Landlord and tenant — Lease of flat and maisonette containing covenant not to assign without landlords’ consent in writing — Under section 19(1) of the Landlord and Tenant Act 1927 the covenant was deemed to be subject to a proviso that such licence or consent was not to be unreasonably withheld — Important decision of Court of Appeal reviewing authorities — Guidance as to grounds on which it may be reasonable for a landlord to refuse consent — Criticism of a passage in Woodfall as stating the law too widely — No case in which it has been held reasonable for a landlord to refuse his consent for the purpose of destroying the lease or merging it on terms with another lease in the same building, even if this would probably be good estate management and of pecuniary advantage to the landlord — In the present case the tenant assigned her tenancy to the defendant (the present appellant) after having been refused consent to the assignment on the ground that it was not the landlords’ policy to permit assignments of residential premises — The judge found, however, that the landlords had been influenced by the prospect of obtaining surrenders of the defendant’s tenancy of the flat and maisonette and also of the tenancy of the restaurant, with a view to granting a single tenancy of the whole building to the restaurateurs — Held, allowing appeal from decision of county court judge, that the landlords were not entitled to refuse consent in order to achieve a collateral purpose, namely, the furtherance of their investment plans, which was wholly unconnected with the terms of the lease — The fact that the purpose was in accordance with good estate management did not make the refusal reasonable — Comments on relevant date for considering whether refusal unreasonable
This was an
appeal by Peter Moss, assignee of a tenancy of a flat and maisonette at 169
Fortess Road, Tufnell Park, London NW5, from a decision of Judge Warde, at
Bloomsbury and Marylebone County Court, in favour of the landlords, Bromley
Park Garden Estates Ltd. The landlords, in the county court proceedings,
claimed possession of the demised premises on the ground that the assignor had
been guilty of a breach of the covenant not to assign without the landlords’
consent. This was alleged to constitute a breach also on the part of the
assignee, who, by the assignment, had assumed the assignor’s obligations.
Stephen Sedley
(instructed by Seifert Sedley & Co) appeared on behalf of the appellant; R
W Belben (instructed by Slowes) represented the respondents.
Giving
judgment, CUMMING-BRUCE LJ said: This appeal raises an issue of some general
importance, because the submission of Mr Sedley, on behalf of the appellant,
raises the point that the learned judge was misled when he followed a passage
in paragraph 1-1181 in Woodfall’s Landlord and Tenant 28th ed. Mr Sedley
submits that that passage is expressed too widely and requires qualification
and that the judge fell into error because he did not appreciate that the
authorities did not support the proposition as stated in Woodfall.
For the
reasons that I shall explain, I accept that criticism of Mr Sedley of the way
in which it is concisely expressed by the editors of Woodfall and was
expressed by the judge.
On May 11 1978
St John’s College, Cambridge, granted to one Brown a lease for a term of three
years from March 25 1978 of a flat and maisonette at 169 Fortess Road, Tufnell
Park, London NW5, at a rent of £400. In the lease there was a tenant’s covenant
not to assign without consent in writing of the landlords. There was no full
repairing covenant, but a tenant’s covenant to keep the interior of the demised
premises in complete repair.
By section
19(1) of the Landlord and Tenant Act 1927 the covenant in the lease is ‘deemed
to be subject to a proviso to the effect that such licence or consent is not to
be unreasonably withheld’.
By an
endorsement dated March 25 1978, Brown assigned the tenancy agreement to
Madelene Wynn Higgins. She was the daughter of the servant of Cluttons, who managed
this estate business of St John’s College. No 169 Fortess Road was a building
which, at the date of the grant, consisted of a restaurant on the ground floor
let by St John’s College to three persons called Mutti for a term of 15 years
from September 29 1975.
On October 6
1978 St John’s College conveyed to Bromley Park Garden Estates Ltd, the
plaintiffs in these proceedings, no 169, subject to the tenancy of Miss
Higgins, then described as 169A, and subject to the tenancy of the ground-floor
restaurant held by those tenants. No 169 was one of 50 properties conveyed,
five of which had lettings of the upper parts separate from the ground floor.
At a date not
in evidence the lease of the shop was assigned by Mutti to two gentlemen called
Vincenzo and Di Palma, who traded there thereafter, in the restaurant, under
the name of ‘Spaghetti House’.
When her term
had some eight months before expiry Miss Wynn Higgins wanted to leave the
premises — her flat and maisonette — and assign it. The correspondence shows
that, before she approached the defendant in these proceedings, she had offered
an assignment to Di Palma, one of the tenants of the restaurant, but he then
refused the offer because they could not agree terms. So one comes to
correspondence beginning on August 30 1980.
