Landlord and tenant — Claim for damages for breach of statutory duty under Landlord and Tenant Act 1988 — Determination of liability for failure of landlords to grant consent within a reasonable time of application for underletting
The appellant landlords hold the
reversion to a lease dated January 21 1980 held by the respondent tenants for a
term of 59 years from August 12 1978 at a rent subject to five-year reviews. In
July 1993 the landlords informed the tenants that they could not consider their
request for consent to sublet part of the property to T until a rent review
matter had been resolved. This point was not relied on at trial. By a letter
dated July 22 1993 the landlords sought an undertaking, in connection with the
application for consent, that the tenants would be fully responsible for the
landlords’ costs, agents, solicitors and other associated costs. In August the
landlords gave an estimate of their agents and solicitors’ costs of £4,500. The
landlords’ justification for withholding consent to the subletting was the
failure to receive an undertaking from the tenants to pay their costs; there
was no objection to T as a subtenant. The landlords appealed the decision of
the court below ([1995] 1 EGLR 41) that they were in breach of their statutory
duty under the 1988 Act.
accepted that it was generally reasonable for a landlord to require an
undertaking as to his costs before deciding whether to give consent to an
underletting. However the landlords acted unreasonably in relation to the form
and nature of the undertaking as to costs which it sought. They required the
tenants to be ‘fully’ responsible for ‘all’ their costs; they did not seek only
their reasonable costs.
No cases are referred to in this report.
This was an appeal by the landlords,
Davina Ltd, from a decision of Miss Hazel Williamson QC, sitting as a deputy
judge of the Chancery Division, who had given judgment on a preliminary
question of liability to the tenants, Dong Bang Minerva (UK) Ltd, on the
tenants’ application by originating the summons.
Michael Barnes QC and Gillian Carrington
(instructed by Hugh Cartwright & Amin) appeared for the appellants;
Jonathan Brock QC (instructed by Denton Hall, of Milton Keynes) represented the
respondents.
Giving the first judgment at the
invitation of Evans LJ, Sir John
Balcombe said: This is an appeal by landlords from an order made by
Miss Hazel Williamson QC, sitting as a deputy judge of the Chancery Division,
on June 8 1994*. By a lease dated January 21 1980, Harry Offer Ltd demised to
the plaintiffs, Dong Bang Minerva (UK) Ltd (‘the tenants’), a three-storey
office building known as St James’ House, Grosvenor Road, Twickenham,
Middlesex, for a term of 59 years from August 12 1978 at an initial rent of
£45,791 pa subject to review at five-year intervals. The appellants, Davina
Ltd, are the successors in title of the original landlords having acquired the
freehold reversion in December 1978. By clause 2(9)(c) of the lease the tenants
covenanted not to underlet the whole or any part of the premises without the
previous consent in writing of the landlords, such consent not to be
unreasonably withheld.
*Editor’s note: Reported at [1995] 1 EGLR
41
In mid 1993 the premises were vacant. On
or about June 24 1993 the tenants agreed heads of terms with Thyssen Lifts
& Escalators Ltd for the subletting to that company of the first floor and
a part of the second floor of the premises. On July 6 1993 the tenants’
solicitors, Denton Hall Burgin & Warrens, wrote to the landlords, care of
their agents, Angel Morgan Ltd, the relevant part of the letter being in the
following terms:
Please accept this letter as our client’s
application to sublet the first floor and part second floor premises to Thyssen
Lifts and Escalators Limited …
and the proposed terms of the subletting
are given.
We enclose accounts for the proposed
sub-tenant. We look forward to receiving the draft Licence to sublet.
On the following day Thyssen’s references
were forwarded by the tenants’ solicitors to the landlords’ agents.
There were telephone conversations
between the tenants’ solicitors and the landlords’ agents in which the
landlords’ agents were taking the point that they could not consider the
application for a licence for subletting until the rent review which was then
pending had been decided. It was subsequently conceded that that was a bad
point. So far as the relevant correspondence is concerned, Mr Bharat Amin, of
the landlords’ agents, wrote a letter to Mr De Costa of Denton Hall Burgin
& Warrens on July 22 1993, in which the point was taken, after referring to
the letters of July 6 and 7 1993:
As discussed on the telephone today, we
are unable to consider your request for subletting the above premises until the
rent review matter has been resolved … May we have your undertaking that your
client will be fully responsible for all the costs, agents, solicitors and
other associated costs.
On July 27 Denton Hall replied to that
letter making the point that the matter of the rent review was completely
separate from the tenants’ application to sublet, followed by these two
paragraphs:
I would draw your attention to the
provisions of the Landlord and Tenant Act 1988 and in particular your
obligation as Landlord not to withhold consent unreasonably. I wish to put you
on notice that unless your consent is forthcoming within 14 days of this
letter, I shall advise my clients to institute proceedings against yourselves.
