Landlord and tenant — Proposed subletting of flats — Whether landlords’ consent to sublettings had been unreasonably withheld — Possible risk of sublettings creating protected tenancies — Authorities considered — Declaration sought by plaintiff lessee — Plaintiff held a long lease, expiring in 1992, of a building consisting of a basement, ground floor and two upper floors, part of an estate of which the defendant lessors were the trustees — The plaintiff occupied the basement and ground floor and proposed to sublet the first-floor flat to his son and the second-floor flat to an old friend — Such sublettings required, under the lease, the consent of the lessors, not to be unreasonably withheld — The lessors refused consent — They had no objection to the proposed subtenants on personal grounds, but on the ground that there was a serious risk to the value of the lessors’ reversion — The risk was that if these sublettings were created one or both of the subtenants might, despite the termination of the headlease, be entitled to remain as a protected tenant under the Rent Act — The explanation of this was connected with the resident landlord provisions introduced by the Rent Act 1974 — If the plaintiff or other holder of his leasehold interest continued to be resident during the rest of the term and beyond the expiry of the subtenancies, the latter would not be protected — If, however, there was no resident landlord at any point the subtenancies would become protected — The presence of such protected subtenancies would reduce the value of the reversion, according to one estimate, by £600,000 — In view of this risk the lessors claimed that they acted reasonably in refusing consent to the sublettings
reviewed a number of authorities, some of which were concerned with changes
adversely affecting reversioners from new legislation, such as the Leasehold
Reform Act 1967 — The seven propositions mentioned by Balcombe LJ in
International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd were
noted — In the end it was a matter of weighing up all the circumstances of each
case — In the present case the lessors had a strong argument based on the risk
of a large loss if they are saddled with statutory tenants at the end of the
lease — On the other side, the loss was not certain; if the plaintiff left, the
two subtenants might want to move also; a statutory tenant was not irremovable;
the lease contemplated multiple occupation and to refuse consent would deprive
the lessee of an important part of the benefit of the lease; and there were
other arguments — On the whole, the points in favour of the lessee outweighed
those in favour of the lessors — Declarations made as sought by plaintiff
The following
cases are referred to in this report.
Bickel v Duke of Westminster [1977] QB 517; [1976] 3 WLR 805; [1976]
3 All ER 801; (1976) 34 P&CR 22; [1977] EGD 134; 241 EG 387, [1977] 1 EGLR
28, CA
International
Drilling Fluids Ltd v Louisville Investments
(Uxbridge) Ltd [1986] Ch 513; [1986] 2 WLR 581; [1986] 1 All ER 321; (1985)
51 P&CR 187; [1986] 1 EGLR 39; (1985) 277 EG 62, CA
Leeward
Securities Ltd v Lilyheath Properties Ltd [1984]
EGD 419; (1983) 271 EG 279, [1984] 2 EGLR 54, CA
Norfolk
Capital Group Ltd v Kitway Ltd [1977] QB
506; [1976] 3 WLR 796; [1976] 3 All ER 787; (1976) 34 P&CR 32, [1977] EGD
131; 241 EG 383, [1977] 1 EGLR 26, CA
Pimms Ltd
v Tallow Chandlers Co [1964] 2 QB 547;
[1964] 2 WLR 1129; [1964] 2 All ER 145, CA
Premier
Confectionery (London) Co Ltd v London
Commercial Sale Rooms Ltd [1933] Ch 904
West
Layton Ltd v Ford [1979] QB 593; [1979] 3
WLR 14; [1979] 2 All ER 657; (1979) 38 P&CR 304; sub nom West Layton v
Joseph [1979] EGD 383; (1979) 250 EG 345, [1979] 1 EGLR 59, CA
In this case
the plaintiff, George John Deverall, sought declarations in support of his
contention that the defendants, trustees of the Ilchester Estate, were
unreasonably refusing their consent to two proposed sublettings by him as
lessee of 71 Addison Road, Holland Park, London W11.
David
Neuberger QC (instructed by Fremont & Co) appeared on behalf of the
plaintiff; Derek Wood QC and Edward Denehan (instructed by Walters Fladgate)
represented the defendants.
