David Mitchell (instructed by HBJ Gateley Wareing) appeared for the claimant; Nicholas Taggart (instructed by Winckworth Sherwood LLP) appeared for the defendant.
Eileen O’Grady, barrister