Please provide an estimate of your
Agent’s Solicitor’s and your other associated costs.
Mr Bharat Amin of Angel Morgan replied on
August 5 saying that he was conversant with the conditions of the Landlord and
Tenant Act 1988 and that he had handed the papers to his legal adviser. There
then comes this paragraph:
I estimate that Agents and Solicitors,
and other related costs, will be in the region of £4,500 plus VAT.
On August 19 Denton Hall wrote to Mr
Bharat Amin and said:
With regard to the estimate of your fees,
they are unreasonable. Please provide a detailed breakdown as to how the
estimate has been reached.
That was supplied on August 26 when Mr
Amin wrote:
Thank you for your letter of 19 August
1993. I find the content of your letter threatening and extremely disturbing. I
am not prepared to tolerate your threats with regards to the issue of legal
proceedings. You are entitled to do what you see fit for and on behalf of your
client.
I strongly object to your statement that
our fees are unreasonable. The fees are based on estimated time and quality of
professional services — lease, rent etc. The make-up of the fees is as follows:
|
Legal |
£2,500 |
|
Surveyor |
£1,000 |
|
Agents |
£750 |
|
Disbursements |
£250 |
For your information, please note this
continuous correspondence is likely to increase the costs.
On September 6 Denton Hall took the point
that those fees were clearly unreasonable as this was a standard licence to
underlet. The proceedings were commenced on October 5 1993 by the tenants
issuing an originating summons seeking appropriate declarations and damages.
To complete the chronological history of
the matter, on October 13 1993 Miss Foo of Denton Hall Burgin & Warren
wrote to the landlords’ solicitors a letter which, after saying that it was
obvious that the estimated fees were far too high at £4,500, included the
following passage:
Our clients have always been willing to
pay your reasonable charges and, for the avoidance of doubt, please accept this
letter as our undertaking to pay your client’s reasonable costs in dealing with
this underletting.
The application was brought under section
1(1) of the Landlord and Tenant Act 1988 which provides, so far as material:
This section applies in any case where —
(a) a tenancy includes a covenant on the
part of the tenant not to enter into one or more of the following transactions,
that is — …
(ii) underletting, …
the premises comprised in the tenancy or
any part of the premises without the consent of the landlord or some other
person; but
(b) the covenant is subject to the
qualification that the consent is not to be unreasonably withheld…
(3) Where there is served on the person
who may consent to a proposed transaction a written application by the tenant
for consent to the transaction, he owes a duty to the tenant within a
reasonable time —
(a) to give consent, except in a case
where it is reasonable not to give consent,
(b) to serve on the tenant written notice
of his decision whether or not to give consent specifying in addition —
(i) if the consent is given subject to
conditions, the conditions
(ii) if the consent is withheld, the
reasons for withholding it.
(4) Giving consent subject to any
condition that is not a reasonable condition does not satisfy the duty under
subsection (3)(a) above… .
(6) It is for the person who owed any
duty under subsection (3) above —
(a) if he gave consent and the question
arises whether he gave it within a reasonable time, to show that he did,
(b) if he gave consent subject to any
condition and the question arises whether the condition was a reasonable
condition, to show that it was,
and this is the important subparagraph in
the context of this case:
(c) if he did not give consent and the
question arises whether it was reasonable for him not to do so, to show that it
was reasonable,
and, if the question arises whether he
served notice under that subsection within a reasonable time, to show that he
did.
The originating summons taken out by the
tenants, as amended, asked for appropriate declarations that the refusal of the
landlords to consider the tenants’ application for a licence to underlet was
unreasonable, and damages for breach of statutory duty, because by the time the
matter had come to court the proposed underletting to Thyssen had apparently
fallen through.
The landlords were taking two points
before the judge. First, that there had been no breach of statutory duty and,
second, even if there had been, no damages arose. The second question, the
question of damages, was not dealt with by the learned deputy judge. It was
left to be dealt with at a later stage. She only dealt with the question of
liability. The declaration the judge made from which this appeal is brought was
to the effect that upon the true construction of the lease and in the events
which had happened, the refusal of the landlords to consider the tenants’
application for a licence to underlet part of the premises to Thyssen was
unreasonable.
Mr Michael Barnes QC, who appeared in
this court for the landlords, in his skeleton argument submitted that the issue
before the court could be answered by reference to three questions:
(1) Is it in principle generally reasonable
for a landlord to require an undertaking as to his costs before deciding
whether or not to give consent to a subletting? Mr Barnes accepted, and Mr
Jonathan Brock QC for the tenants also accepted, that if that question was
qualified by the insertion of the word ‘reasonable’ before the word ‘costs’
there was really no issue between the parties before us. So, for practical
purposes, we do not have to consider whether, as a general principle, the
landlords were entitled to ask for an undertaking as to their reasonable costs
before deciding whether or not to give the consent. For the present purposes it
is accepted that they were so entitled.