Giving
judgment, JUDGE PAUL BAKER QC said: This is an application by Mr George John
Deverall for a declaration that the defendants, who are trustee landlords, are
unreasonably withholding their consent under the lease under which he is the
lessee, to two sublettings of different parts of the subject premises. Those
premises are a large private house, 71 Addison Road, Holland Park, London W11.
It consists of a basement floor, a ground floor and two upper floors — the
first and second floors. It is part of the Ilchester Estate and, as I have
mentioned, the four defendants are the trustees of that estate and the
landlords.
The lease
under which Mr Deverall holds is dated June 23 1969. It was made by the then
trustees (including some of the present defendants, but that is of no
importance) and Mr Deverall. He has been the lessee throughout. It leased the
premises in consideration of a premium of £4,200 and a rent which went up, I
think, at at least one stage but is currently £600 a year. It leased those
premises to Mr Deverall for the period of 24 years from midsummer 1968 and
therefore will expire at midsummer 1992. From now it has just over four years
to go.
The lease is
in a fairly standard form for a residential estate, but there are three clauses
to which I must refer specifically. They are the clauses which regulate the
assignment of the lease and underlettings and the use of the premises. The
first clause is clause 2(16), which is one among the tenants’ covenants and is
in three subparagraphs:
(a) During the first twenty years of the Term not
to assign underlet share or part with his interest in or possession of the
demised premises or any part thereof without the consent in writing of the
Lessors previously obtained (but without prejudice and subject to the
provisions of sub-Clause (17) hereof) such consent shall not during such period
be unreasonably withheld to an assignment or underletting of the whole of the
demised premises to one respectable and responsible assignee or undertenant or
and this is
the more important and more relevant matter
to an
underletting of an authorised part of the Premises comprising either (a) The
basement and ground floor (b) The first floor flat or (c) The second floor flat
or any or either of such authorised parts to one approved respectable and
responsible underlessee.
(b) Not at any time during the last four years of
the Term to assign transfer underlet or part with the possession of the
Premises or any part thereof.
So that is an
absolute covenant and, in view of what I have just said, will shortly come into
operation. Then:
(c) To insert in every underlease of the Premises
or any part thereof for a term expiring after 24th June 1988 a covenant by the
underlessees or underlessee with the Lessors and with the Tenant not during the
last four years of the Term to assign underlet part with or share the
possession or occupation of the property comprised in such underlease.
Then going to
subclause (17):
(a) Every Underlease of the basement ground floor
shall reserve an annual rent during the whole term of such Underlease of not
less than £350.
(b) Every Underlease of the first floor flat
shall reserve an annual rent during the whole term of such Underlease of not
less than £250.
(c) Every Underlease of the second floor flat
shall reserve an annual rent during the whole of the term of such Underlease of
not less than £200.
The effect of
those provisions, and having regard to the rateable value (which I do not think
I need further notice), was this. Those rents would ensure that the rent of the
underlease was above two-thirds of the relevant rateable value. The lease as a
whole, however — and the rateable value of the whole premises taken together —
has at all material times been outside the Rent Restriction Acts.
Subclause (18)
just deals with the registration of assignments and so forth. Then (19) is a
very important subclause in the context:
(19) To use the Premises as three dwellinghouses
each in single family occupation the first of such dwellinghouses to comprise
the basement and ground floor of the premises the second of such dwellinghouses
to comprise the first floor flat of the premises and the third of such
dwellinghouses to comprise the second floor flat at the Premises.
And it is the
fact that at the time of the grant and at all material times those premises have
been divided into three self-contained flats.
I think that
is all I need notice about the lease. One sees that it contemplated multiple
occupation of those premises.