I read and
incorporate in this judgment the following letter:
Dear John,
RE: 169A Fortess Road, As discussed between us some while ago, I have on behalf
of Madelene agreed to assign the Tenancy to Mr Peter Moss who is a barrister. A
Bankers’ reference is enclosed but please feel free to obtain one through
proper channels of your own. I am obtaining two more references which I will
send on to you. I shall be glad to have your consent and am definitely certain
Mr Moss will make a good tenant. I have previously explained the reason to you
as to why Madelene wants to make a move. Yours very truly, Brian Wynn Higgins.
I also read
and incorporate the answer, dated September 4 1980:
Dear Brian, Tufnell
Park (NW5): 169A Fortess Road, Thank you for your letter of August 30 and
for enclosing a Bank reference in respect of a Mr Peter Moss. Despite your
first paragraph, I must tell you that this is the first intimation I have of a
wish on your part to have your daughter assign her Lease to Mr Moss. My clients
are not in the habit of permitting assignments in respect of residential
tenancies, and you and I have discussed this aspect on previous occasions. If
your daughter wishes to vacate then she must surrender her Lease to the
freeholder. Mr Moss can by all means communicate directly
granted to him. In this event your daughter might perhaps be able to obtain a
consideration from him for her chattels. Please let me know the intentions of
your daughter, by return. Yours sincerely, John B Broomfield.
I read the
letter from the defendant to Mr John Broomfield:
Dear Sir, As
I believe you have already been informed by Brian Wynn Higgins, I am interested
in taking the assignment of the remainder of the lease of this flat. It has not
been made clear to me exactly what the situation is, and it has been suggested
that I should accordingly get in touch with you. Therefore, pursuant to clause
2(5) of the lease I ask the landlords’ consent to the proposed assignment. If
it is felt that such consent cannot be given I would greatly appreciate it if
you could give me the reasons for this. If it will help at all I would be happy
to furnish you with any character references you may need. I look forward to
hearing your reply and remain Yours Sincerely, Peter Moss.
I read and
incorporate Mr Broomfield’s answer to the defendant dated September 12 1980:
Dear Sir, Tufnell
Park (NW5): 169A Fortess Road, Thank you for your undated letter posted on
September 10 last. We act on behalf of the freeholder of the above property.
Whenever our clients create an unfurnished regulated tenancy letting, they do
so to the specific individual named within the tenancy. Should that tenant
decide at any time that the accommodation is no longer required, then our
clients expect the premises to be returned to them in reasonable condition.
Thereafter, they will consider any application for a new letting which might be
received. The position as explained above applies to the accommodation leased
by our client here to Miss Wynn Higgins. Yours faithfully, John Broomfield
& Company.
I also read Mr
Brian Wynn Higgins’ letter to Mr Broomfield dated September 12 1980:
Dear John,
Thank you for your letter. I am asking Peter Moss to ring you direct. It has
been intended to assign the lease for sometime since I spoke to you when Mr Di
Palma wanted it. I do not see that your clients can have any objection to it,
nor have you given me any reason for objecting to it. However, no doubt you
will let me know what transpires between you and Peter Moss. Sincerely Brian
Wynn Higgins.
Finally, I
read the letter of Mr Broomfield to Mr Wynn Higgins, wherein he refused to
assign to any other party, but required surrender of Miss Wynn Higgins’
tenancy, dated September 16 1980:
Dear Brian, Tufnell
Park (NW5): 169A Fortess Road, Thank you for your letter dated September 12
last. I have received a communication recently from Mr Moss, and have replied
to him. I do not wish you to be under any misapprehension as to my clients’
intentions, or to find that the correspondence becomes prolonged. It must be
clearly understood, therefore, that under Clause 2(5) of the Lease which your
daughter now holds by way of an Assignment, my clients will not agree to the
Assignment of the tenancy of the flat to any other party. Should your daughter
now wish to vacate the accommodation, therefore, I call upon you to hereby
surrender the tenancy of same, which in any event is due to expire on March 25
next year. Yours sincerely, John B Broomfield.
The reason
given throughout the correspondence by Mr Broomfield on behalf of the
plaintiffs was that it was the plaintiffs’ policy not to permit assignments of
residential tenancies. They required surrender instead. Taking the view that
this was an unreasonable refusal, Miss Wynn Higgins on September 17 1980
assigned her interest to the defendant, as she was entitled to do having regard
to the view that she took of the unreasonable quality of the refusal. On the
same day the defendant gave notice of the assignment to the landlords. This was
followed on October 3 with the landlords’ formal notice to the assignee of breach
of covenant, requiring him to remedy the breach.
On November 17
1980 the plaintiffs issued a plaint, being a plaint for possession of the
demised premises, with the particulars of claim, founding the claim for
possession upon the assignor’s breach of covenant which was also a breach by
the assignee who, by the assignment, had assumed the obligations of the
assignor owed to the landlords.
