Two weeks
ago we dealt with a case concerning the right of a tenant to assign his lease
and we make no apology for returning to the topic, given that a number of cases
in this field have recently been reported. The problem in all three of the
cases to be dealt with in this note was the same, namely the circumstances in
which a landlord is entitled to withhold his consent to a proposed assignment.
The vast
majority of leases contain a term under which the tenant is only entitled to
assign provided he first obtains the landlord’s consent. Many such clauses
expressly state that such consent will not unreasonably be withheld, but even
where this is not the case, section 19(1) of the Landlord and Tenant Act 1927
ensures that this additional requirement will automatically be implied. It is
hardly surprising, therefore, that a considerable body of case law has built up
on the principles which should be applied when deciding whether or not a
landlord has withheld his consent unreasonably. Inevitably, many of the cases
hinge on their own facts, but every so often a decision is reached which proves
to be of particular significance. One such is the first on our list for today, International
Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd (1985)
277 EG 62.
We dealt
with the first instance decision in this case (see ‘Legal Notes’, (1985) 275 EG
1139 and although the Court of Appeal has upheld the decision, in doing so it
has reviewed the authorities in a way which will prove of considerable value to
those advising on these matters; hence our return to the case. The facts were
straightforward. The tenants under a 30-year lease of an office block wished to
assign to a company which proposed to use the premises to provide serviced
office accommodation. The user clause in the lease prohibited any use other
than that ‘as offices within the meaning of Class II of the Town and Country
Planning (Use Classes) Order 1963 with ancillary showrooms’; it was therefore
clear that the use proposed by the assignee was permitted under the lease. The
landlord’s main objection to the assignment was that the proposed use, because
it was not a conventional office use, would be less attractive to institutional
investors, with the result that the value of the reversion would be diminished.
While the trial judge accepted that the evidence provided some support for this
view, he did not accept that a diminution in the ‘paper’ value of the reversion
would, in this case, have any practical consequences, largely because the
evidence also showed that there was no prospect of the freehold either being
placed on the market or being mortgaged to its full value. He therefore found
that the refusal was unreasonable and made a declaration in the tenant’s
favour.
The Court of
Appeal, in upholding the trial judge’s conclusion, laid down the legal
principles which govern cases of this kind. These are largely restatements of
well-established legal rules, but in two instances the court has undoubtedly
clarified the law. The propositions which the Court of Appeal set out were as
follows:
(1) The purpose of a covenant in the form under
discussion is to protect the lessor from having his premises used or occupied
in an undesirable way or by an undesirable assignee. It therefore follows that
(2) a landlord is not entitled to refuse his
consent on grounds which are designed to achieve a purpose unconnected with, or
collateral to, the terms of the lease. In the International Drilling
case the trial judge clearly, and the Court of Appeal tacitly, refused to
accept any suggestion that, by refusing consent on the grounds of the proposed
use where that use was permitted by the lease, the landlord must necessarily
be taken to be trying to achieve a collateral purpose.
(3) The burden of proving that consent has been
unreasonably withheld rests with the tenant.
(4) It is not necessary for the landlord to show
that his reasons for refusing consent were justified, so long as they
could have been given by a reasonable landlord.
(5) A landlord may reasonably refuse his consent
to an assignment on the basis of the proposed user, even where that user is
permitted by the lease. The Court of Appeal in the present case did, however,
qualify this rule in an important way. First of all, Balcombe LJ remarked that,
even as it stands, the rule obviously does not mean that a landlord will
always be regarded as reasonable if he objects to a use which is permitted by
the lease. More importantly, he then went on to point out that most of the
decisions which provide support for this proposition concerned leases in which
the user clause merely prohibited certain specified uses. As he said, these are
very different from the case (as here) where only one specific use is
permitted. In his view, in this latter situation ‘it is not reasonable for
the landlord to refuse consent to an assignment on the grounds of the proposed
user (being within the only specific type of use), where the result will be
that the property is left vacant and where (as here) the landlord is fully
secured for payment of the rent’.
(6) Under this head the court considered the
extent to which it is accurate to say that a landlord is entitled to consider
only his own interests, at least in so far as these are not collateral to the
terms of the lease. As Balcombe LJ saw it, there are weighty dicta which
support the proposition as stated. However, there are also those which suggest
that where the landlord’s refusal will cause the tenant to suffer a substantial
detriment that factor must be taken into account. Again the Court of Appeal in
the present case took the opportunity to state its view clearly. This was that,
while a landlord can in normal circumstances consider only his own interests,
in those cases (like the present) where there is a substantial disproportion
between the benefit to the landlord and the detriment to the tenant, this can
be a ground for treating the refusal of consent as unreasonable.
(7) Subject to these propositions, it is always a
question of fact in each individual case whether or not a landlord’s refusal is
reasonable.
The other
two cases to which we shall now turn do not have the same legal significance
but will nevertheless be useful fodder to those involved in the task of
negotiating for licences to assign. Both show that reasons which are
essentially sound can nevertheless fail to provide a legally valid ground for
opposing an assignment.
refusal or not
In Rayburn
v Wolf [1985] 2 EGLR 235 the dispute concerned the assignment of a
99-year lease on a flat in a high-class residential block. The plaintiff tenant
had entered a contract to assign his lease to an American attorney and had also
committed himself to the purchase of a house. The landlords, who also resided
in the block, refused consent to the assignment because it was clear that the
proposed assignee intended not to reside in the flat but to sublet it. In the
landlords’ view such sublettings would give rise to management problems, as
they had in other cases, since such subtenants tended to differ markedly in
their habits and attitudes from the majority of the residents. While the Court
of Appeal accepted that this might well be a reasonable view, it was held that
it was not a valid basis for refusing consent. This was because the lease
envisaged, and indeed controlled, the granting of subleases; the mere
possibility that a sublease might be granted could not therefore be a ground
for objecting to the assignment of the lease. The landlords’ reasons
could only be relevant to the granting of a sublease if and when the time came.
The second
case, City Hotels Group Ltd v Total Property Investments Ltd
[1985] 1 EGLR 253, concerned the assignment of a lease on a hotel. Here the
tenants were seeking a declaration that they could go ahead with their proposed
assignment. In this case the landlords had never actually refused consent, but
by the beginning of March 1984 were still requesting further information about
the proposed assignee when the application for a licence to assign had been
made in September 1983. The landlords were particularly concerned that, given
that the premises consisted of a hotel, the proposed assignee would maintain
high standards of management. This, they considered, was highly relevant in
order to protect their interests on review. The tenants had, throughout, tried
to answer all the queries raised and it was clear that the proposed assignee
was a substantial company, experienced in hotel management. While the judge
accepted that inquiries designed to elicit such information were legitimate, he
considered that the form which these took and the dilatory way in which they
were handled contributed to his conclusion that it was now too late for the
landlords to raise any reasonable objections to the proposed assignment.