During 1980
and 1981 — the correspondence goes from June 30 1980 to December 14 1981 —
negotiations took place between the trustees’ representatives on the one hand
and Mr Deverall and his solicitors on the other for a new lease to run on after
this lease, which was due to expire in 12 years’ time, in 1992. The terms that
were then being considered were that Mr Deverall should pay a premium of
£150,000, and it was contemplated that the premises would be converted under
that new lease into a single dwelling-house of substantial proportions. I do
not need to go through these negotiations, but one can see that, for example,
in the draft lease that was travelling between the parties at the time one of
the obligations which the lessee was required to enter into was to put new
sanitary fittings throughout and new kitchen fittings on the lower and ground
floors, and remove the kitchen fittings from the first and second floors.
Those
negotiations in the end came to nothing. As Mr Deverall told me, and I have no
difficulty in accepting it, ‘The price was higher than I was prepared to pay’.
He was only in the basement and ground floor and did not want to take on the
whole house in that fashion.
There were
further negotiations. There was another attempt by Mr Deverall to see whether
he could negotiate a new lease, and they took place from April to October in
1986. Those were on the same lines except that now the price of the premium had
risen to three-quarters of a million pounds (the premium being asked), but it
was still being maintained that the proper policy and the policy that the
landlords wished to see adopted was the conversion of this house from multiple
occupancy into a single dwelling unit. Again, of course, the plaintiff says
that that was more than he could afford.
It is
suggested that the proposed underlettings, which I have now to come to, were
being used to improve the plaintiff’s bargaining position. Perhaps I can deal
with that allegation at this point. The way the landlords’ surveyor, Mr C A H
Bennett BSc ARICS, put it was this:
It is the
defendants’ view that Mr Deverall’s sole purpose in granting subtenancies to
the first and second floor flats on the terms set out in his affidavit is to
create protected subtenancies. Mr Deverall is doing this in order to secure an
advantage for himself and possibly the proposed subtenants. Mr Deverall is
either seeking to force the Estate to purchase his existing leasehold interest
at an inflated price in order that the Estate can maintain its policy of
avoiding the creation of protected tenancies, or seeking to force the Estate to
grant him a new lease of the property at a depressed premium at a time when his
present term is coming to an end.
Now I have
seen Mr Deverall and the proposed underlessees in the witness box and I have
had affidavits from them. Mr Deverall is a man, he tells me, of some 77 years
old. He is in good health for his age. His wife is somewhat younger. They live
in the basement and ground floor. He has some minority interest in a property
company. They have one son and he lives in the first floor. That is a
self-contained flat, as I have said. He is unmarried. He works with his father.
He is 30 years old and, though already living in the house, he finds the
conditions of living there — being really under the dominance of his father
both at work and at home — at his age are very difficult and demeaning for him.
He wants an independent tenancy and not simply to continue to live as part of
his parents’ household.
The other flat
is proposed to be let to a Mr and Mrs Benson. Mr Benson has been in the
diplomatic service and then later, on retirement, he became the managing
director of an aeronautical firm and is now retired. But he and the plaintiff
are very old friends, certainly for more than 40 years. Mr Benson has lost some
of his friends in Hove, where he is presently living, and wishes to move to
London to be nearer his old friend, the plaintiff. He is not as old as the
plaintiff but, of course, he is getting on in years; I think he is in his early
70s.
That is
roughly the picture, though it is all set out in affidavits. I am satisfied that
the plaintiff’s main motive is to have his old friends in his house and to keep
his son there; his son being, as I have explained, disaffected with his present
conditions. I am also satisfied that the plaintiff having been for many years
(I think over 20) in this house wishes to stay there as long as he can. I do
not find that at all surprising having regard to his age.
So I would
reject the suggestion that these are not bona fide applications. To accept it
would involve the plaintiff, his son and Mr Benson in some sort of devious
business transaction, to put it no higher. Having seen them and having regard
to the background of them which has come out in evidence, particularly that of
Mr Benson, I find that this is a perfectly straightforward bona fide application.
Leaving the
negotiations and that aspect of the matter, I must now come to the
applications. It started on January 21 1987 and, as I have said, the previous
negotiations had ended in October 1986. So I can understand the attitude of the
landlords in putting forward their suggestion that I have just dealt with, but
that is the conclusion I have come to having seen the parties. The letter of
January 21 1987 is addressed to Drivers Jonas, who are the managing agents for
the trustees. It comes from the plaintiff’s solicitors:
We act for
George John Deverall, the Lessee of the above property by virtue of a Lease
dated 23rd June 1969, and we understand that you act for the Freeholders.