On October 1
1980 the defendant moved in. On March 21 1981, on his behalf, his solicitors
filed a defence and counterclaim. In those pleadings the defendant pleaded
that:
By a letter
dated August 30 1980 the plaintiffs’ consent to the said assignment was sought
by the previous assignees and on September 4 1980 the plaintiffs, through their
agents, refused to give consent stating, inter alia: ‘My clients are not in the
habit of permitting assignments in respect of residential tenancies.’
The defendant
pleaded that the withholding of the consent by the landlords was unreasonable.
The hearing
took place in the Bloomsbury and Marylebone County Court before His Honour
Judge Warde. Evidence was given on behalf of the plaintiffs by Mr John
Broomfield, who was managing the property on behalf of the landlords. Evidence
was given by Mr Moss, the defendant, and the judge had the correspondence
before him.
The evidence
of Mr Broomfield at the hearing was to the effect that the covenant against
assignment without the consent of the landlords was a covenant which had not
been in the interests of the then landlords, St John’s College, Cambridge. He
said that his clients were not in favour of multiple occupation lettings as the
investment value of that type of letting was not such as to enhance their
financial interests. He said it was much against the landlords’ interests to
grant assignment of the lease. In cross-examination he said that he accepted on
behalf of the plaintiffs the bankers’ reference of Mr Moss in relation to a
rent of £400, but he was concerned that in the proceedings the defendant was
legally aided and he had doubts whether the defendant could meet a rent of
£1,000 which might be the registered rent if a tribunal were asked to make a
decision about it. He said that he had no knowledge of Mr Moss and nothing
against him. He said that the proposed assignment, which the plaintiffs might
have contemplated, to Di Palma, the restaurateur on the ground floor, would
have been on condition that Di Palma surrendered both tenancies. He said that
he recollected discussing figures with Di Palma in the previous year, 1980, and
he said that in the new lease which the landlords contemplated granting there
would be new covenants imposing upon the tenant a full repairing obligation. He
said that he last saw Mr Di Palma in January 1981, when Mr Di Palma said that
he was interested in the lease of the whole property.
The evidence
of the defendant before the judge was to the effect that he had seen the
correspondence between Mr Wynn Higgins and Mr John Broomfield, but he had moved
in as no reasons which could be valid reasons had been given for refusing
assignment. He had the impression that Mr Di Palma was not interested in the
offer suggested by the landlords, because the landlords were, he thought,
asking too much and he frankly gave evidence of his financial position. The
judge adjourned the proceedings till June 8 in order to enable Mr Di Palma to
come and give evidence of his intentions. In the event Mr Broomfield gave
further evidence of an agreement that he had very recently made with the
tenants of the restaurant for a new lease of the whole building with a full
repairing covenant. He produced the agreement and a draft lease and a vital
term was that the restaurateur on any assignments agreed to surrender both
leases in consideration of obtaining a new lease of the whole building. He said
that when consent was refused in September 1980 he was not negotiating with Di
Palma to take over the whole building, but he now objected because of Di
Palma’s interest. After the application for assignment had been made he
intended to see if the ground-floor tenants were interested in the lease of the
whole building, and before the last hearing he had had an indication that that
would be the case.
In his
judgment the learned judge began by referring to and quoting two passages from Woodfall.
One was to the effect that the court was not confined to reasons put forward at
or before the commencement of proceedings but could take account of new reasons
different from any reasons formerly given right up to the time of judgment. If
between their initial refusal and the hearing the landlords had pursued the
matter and decided that they had new reasons, it was open to them to prefer
those reasons in evidence for the consideration of the court.
The judge then
held that he was satisfied on the evidence of Mr Broomfield, whom he found
genuine and frank, that when the application had first been made he had
stalled, his purpose being to get a new tenancy by achieving surrender of the
leases of the residential part at the top of the building and of the lease of
the restaurant on the ground floor. He held, following the statement in the
textbook to which I have referred, that he was satisfied that the landlords
were genuinely of the view, and reasonably of the view, that the course that
they were pursuing and their reasons for withholding the consent to the
assignment proposed by Miss Wynn Higgins was in the interests of the proper
management of their estate. He held that at the date of the hearing, which was
the effective date for determining whether the refusal was reasonable, the
landlords had been reasonable as they had a positive opportunity to let the
whole premises as a single building so that they would get an increased rent,
full repairing covenant and enhance the capital value
of their interest.
