Lease permitting underletting with landlord’s consent — Proviso that underlease to be subject to like covenants and conditions as lease — Whether proviso imposing condition precedent for landlords’ obligation to consider granting consent — Whether proposed underletting meeting proviso — Whether landlords entitled to surrender of underlease — Claim allowed
The first and second claimants, as trustees for the third claimant, owned the freehold of a warehouse. The property was let on a 25-year lease that contained, in clause 4(28), a covenant requiring the landlords’ consent to any assignment or underletting, subject to the proviso that any underletting was to be “subject to the like covenants and conditions” as the lease. The first defendant acquired the lease by assignment, pursuant to a licence to assign that had been granted by the claimants. At that date, the building was in a dilapidated state and in need of repair.
The first defendant failed to carry out the necessary works, despite service by the claimants of notices to repair. It also failed to comply with certain insuring obligations imposed by the licence to assign. It subsequently sought the claimants’ consent for an underletting to the second defendant. The claimants refused to give consent until the insurance position was settled. They also objected to a draft underlease because it did not reserve to them a right of entry to carry out repairs.
The first defendant proceeded with the underlease without the claimants’ consent. This, as granted, limited the second defendant’s repairing obligations, in that it did not oblige the second defendant to put the premises into any better condition than they were in at the date of the underlease. Although it reserved the right for the first defendant to enter and carry out repairs, it made no provision for the claimants to do so on any default by the first defendant.
The claimants brought proceedings seeking the surrender of the underlease, together with damages. They contended that: (i) the first defendant had granted the underlease in breach of covenant because the claimants had not consented to it and because it was not subject to “the like covenants and conditions” as contained in the lease; and (ii) the second defendant was party to the breach because the covenant against underletting was a restrictive covenant that bound it as underlessee, or because it had knowingly and intentionally procured the breach. The first defendant counterclaimed that the claimants had unreasonably withheld their consent to the underlease.
Held: The claim was allowed; the counterclaim was dismissed.
1. Clause 4(28), in requiring any underlease to be subject to “the like covenants and conditions” as the lease, imposed mandatory conditions that had to be satisfied. It did not merely set out conditions that the landlords could impose for giving consent; it limited the circumstances in which the tenant could properly apply for consent. In the present case, the underlease was not subject to the like covenants and conditions as the lease. The term “like” imported similarity in substance, without the need for similarity in form, detail or wording. With regard to the right of entry, there was a “like” right of entry in the underlease as in the lease, since a similar right was reserved in favour of the first defendant as was reserved in favour of the claimants under the lease; it was not necessary for the underlease to reserve a right of entry in favour of the claimants. However, the first defendant had failed to include the “like” covenant in respect of repairs, since the limitation by reference to the schedule of condition was substantial and meaningful. Accordingly, the landlords had never been under any obligation to consider the first defendant’s application for consent to underlet, because the condition precedent to the existence of that obligation had not been satisfied. It followed that the reasonableness requirements of section 1 of the Landlord and Tenant Act 1988 did not apply.
2. In order for the claimants to obtain relief in the form of an order for surrender of the underlease, they had to show that they had a cause of action against the second as well as the first defendant. It was debateable whether the prohibition on underletting in the lease was a restrictive covenant, and even if it did bind the second defendant, it only bound it not to underlet, and did not bind it, before it took the underlease, not to accept that underlease. However, the second defendant had knowingly and intentionally induced the breach of covenant by the first defendant. Accordingly, by agreeing to accept the grant of the underlease, it had committed the tort of wrongful interference with contract. The mandatory order sought by the claimants would accordingly be granted. The grant of any lesser relief would be inadequate, since the interference with their rights had been knowing and deliberate to serve the defendants’ financial interests. Damages would be awarded in addition.
Alan Johns (instructed by Pinsent Masons) appeared for the claimants; Stephen Jourdan (instructed by Dewar Hogan) appeared for the first defendant; Elizabeth Fitzgerald (instructed by Pickworths, of St Albans) appeared for the second defendant.
Sally Dobson, barrister