Our client
and his wife are in occupation of the basement and ground floor flat and garage
and it is our client’s intention to underlet the first floor flat to his son,
Stephen Anthony John Deverall, who is 29 years of age and maintains his own
household, at a rental of £500 per annum, exclusive of rates, for the residue of
the term granted by the Lease.
You will
understand that in view of the relationship betwen our client and his son, the
rent proposed is at a modest level.
We enclose
Bank reference . . .
and so forth.
It is at a
modest level having regard to certain valuation evidence but, nevertheless, it
is above the rental levels which I noticed in the lease.
Then there was
a contemporaneous letter dealing with the other flat. The solicitors say they
refer to the first letter that I have just read.
It is also our
client’s intention to underlet the second floor flat at the above premises to
Mr and Mrs Arthur Benson of 106 Furze Court, Hove, Sussex, at a rental of
£2,000 per annum or such other rent as may be fixed by the Rent Officer,
exclusive of rates, for the residue of the term granted by the Lease.
Mr and Mrs
Benson are well known to Mr Deverall, and we enclose a Bank reference in
respect of them.
So in both
cases they applied for the consent of the landlords.
Now the
landlords here do not allege that the proposed underlessees or any of them are
objectionable on personal grounds. It is accepted that they are respectable and
responsible people. But what is said is that if they remain as statutory
tenants at the end of the term, that will seriously damage the value of the
landlords’ reversion. That is the ground on which they resist it — that if
these underlettings are granted, at the end of the term there is a risk that,
despite the termination of the headlease, one or both of them might be entitled
to remain there as a statutory tenant protected under the Rent Restriction
Acts.
In the
correspondence there is some misapprehension as to the application of the Acts
to this case. So I will not go through the correspondence on that, but counsel
(to whom I am much indebted for their arguments in the case) have made clear to
me what the precise position is. It is this. First of all, when this lease was
granted in
rateable value was too high. Second, the lettings of individual flats, if
unfurnished, would be within the Acts because the rateable value attributable
to the constituent parts of the house would be below the rateable value for
London at the time.
The third
factor is that in 1974 the system of rent control was changed in very material
respects. Furnished lettings were brought within control but there was an
exception, which applied to both furnished and unfurnished lettings, where the
landlord was himself resident in some other part of the premises. It is section
12 of the Rent Act 1977, and Schedule 2 contains additional provisions in
relation to it.
The effect of
that is that if Mr Deverall or other sublandlord continues to be resident
throughout the remainder of the term and beyond the conclusion of the
underleases, then it is clear that these underleases would not be protected as
against the sublandlord and, of course, at the conclusion of the expiry of the
headterm they would not be protected as against the head landlords. If,
however, at any point there ceased to be a resident landlord — if Mr Deverall
went out leaving his underlessees there and there was no resident landlord at
any point — then the underletting would become protected. That, I think, is
shortly the way it works. So that if Mr Deverall or a successor sublandlord had
moved out even a short time before the termination of the lease to another
residence, there is a serious risk that the undertenants would be protected as
there is no longer any resident landlord.
Now the
difference that that would make on the figures provided by Mr Bennett, which
have not really been challenged, is this. With total vacant possession at the
expiry of this lease, for another long lease going on to the middle of the next
century — I think 2040 was the year mentioned — such a lease could command a
premium of £1.5m. If it had protected tenants in the upper floors, then there
would be a very substantial depreciation. It is put as high as £600,000.
And the landlords’
position simply is this. Having regard to that risk of there being statutory
tenants at the end of the lease, they, looking to their own interests, can be
said to be acting quite reasonably in seeking to avoid the chance of that loss
at the end of the lease, which is only four years off or was five years off
when the application was made.
The situation
which I have to consider is whether, by taking that stand in the light of the
legal background and financial background that I have mentioned, the landlords’
consent is being unreasonably withheld to the underlettings of the two parts of
the premises.