Mr Sedley
submitted that the learned judge was wrong on two issues: first, accepting all
the judge’s findings of fact, he submitted that those facts as found by the
judge still constituted an unreasonable withholding of the consent; the second
issue, Mr Sedley submitted, was whether in an action for breach of covenant, as
compared to an action by the plaintiffs for a declaration, the landlords,
having given some reasons, could at the hearing rely on other reasons which
existed on September 17 1980, but which had not been disclosed to the opposite
party — in the pleadings, in the action or at all — until the hearing, and even
then some material facts were not proved until after the adjournment to June 8.
On the first
of these issues Mr Sedley submits that the statement in Woodfall at p
485 of the textbook is too wide. The statement which he criticised was this:
A refusal of
consent or licence will generally be considered unreasonable if it is on a
ground having no reference either to the personality of the proposed assignee
or to the effect of the proposed assignment (or under-letting) on the user and
occupation of the demised premises or kindred matters arising either during or
after the tenancy. This statement of principle should be regarded however
rather as a guide than as a rigid doctrine; it is considered that a landlord
may reasonably be influenced in his decision by considerations of the proper
management of the estate of which the demised property forms part.
Mr Sedley
accepts that the landlord has only to consider his own interests and in
pursuing those interests he may withhold consent if, by giving his consent, he
apprehends that he will cause detriment to the interests granted or reserved to
him by the lease, whether by reference to the personal or financial
characteristics of the intended assignee, or by reference to the anticipated
adverse effect upon the landlord’s interests of the user of the premises by the
intended assignee. It is submitted that the landlord is unreasonable if he
withholds consent in order to obtain a new advantage which he does not enjoy
under the lease. The judge, Mr Sedley says, was wrong because the advantage
that he found to have been proved was quite outside the interest granted or
reserved by the lease.
Mr Belben
contested this proposition. He relied upon a passage in the judgment of Pollock
MR in Houlder Bros & Co Ltd v Gibbs [1925] 1 Ch 575 at p 583.
He points to the decision and judgments in Governors of Bridewell Hospital
v Fawkner (1892) 8 TLR 637 and Premier Confectionery (London) Co Ltd
v London Commercial Sale Rooms Ltd [1933] Ch 904. He relies upon Re
Town Investments Ltd Underlease, McLaughlin v Town Investments Ltd
[1954] Ch 301, a decision of Danckwerts J, and West Layton Ltd v Ford
[1979] QB 593.
A convenient
starting point from which to consider the issue is Lehmann v McArthur
(1867) 3 Eq 746. The landlord there withheld licence to assign to a person
wholly unobjectionable, his object being to get a surrender of the lease for
the purpose of rebuilding. V-C Sir John Stuart said, at p 751:
This is a
purpose not contemplated by the lease. The lease by Shakerley is a demise unto
McArthur, his executors, administrators, and assigns, and this entitled him to
assign to another person, if there should be no reasonable ground, within the
terms of the covenant, on the part of Shakerley for refusing his licence. The
question now is, whether or not there was any power in the lessor, who has
contracted to allow his lessee to assign where he might reasonably assign, to
refuse to allow the lessee to assign at all, because he wishes him to give up
the lease, and himself make a new bargain with the lessee. In my opinion, no
lessor has a right to use a stipulation in a covenant of this kind, so as to
defeat the right of the lessee to assign, where the assignment or agreement for
an assignment has been honestly made.
Then in 1896
in Bates v Donaldson [1896] 2 QB 241 at p 247, Smith LJ in his
judgment expressed his view in a passage which in this court was later
preferred to the judgment of Kay LJ. Smith LJ said:
Now, when the
lessor granted the lease he parted with his interest in the premises for the
entire term. The tenant during that term can assign to any respectable and
responsible assignee — in which case the lessor is bound not to unreasonably
withhold his permission. It is not, in my opinion, the true reading of this
clause that the permission can be withheld in order to enable the lessor to
regain possession of the premises before the termination of the term. It was in
my judgment inserted alio intuitu altogether, and in order to protect
the lessor from having his premises used or occupied in an undesirable way or
by an undesirable tenant or assignee, and not in order to enable the lessor to,
if possible, coerce a tenant to surrender the lease so that the lessor might
obtain possession of the premises, which was the reason why in the present case
the assent was withheld.
I come to 1925
when, in Houlder Bros & Co Ltd v Gibbs [1925] 1 Ch 575, the
question was whether it was reasonable to withhold consent because the proposed
assignee would leave the adjoining premises leased by the same landlord to take
possession of the assigned premises, in circumstances in which the landlord would
have difficulty in letting the premises left by the proposed assignee. At p 583
Pollock MR expressed his view:
For my part, I
agree with A L Smith LJ, and I think that one must look at these words in their
relation to the premises, and to the contract made in reference to the premises
between the lessor and lessee; in other words, one must have regard to the
relation of the lessor and lessee inter se, or, perhaps one may add, to
the due and proper management of the property, as in Governors of Bridewell
Hospital v Fawkner. The latter case is an illustration of a
withholding of consent on broad grounds bearing upon the estate of the lessor,
or it may be on grounds which are important between the lessor and other
lessees of that property, or that estate, of which the lessee had cognizance.