The real issue before this court is the
second question:
(2) In the present case did the landlords
act unreasonably in relation to the form and nature of the undertaking sought?
I need not bother with his third question because it does not arise if (as in
my view it is) the answer to the second question is in the affirmative and the
landlords did indeed act unreasonably.
Before turning back to the relevant
letters, I should make reference to findings of fact by the judge which are not
in issue before us. The breakdown of the landlords’ estimate of costs included:
first, £1,000 for surveyor’s fees which it was held was, on any footing,
unreasonable, in the context of this application; £750 for the agents’ fees,
which might, or might not, be unreasonable, but probably was; and the legal
fees which were undoubtedly high. There has been no issue before us as to those
findings.
In the light of those findings, I return
to the issue which turns largely on the question, what was the effect of the
landlords’ agents’ letter of July 22 1993?
May we have your undertaking that your
client will be fully responsible for all the costs, agents, solicitors and
other associated costs?
It seems to me that as a simple matter of
the english language, particularly having regard to the words ‘fully’ and
‘all’, that this was not a request merely for an undertaking to pay reasonable
costs. It was simply, as a matter of language, a request for an indemnity as to
costs. However, I am prepared to assume in favour of the landlords in this case
that the letter might be considered ambiguous. It might be appropriate to read
it as possibly asking for no more than ‘reasonable’ costs. If that were a
possible interpretation of the letter, any ambiguity is resolved by what
happened subsequently.
When the landlords’ agents were asked for
an estimate of those costs, there was a figure provided, at that stage without
any breakdown, of a sum of £4,500 plus VAT, which was found as a fact to be
excessive, and when the breakdown eventually came it was shown to include
elements which were clearly excessive. It has been put before us that the judge
found that Mr Bharat Amin, who was not a lawyer, was acting perfectly honestly
and in good faith in giving that estimate. That is as may be. The point we have
to consider is what was the objective interpretation of the landlords’ request?
It seems to me that there can be only one possible answer. Even if, contrary to
my primary view, the letter of July 22 1993 on its simple wording was not an
unambiguous demand in effect for indemnity costs, subsequent events make it
clear that it was intended to be such. In those circumstances, I do not think
the point is answered by a reference to the fact that it was said to be an
estimate. In the context of what the objective reader would assume from the
tenor of the correspondence, it seems to me that the learned judge was quite
correct in her holding
to the form and nature of the undertaking as to costs which they sought.
That seems to me to be an end of the
matter and I would, therefore, dismiss the appeal.
Saville LJ agreed and did not add
anything.
Also agreeing, Evans LJ said: Mr Barnes QC has formulated the issues
clearly and comprehensively for us so that we can concentrate on the true
construction of two, possibly three, letters from the landlords’ agents to the
tenants. The first dated July 22 contained the landlords’ demand in the
following terms:
May we have your undertaking that your
client will be fully responsible for all the costs, agents, solicitors and
other associated costs.
For present purposes, as Sir John
Balcombe has explained, we assume that was a demand which the landlords were
entitled to make if it referred to the landlords’ reasonable costs. The second
letter, dated August 5, contained an estimate in response to the tenants’
request:
I estimate that Agents and Solicitors,
and other related costs, will be in the region of £4,500 plus VAT.
The third letter, if relevant at all, was
in the following terms:
I strongly object to your statement that
our fees are unreasonable. The fees are based on estimated time and quality of
professional services — lease, rent etc. The make-up of the fees is as follows:
and the figures quoted by Sir John
Balcombe.
Mr Barnes’ underlying submission is that
the first letter contained a proper demand for an undertaking that the
plaintiffs would pay the defendants’ reasonable costs and no more. The words
‘fully’ and ‘all’ militate against that submission. Even if the demand were so
limited, what was the position after the second letter was received? The
landlords could have said: ‘This is our estimate of the costs, but all that we
want is your undertaking to pay reasonable costs’. They did not say that. They
gave the impression that they were insisting on an undertaking that the tenants
would pay all their costs which they estimated at the figure given and which
the learned judge found was unreasonably high. The word ‘reasonable’ was never
used in this exchange. If regard is had to the third letter, then the same
question was reinforced.
In my judgment, it was a proper
interpretation of the defendants’ agent’s correspondence. The plaintiffs were
entitled to place the interpretation, which apparently they did, on the
defendants’ correspondence and the defendants are unable to say that the
plaintiffs had refused or failed to respond to a proper demand. For those
reasons, I agree that this appeal must be dismissed.
Appeal dismissed.