That is a
situation which is not free from authority and a number of them have been
referred to me. I said that I was not going to review all the cases that I have
been shown. Perhaps I can start with those not more than 10 years old. I think
that brings me to two cases, Norfolk Capital Group Ltd v Kitway Ltd
[1977] QB 506 and Bickel v Duke of Westminster [1977] QB 517,
both raising the same point in different divisions of the Court of Appeal
virtually simultaneously. One division gave their judgment on June 30 1976, and
the other division, having heard the argument previously on June 15, gave their
decision on July 8 1976. The point was this. After the respective leases had
been granted, the Leasehold Reform Act 1967 came into force which gave certain
tenants or undertenants who complied with residential qualifications the right
to require the landlords to sell them the freehold.
In the cases,
the leases were in the hands of people who did not qualify, and the proposal
was to assign them or underlet the relevant premises to people who could be
expected to qualify in due course. The question was: were the landlords in
those circumstances justified in refusing to lease the property to them?
There is
considerable review of authority in the cases, but as far as these cases are
concerned I think I can just refer to what Megaw LJ said in the Norfolk
Capital Group case on p 511 when he considered the matter apart from
authority:
We have had
in this court careful and detailed argument, citing many authorities, put
forward by Mr Barnes, who appeared below and appears in this court on behalf of
the tenants. Before I outline the nature of that argument, I think it is right
to say this. If one were asked, without having been taken into any legal
authorities relating to the matter, whether or not, in the circumstances which
I have outlined, it was unreasonable for the landlords to refuse their consent
when the consequences of giving that consent and of the assignment being made
were likely to be that they would be deprived of their freehold interest in the
property in five years’ time, I find it very difficult to think that anyone
would find it possible to say that the landlords’ refusal was unreasonable.
However, we have to look at it in the light of the authorities . . .
Geoffrey Lane
LJ (as he then was) opened his short judgment, in the second sentence, in this
way (p 516):
There is a
world of difference between an Act which simply protects a tenant’s right to
possess and an Act which may remove from a landlord his freehold interest in
the land altogether and vest it in the tenant.
In the Bickel
case Lord Denning MR has a similar passage at p 524.
One notices,
first of all, that there was a supervening statute of a very draconian nature
which could not possibly be foreseen at the time the respective leases were
granted. That is one thing one notices about this. The other is the simple
approach of the lords justices there: one stands back and considers it from the
circumstances before one ventures into the authorities.
Next there was
another decision of the Court of Appeal, West Layton Ltd v Ford
[1979] QB 593. In this case the premises in question were the upper part of a
butcher’s shop, being the residential accommodation over the shop. The material
covenant in the lease was:
. . . not to
assign . . . underlet or part with possession of any part of the . . . premises
except a letting on a service tenancy or occupancy of the living accommodation
. . . to any employee of the lessee or on a fully furnished tenancy for which
furnished tenancy the landlord’s consent in writing shall first be . . .
obtained and [it] shall not be unreasonably withheld . . .
Now that lease
was in 1971 and at that stage fully furnished lettings were not protected under
the Rent Restriction Acts. However, in 1974, as I have already mentioned, they
did become protected, and an application was made after that date for the
landlord’s consent to such an underletting. It was held that the landlord in
those altered circumstances was justified in refusing consent. Roskill LJ had
these observations to make about it at p 605:
The landlord
has not got to consider anybody else’s interest except his own. He is the person
who has in all the circumstances to decide whether or not he will grant
consent. As Lord Denning MR said, circumstances may vary endlessly. In the
present case one of the matters which has caused a change of circumstance is
the passing of the Rent Act 1974: just as, in cases of leases entered into
before 1967, the passing of the Leasehold Reform Act 1967 altered the
background.
It seems to
me that the effect of the request which this landlord has had made to him by
the tenant is to invite him to agree to alter the nature of the property which
was being let from commercial property, namely, a butcher’s shop with
residential accommodation above, to property which would be let on a multiple
tenancy — by which I mean to more tenants or lessees than one, because there
will be not only the tenancy of the shop but also the separate subtenancy
upstairs of the residential accommodation, which would be a tenancy attracting
Rent Act protection.