But I do not think the words of the covenant can be so interpreted as to
entitle the lessor to exercise the right of refusal when his reason given is
one which is independent of the relation between the lessor and lessee, and is
on grounds which are entirely personal to the lessor, and wholly extraneous to
the lessee. As an illustration of what I mean I refer to Young v Ashley
Gardens Properties Ltd [1903] 2 Ch 112 where a condition was imposed, or
attempted to be imposed, by the lessor, not in reference to the relation
between himself and the lessee, nor in relation to the property which was the
subject of the lease, but one which was wholly personal to the lessor himself,
whereby he attempted to obtain immunity from possible increase in the rates.
In the
present case the lessor has frankly avowed that there is no objection to Roneo,
Ld, as a respectable and responsible person or corporation, and that the sole
reason operating upon his mind is something extraneous to the relation of
landlord and tenant, something extrinsic from the lessee, and something which
is wholly personal to the lessor. To hold that such a reason absolved the
lessor from the duty of giving his licence to an assignment under the terms of
the covenant would, in my opinion, be to give far too wide an interpretation to
the word ‘unreasonably’, and to be going beyond the cases. While I think it is
impossible to give an exact definition which will fit all cases, I prefer the
reasoning which is stated by A L Smith LJ in Bates v Donaldson
[1896] 2 QB 241, which I think has been followed by Tomlin J. I agree,
therefore, with the decision which Tomlin J has reached. For these reasons I
think the appeal must be dismissed with costs.
I refer also
to the judgment of Warrington LJ, at p 585:
The first
question that arises is: What is the inference to be drawn as to the intention
of the parties in inserting in the lease a provision of this kind? What was the danger which the lessor
contemplated, and against which the lessee was content to allow the lessor to
protect himself? It must, of course, be
borne in mind that without this covenant the lessee would have had a free right
to assign to whom he pleased the premises comprised in the lease, and the
covenant, therefore, was inserted first as a protection of the lessor, and,
secondly, the proviso was attached to it in order to prevent the lessor making
an unreasonable use of that protection.
Now, what is
to be inferred from what may be treated as having been in the contemplation of
the parties when the contract was made?
I think it must be, as I have said, that it was intended to protect the
lessor as against a lessee, who, although respectable and responsible, might
well be reasonably objectionable in other ways, and, secondly, from the point
of view of the property, to prevent the lessor from having to accept a lessee
whose user of the property might again be reasonably objectionable. The user of
the property to be reasonably objectionable need not necessarily be
objectionable to the lessor as lessor of that particular property. The user of
the property might damage the lessor in other ways, and if it did, then an
objection to that user would be reasonable; but whichever way it is looked at,
I think you must find in the objection something which connects it either with
the personality of the intended assignee suggested as the new tenant of the
property, or with the user which he is likely to make of the property to be
assigned to him.
When you look
at the authorities — I do not propose to go through them — this, at any rate,
is plain, that in the cases in which an objection to an assignment has been
upheld as reasonable it has always had some reference either to the personality
of the tenant, or to his proposed user of the property. The case which was,
perhaps, most relied upon by appellant was that of Governors of Bridewell
Hospital v Fawkner [1892] 8 TLR 637 because what was there
apprehended was damage to the lessor in respect of other property of his; but
the damage which was apprehended would have resulted, if it resulted at all,
either from the personality of the proposed assignee, who was the General of
the Salvation Army, or from the user to which he was likely to put the
property, so that it fell within the limitation which I have suggested.
I quote also
from the judgment of Sargant LJ at p 587:
In the
present case Mr Stamp has shown in his able argument that it is not necessary
for the success of the respondent that the operation of the covenant should be
limited even to the extent laid down by A L Smith LJ; because Mr Stamp points
out that not only is the reason given here something that is not in relation to
the use or occupation of the premises, or to the personality of the tenant, but
that the reason has nothing whatever to do with the subject matter
of the demise. I was very much impressed by his argument that in a case of this
kind the reason must be something affecting the subject matter of the contract
which forms the relationship between the landlord and the tenant, and that it
must not be something wholly extraneous and completely dissociated from the
subject matter of the contract. It is to be noticed that under the statute 32
Hen 8, c34, on an assignment or conveyance of a reversion on a lease, the
relationship between landlord and tenant is completely transferred to the new
parties. The result of the appellant’s view would be that, as the personality
of the lessor varied, so the reasons for refusing or withholding the consent to
the assignment of the lease might vary, if those reasons might include any
circumstance that happened for the time being to affect the pecuniary interest
of the lessor.