So one can
understand that something quite unexpected could happen — legislation could
come along and operate distinctly adverse to the landlord’s interests.
In this case I
notice that there is no change in circumstances adverse to the landlords
occurring through the statutory provisions. It is the landlords who want to
change the character of the property from multiple to unitary occupation; it is
not that the change is being forced on them by the tenants who are taking
advantage of some changes in the law.
The next case
to which I was referred was another decision of the Court of Appeal, in Leeward
Securities Ltd v Lilyheath Properties Ltd (1983) 271 EG 279, [1984]
2 EGLR 54. This was a case where a tenant had property which, being a corporate
tenant, could not claim a statutory tenancy. They were seeking the landlord’s
consent to an underletting to an individual person whom they were rehousing on
the basis that she should get protected accommodation, she having been in
another property owned by these tenants and they had got an order for
possession based on the availability of alternative accommodation. That is, I
think, the background of it. But, of course, the importance of the matter is
the approach of the judges to this. That is to say, Oliver LJ (as he then was)
and O’Connor LJ.
One of the
factors in this case was that a new form of unprotected letting had become
available and if one wished to take advantage of the unexpired portion of the
headlease, one could have let on a shorthold tenancy which would have been
unprotected, but that, of course, would not have served the tenant’s purpose.
Oliver LJ in
his judgment at p 282 stresses the importance of looking at all the
circumstances of the case. He, having referred to some authority, including the
Bickel and Norfolk Capital cases which I have mentioned said:
It will be
observed, therefore, that Roskill LJ echoes what Lord Denning had already said,
that the circumstances may vary endlessly.
We have just
seen that dictum
I think it is
appropriate at this stage, as that has been mentioned, that I should mention
that this case is, of course, like all cases of this sort, a case which depends
necessarily on its own individual facts and in giving judgment I desire to
avoid any suggestion that I am seeking to lay down any general principle which
is applicable to cases where application is made for consent to an assignment
or subletting to a tenant who is or may be protected by the Rent Act. We have
to look at it in the context of this covenant imposed in this
lease for the last seven years of this term and in the circumstances in
which the assignment with which this appeal was concerned was made.
The emphasis
was Oliver LJ’s. Then later he says:
In my
judgment, Mr Neuberger
— he was for
the landlords —
is right in
his submissions. He submits, first of all, that in principle a landlord’s
consent is not unreasonably withheld if the reason for the refusal is one which
a reasonable landlord, taking into account his own interest, could reasonably
rely upon.
Well, once you
start speaking of reasonableness, if I may say so with respect, it brings in
all sorts of circumstances and facts that have to be weighed and considered. It
would seem clear in this case that, but for the availability of the shorthold tenancy,
their lordships would have ruled that the landlord could not reasonably
withhold consent.
Mr Wood, in
his careful submissions on this case, said that it did not break new ground (I
agree); it was important to look at the purposes and look at the type of
damages, and the emphasis (and I accept this) is that you must view the
application in the light of the then statutory law and take account of what has
happened in the meantime. It is not a question of looking at it at the time the
lease was granted, although it is relevant as one of the circumstances to look
at that, but the emphasis is to look at the whole factual situation and the
legal background at the time the application is made.
The other
point he made (and again I accept this) is that it is legitimate for the
landlord to take into account the possibility of future risks or future adverse
possibilities. And it is also relevant, he said (and I agree too), that you are
entitled to take into account the fact that there may be another way to solve the
problem without causing so much damage to the landlord’s interests as the grant
of a fully protected undertenancy would do.
The last case
which I am going to mention and the latest in point of time is the decision of
the Court of Appeal in International Drilling Fluids Ltd v Louisville
Investments (Uxbridge) Ltd [1986] Ch 513.*
This was a case where the landlords were objecting to the assignee’s
proposed user of the premises as serviced offices, although that was within the
user covenant in the lease. It was held in that case that the landlord was not
entitled to refuse consent to the assignment. I do not need to go particularly
into the facts of it for the reasons I have stated — that each case depends on
its own facts. But it is important for the survey of the principle by Balcombe
LJ, who delivered the only reasoned judgment in the matter, because he
summarises the relevant legal principles in a number of propositions. He says:
From the
authorities I deduce the following propositions of law.
(1) The purpose of a covenant against assignment
without the consent of the landlord, such consent not to be unreasonably
withheld, is to protect the lessor from having his premises used or occupied in
an undesirable way, or by an undesirable tenant or assignee.
*Editor’s
note: Also reported at [1986] 1 EGLR 39; (1986) 277 EG 62.
I do not think
that is really the relevant point of this case. There is no suggestion that the
proposed underlessees are undesirable in any sort of way, and the proposed
occupation while the lease continues is consistent with the covenants in the
lease.
(2) As a corollary to the first proposition, a
landlord is not entitled to refuse his consent to an assignment on grounds
which have nothing whatever to do with the relationship of landlord and tenant
in regard to the subject matter of the lease . . . A recent example of a case
where the landlord’s consent was unreasonably withheld because the refusal was
designed to achieve a collateral purpose unconnected with the terms of the
lease . . .
That again is
not a point, I think, that is arising in this case.
(3) The onus of proving that consent has been
unreasonably withheld is on the tenant . . .
(4) It is not necessary for the landlord to prove
that the conclusions which led him to refuse consent were justified, if they
were conclusions which might be reached by a reasonable man in the
circumstances . . .
He cites Pimms
Ltd v Tallow Chandlers Co [1964] 2 QB 547 at p 564 and was echoing what
Oliver LJ said in the case that I have just mentioned.
(5) It may be reasonable for the landlord to
refuse his consent to an assignment on the ground of the purpose for which the
proposed assignee intends to use the premises, even though that purpose is not
forbidden by the lease . . .
Balcombe LJ
expanded on that a bit in the context of the case and indeed, in doing so,
disapproved of an earlier case of Premier Confectionery (London) Co Ltd
v London Commercial Sale Rooms Ltd [1933] Ch 904. But here again the
objection in this case is not to the proposed user as such but as to the
consequences of that user following the determination of the term.
Then this is
perhaps the most important passage from the point of view of the case that I
have to decide:
(6) There is a divergence of authority on the
question, in considering whether the landlord’s refusal of consent is
reasonable, whether it is permissible to have regard to the consequences to the
tenant if consent to the proposed assignment is withheld.
Then he goes
into some authority to show that there are differences of judicial view.
Balcombe LJ at the end of this section of his judgment says:
But in my
judgment a proper reconciliation of those two streams of authority can be
achieved by saying that while a landlord need usually only consider his own
relevant interests, there may be cases where there is such a disproportion
between the benefit to the landlord and the detriment to the tenant if the
landlord withholds his consent to an assignment that it is unreasonable for the
landlord to refuse consent.
Then he ends
up with a phrase which I think is now becoming familiar from the authorities:
(7) Subject to the propositions set out above, it
is in each case a question of fact, depending upon all the circumstances,
whether the landlord’s consent to an assignment is being unreasonably withheld
. . .
Going back to
(6), I do not take Balcombe LJ to be saying that one has to balance in a
financial way the interests of the landlord on the one hand which would be
damaged by the granting of consent and the interests and the detriment to the
tenant which would be damaged if the consent is withheld. He is saying that
while the landlord’s interests are of great importance and usually all the
landlord need consider, he cannot just ignore the tenant’s interests but has to
consider those. They would include not only the financial consequences to the
tenant but other social consequences and, of course, he would have to pay
proper attention to the terms of the lease under which the tenant is holding. I
say that last particularly in regard to the fact of his remarks on the user of
the premises which I have mentioned.
Those are the
authorities and the guidance and, as I say, it ends up on the note that each
case is a question of fact depending on all the circumstances.
Now the
landlords have made an alternative suggestion in this case. I had better look
at that at this point. As I say, the proposal is for an underletting which runs
the risk, if there is no resident landlord at the end of the term, of
conferring protection extending beyond the headlease upon the undertenants so
that they would become statutory tenants.