This brings me
to 1979, when in West Layton Ltd v Ford [1979] QB 593, Roskill LJ
repeated what Sir John Stuart V-C had said in 1867, and added:
I think that
the right approach, as Lord Denning MR suggested in the Bickel case
[1977] QB 517, is to look first of all at the covenant and construe that covenant
in order to see what its purpose was when the parties entered into it; what
each party, one the holder of the reversion, the other the assignee of the
benefit of the relevant term, must be taken to have understood when they
acquired the relevant interest on either side.
The cases on
which Mr Belben relied on behalf of the plaintiffs were, with one exception,
cases which prove on analysis to be cases in which the reason of the landlord
for withholding his consent was because he apprehended that the prospective
user of the parcels after assignment would have the effect of injuring his
interests, albeit they might be consequences suffered by him in neighbouring
property. The landlord reasonably apprehended that the consequence of the
assignment would damage his interest in neighbouring property; an example is
the Bridewell Hospital case. The effect of the anticipated activities of
the assignee upon the neighbouring property of the landlord caused reasonable
apprehension to the landlord: so, too, in the case in which the expected
activities of the assignee would produce adverse consequences upon the trade
and rental of a shop which also was held from the same landlord.
One can
distinguish the uncovenanted advantage sought to be gained by the landlords in
this case by refusing to honour the right of the tenant to assign. The only
case that does not have this characteristic is Tredegar v Harwood
in their Lordships’ House, [1929] AC 72. That case was quite different. Their
Lordships distinguished the covenant in that case from a covenant to assign as
between landlord and tenant. They distinguished the Houlder case
without, as I see it, expressing dissent, and, even if that is not a correct
reading of the speeches, those observations would in the circumstances — they
are entitled to great respect — be obiter.
Mr Belben
submitted that the withholding of consent had as its object and consequence a
return of the premises to unified possession which he described as the status
quo, but he could not bring his suggested status quo within the
contemplation of the parties to the grant to Miss Wynn Higgins or Brown, as the
shop was then used as a restaurant by the Muttis and there was no evidence of
the date when the whole house had last been in single occupation. I would therefore
hold that the statement in Woodfall’s textbook is misleading, and its
reference to good estate management as a valid reason for withholding consent
is altogether too wide; it does not represent the true effect of the judgments
in the cases to which I have referred.
The reason
described by Mr Broomfield in evidence, and accepted by the judge as his ground
for decision, was wholly extraneous to the intention of the parties to the
contract when the covenant was granted and accepted. That reason cannot be
relied upon merely because it would suit the landlords’ investment plans or
their purpose in obtaining from Miss Wynn Higgins the surrender of her lease.
It may well enhance the financial interests of the landlords to obtain a single
tenant holding the whole building on a full repairing covenant with long-term
capital advantage when they put the building upon the market, but that
intention and policy is entirely outside the intention to be imputed to the
parties at the time of the granting of the lease to Brown or the assignment to
Miss Wynn Higgins. That being my view, I find it unnecessary to decide the
second issue raised on behalf of the appellant which is: how far, in the light
of the reasons given in the correspondence for the refusal, it was open to the
landlords at the hearing of their claim, founded on a breach of covenant
committed on September 17 1981, to give evidence of other unpleaded grounds for
withholding consent. The authorities on this issue are not altogether easy to
reconcile. It is a problem of some difficulty which is best left for decision
in a case in which it is necessary to decide it.
There are two
subsidiary points referred to by the learned judge. The lease to Brown and the
assignment to Miss Wynn Higgins had curious features. The rent was so low as to
be described by Mr Broomfield in evidence as a gift and the lady was the
daughter of the man in Cluttons who was handling on behalf of St John’s
College, Cambridge, the business of the sale of their Tufnell Park estate to
the plaintiffs. The original lease seems to have many of the characteristics of
the introduction of the fictitious John Doe, but the landlords did not seek to
set the whole transaction aside. The grantor, St John’s College, agreed to
grant the first tenant, or Miss Wynn Higgins if they knew of her existence, a
covenant in the form it took in the lease. Even if the lease had the special
personal character which Mr Belben attributes to it and the grantor
contemplated Miss Wynn Higgins alone as his tenant, none the less the grantor
agreed to include in the lease a covenant giving her a right to assign which,
by operation of law, was an assignment as to which the landlords were not
entitled to withhold their consent unless their reasons were reasonable. The
learned judge rightly regarded this as a peripheral matter which did not
assist. He took the same view of the plaintiffs’ attempt to fall back upon the
assignee’s financial position, first disclosed by Mr Moss when he gave evidence
candidly of his financial position and prospects when he was in the witness
box. As the judge said, there is no hard evidence. The learned judge said it
did not really influence him and there is certainly no reason to take a
different view. I would allow the appeal.
Agreeing, DUNN
LJ said: I only add a few words of my own because we are differing from the
view expressed by the learned judge.
I agree with
my Lord that the passage in Woodfall’s Landlord and Tenant at p 485,
paragraph 1-1181, on which the judge relied, states the law too widely. The
cases cited in support of the proposition as stated by Woodfall show
that, although the question of unreasonableness depends on all the
circumstances of the case, including considerations of proper management of the
estate on which the demised premises form a part, in no case has it been held
reasonable for a landlord to refuse his consent for the purposes of destroying
the lease in question or merging it on terms with another lease in the same
building, even though that would probably be good estate management and would
be a pecuniary advantage to the landlord.
In West
Layton Ltd v Ford [1979] QB 593 the proposal of the tenant had the
effect of altering the nature of the letting from a single letting of
commercial property with residential property over to two separate tenancies —
the commercial tenancy downstairs and separate residential letting upstairs.
This would have been detrimental to the landlord because the residential
tenancy would, as a result of the 1974 Rent Act, attract Rent Act protection.
Similarly, in Premier
Confectionery (London) Co Ltd v London Commercial Sale Rooms Ltd
[1933] Ch 904, although there were separate tenancies of shop and kiosk, the
lease of the kiosk had been granted to the same tenant as the lessee of the
shop. The proposal of the tenant was to assign the tenancy of the kiosk so as
to create two tenants instead of one. These would have been detrimental to the
landlords because competition from the kiosk would have been likely to affect
the rent they would be able to charge for the shop.
In both cases
the withholding of consent to the assignments by the landlord was held not to
have been unreasonable. In both cases the landlords were seeking to uphold the status
quo and to preserve the existing contractual arrangements provided by the
leases. In both cases the landlords reasonably believed that they would suffer
detriment if the assignments were made. It is true that in deciding the
question of unreasonableness the courts did not confine themselves to narrow
considerations as to the personality of the proposed assignee or the
subject-matter of the lease, as had been done in some of the older cases — and
it may be that the passage in Woodfall was intended to draw attention to
that — but there is nothing in the cases to indicate that the landlord was
entitled to refuse his consent in order to acquire a commercial benefit for
himself by putting into effect proposals outside the contemplation of the lease
under consideration, and to replace the contractual relations created by the
lease by some alternative arrangements more advantageous to the landlord, even
though this would have been in accordance with good estate management.
West Layton
Ltd v Ford shows that in considering whether
the landlords’ refusal of consent is unreasonable, the court should look first
at the covenant in the context of the lease and ascertain the purpose of the
covenant in that context. If the refusal of the
even in the case of a respectable and responsible assignee; but if the refusal
is designed to achieve some collateral purpose wholly unconnected with the
terms of the lease, as in Houlder Bros & Co Ltd v Gibbs [1925]
1 Ch 575 and as in this case, then that would be unreasonable, even though the
purpose was in accordance with good estate management.
For those
reasons and for the reasons given by my Lord, I agree that this appeal should
be allowed on that ground.
Agreeing with
both judgments in the present case, SLADE LJ said: The learned judge took the
view that the date of the hearing was the relevant date for the purpose of
considering whether or not the landlords’ refusal of consent to the assignment
of the tenancy was reasonable or unreasonable. However, in the course of
argument, it was conceded on behalf of the respondents that the relevant date
for this purpose is not the date of the hearing, but the date of the
assignment, September 17 1980, which puts a rather different complexion upon
the case.
The logic of
this concession appears to me inescapable. The fetter on the tenant’s right to
assign which was imposed by clause 2(5) of the tenancy agreement of May 11 1978
operated subject to a statutory proviso that the landlord’s consent to an
assignment was not to be unreasonably withheld. It is well settled that a
tenant holding under a lease which contains a clause of this nature is released
from such a fetter, and has the right to proceed with an assignment of his lease,
if the landlord has unreasonably refused his consent. It is of course open to
the landlord thereafter to challenge the validity of an assignment effected in
such circumstances, on the grounds that his refusal of consent was not in fact
unreasonable. However, the tenant’s right to proceed with such an assignment
would be rendered more or less nugatory if, in subsequently advancing such a
challenge, the landlord was entitled to rely on facts or considerations which
had not in any way influenced his mind at the date of the assignment, but were
mere afterthoughts. A tenant who decides to proceed with an assignment
following an unqualified refusal of consent on the part of the landlord must be
entitled to take this course in the light of the facts as they exist at the
date of the assignment. Even on this footing, he must still accept a degree of
risk in adopting this course inasmuch as he may not be aware of all the factors
which have in truth influenced the landlord in his refusal.