In a recent
letter, a letter of last month, the landlords’ solicitors write as follows to
the plaintiff’s solicitors:
Our clients
are prepared to consent to your client’s subletting in one of two possible
ways. Either he can grant subtenancies direct to his son and Mr and Mrs Benson
as a resident landlord within the meaning of section 12 of the Rent Act. The
subtenancies should be limited to expire two days before the expiration of the
term created by the headlease or until your client ceases to reside in the
premises, whichever is the earlier. We would expect your client to give us an
undertaking to be contained in the licence to assign to procure vacant
possession of those flats after the expiration of the contractual tenancies
created by him as resident landlord.
Now that
suggestion, on the face of it, has considerable attraction. But when one comes
to analyse it there are certain difficulties about it. Mr Bennett in his
evidence to me — that is the landlords’ surveyor, as I have mentioned —
admitted that he had never come across any such clause or a lease on those
terms, a lease which would automatically determine if the landlord vacated
other premises. He admitted that it could be inconvenient.
Mr Benson, who
is one of the proposed underlessees, would have found it unacceptable. He says:
‘I would not accept the letter from the solicitor. I want a lease to go on to 1992
whether Mr Deverall is there or not.’
Having given
the matter the best consideration I can, I have come to the conclusion that it
is not really a viable alternative in this case and it is not reasonable to
impose such a term.
So we are left
with the application as it stands, with one small modification which everyone
agrees there should be and which was mentioned in that letter. The application
was for underletting for the residue of the term granted by the lease, but
everyone has accepted that that should be an underletting preserving (as in the
normal case) a nominal reversion to the landlords.
As I have said
at the outset, the landlords’ case is a very simple and persuasive one. It is
the loss to the landlords of £600,000 in the premium that they can expect to
get if they are left with statutory tenants at the end of the lease. And it is
said, having regard to that, both as a figure in itself and as a proportion of
the premium which can be obtained (which was about a third of the whole
premium), that it cannot be said to be unreasonable in withholding consent in
order to preserve that valuable right to them.
On the other
side, it is said, first of all, that there is not a certain loss here. It is
not like a case where the losses are inevitable. Indeed, as I would find having
listened to the evidence, the probability is that if and when the plaintiff
goes the others will go with him, having regard to their close ties: one is the
son of the plaintiff and his wife, the others are their very old friends who
have decided to make their homes together.
Second, the
mere fact of loss from being saddled at the end of the lease with statutory
tenants is not of itself sufficient to justify refusal. Otherwise, of course, a
landlord could always resist underletting where there was a likelihood or a
certainty of statutory tenants at the end of the lease.
Third (and
this I regard as of considerable importance), the lease expressly contemplated
and required multiple occupation of this house. Thus, as it seems to me, to refuse
consent is to deprive the tenant of an important part of the benefit of the
lease; not only the loss of income from the property which he can legitimately
expect to get from his lease but also the companionship of the underlessees.
Then I observe
that a statutory tenant is not irremovable; that the defendants have a
substantial estate and so possibly the provision of alternative accommodation
may be easier for them than for others.
Fourth, this
is not a case where statutes or other outside circumstances have moved against
the landlord, giving rise to unexpected burdens such as the Leasehold Reform
Act. All the changes that have taken place since the lease was granted have
been in the landlords’ favour or have been under their control. For example, when
the lease was granted underlettings which were unfurnished would immediately
attract protection; now the proposed underleases are initially unprotected.
What has
changed is the property boom, which gives an enhanced value. Of course I agree
one must look at the circumstances now, but it is not a case where the
landlords’ interest has been depreciated from what they originally expected.
That was so in the case of the butcher’s shop, for example. But the situation
here is that the landlords may not be able fully to take advantage of the
property boom.
Last, I notice
that the landlords have changed their policy. The tenant is simply seeking to
follow the original policy on which the lease was granted and he does not
require the whole house for his own occupation.
It seems to me
those arguments outweigh the very persuasive arguments of the landlords and, in
those circumstances, I shall make the declarations sought.
The plaintiff
was awarded costs.