In the present
case, as at September 17 1980, the tenant found herself faced with an
unqualified refusal of consent, contained in Mr Broomfield’s letter of the
previous day. The only reason for such refusal which had been given by the
landlords or their agent to the intending assignor and assignee was that it was
not the landlords’ practice to permit assignments of residential tenancies. As
has been conceded before the learned judge and before this court, this was a
reason which itself constituted no valid ground for the withholding of consent.
It is hardly surprising that the tenant, when she was given one reason only why
consent had been withheld and that reason was demonstrably a bad one, decided
to proceed with the assignment.
I find it
rather more surprising that, when the landlords came subsequently to question
the validity of the assignment in such circumstances, they should be free to
rely on reasons for their refusal which had not been mentioned to the tenant or
even hinted at either before or in the letter of September 16 1980 which
contained the outright refusal. In the absence of authority, I would have
thought there was much to be said for the view that a landlord who, by stating
to the tenant one reason only for refusing his consent to an assignment — that
reason being a demonstrably bad one — provokes a tenant into assigning without
consent should not thereafter be allowed to rely on unstated reasons for the
purpose of attacking the validity of the assignment. However, authorities such
as Sonnenthal v Newton (1965) 109 SJ 333 and Welch v Birrane
(1974) 29 P&CR 102 appear to establish that the court, in considering
questions of reasonableness or otherwise in this context, is not confined to
the reasons expressly put forward by the landlord prior to the date of the
refusal.
For present
purposes I am content to assume, without deciding, that this is the legal
position, subject only to one proviso. It seems to me clear that, in so far as
landlords are allowed to rely on reasons which were not stated to the tenant,
they can only be permitted to rely on reasons which did actually influence
their minds at the relevant date — which in the present case is September 17
1980. The decision of this court in Lovelock v Margo [1963] 2 QB
786 clearly establishes that in cases such as the present the court has to have
regard to the landlord’s actual state of mind at the relevant time. The test is
not a purely objective one, though no doubt inferences may be drawn as to his
state of mind from his words and actions and all the other circumstances of the
case. It is therefore necessary to consider what were the factors which
actually influenced the plaintiff landlords in the present case, as at
September 17 1980.
The learned
judge’s findings of fact on this point in relation to this particular date are
to be found in the following sentence from his judgment:
The matters
which clearly influenced the plaintiffs were these. When the consent was
applied for, Mr Broomfield, who made a very good impression on me, as did Mr
Moss, took the view that it was not proper for him in his position to grant
consent because he felt that it was a probability, although it had not been
canvassed in depth, that the restaurateurs on the ground floor might be
interested and therefore it was improper for him to consent.
In referring
to the possible interest of the restaurateurs on the ground floor, the learned
judge was referring to the possibility that these persons might take a tenancy
of the whole of the premises. In my judgment, for the reasons given by my
Lords, these considerations which influenced the landlords’ minds constituted
no good grounds for the refusal of consent to the desired assignment. They have
not ever claimed that the assignment would actually prejudice them in any way.
All the cases relied on by Mr Belben in this context, such as Governors of
Bridewell Hospital v Fawkner and Premier Confectionery (London)
Co Ltd v London Commercial Sale Rooms Ltd and Others, were, I think,
cases where the successful landlords could reasonably have anticipated that
they would suffer detriment if the assignment were allowed to proceed. They are
therefore in my judgment distinguishable on this ground, if no other. I agree
with my Lords that the statement in Woodfall at p 485 to the effect that
a landlord may properly be influenced in his decision by considerations of the
property management of the estate of which the demised property forms a part is
too wide.
A landlord is
not in my judgment entitled to rely on a clause, such as clause 2(5) of the
tenancy agreement in the present case, for the purpose of securing a collateral
benefit such as the landlords have sought to secure for themselves in the
present case. The reason which influenced the landlords in the present case is,
in my judgment, in the words of Sargant LJ in Houlder Bros & Co Ltd v
Gibbs [1925] 1 Ch 575 at p 588, ‘a reason wholly dissociated from, and
unconnected with, the bargain made between the lessor and the lessees under the
lease that we have to consider, and is, from that point of view, a purely
arbitrary and irrelevant reason’.
For these
reasons and the further reasons given by my Lords, I agree that this appeal
should be allowed.
CUMMING-BRUCE
LJ: I did not in my judgment found any part of my decision upon any
consideration of the relevant date for the purpose of the judge’s decision as
to the facts relevant to unreasonableness. Having heard the judgment delivered
by Slade LJ, I say that I entirely agree with it.
DUNN LJ: I
also agree.
The appeal
was allowed with costs in the Court of Appeal and below. The possession order
was rescinded. Legal aid taxation was ordered.