Rent review — Hypothetical lease — Alienation clause — Conditions for assignment or underletting — Unqualified right to assign or underlet to other government departments — Qualified right to assign or underlet to others — Direct covenant with assignee or underlessee prohibiting further assignment or underletting — Application by landlord dismissed
The defendant holds two identical 25-year underleases of different parts of the Fiveways building, Birmingham; the plaintiff holds the reversion expectant to those underleases. In respect of the rent reviews for the June quarter day 1988, the plaintiff appealed the decision of the arbitrator as to the proper construction of the alienation clauses. For the purpose of determining the rent at review, a hypothetical lease had to be assumed in each case containing, inter alia, the alienation clauses in the actual underleases.
By clause 33 the defendant covenanted: “(a) Except to another Government Department or Agency not to assign underlet or part or share the possession or occupation of the Demised Premises or any part thereof PROVIDED ALWAYS that an assignment of the whole of the Demised Premises (or an underletting of the whole of the Demised Premises at the full market rent without the payment of any premium such rent not being payable more than six months in advance) shall subject as provided in paragraph (b) of this sub-clause be permitted subject to the written consent of the Landlords first being obtained (which consent will not be unreasonably withheld in the case of a respectable person). Any permitted Underlease of the Demised Premises as aforesaid shall contain (i) a complete prohibition against further underletting parting with or sharing the possession or occupation of the premises so underlet or any part thereof … In order to obtain the Landlords consent to any such assignment or underletting the Tenant shall submit to the Landlord full particulars … and in the case of an underletting a copy of the draft Underlease which shall not subsequently be varied without the consent of the Landlord … (b) Provided However that … (ii) Every Assignment or Underlease … shall contain a covenant by the Assignee Underlessee … directly with the Landlord to observe and perform the covenants and conditions herein contained including a covenant not further to assign underlet or part with or share the possession of the Demised Premises…”. The question of construction was as to the possible inconsistency between the covenant permitting assignment subject to the landlord’s consent and the direct covenant that any assignee or underlessee would have to enter into with the landlord prohibiting further assignment or underletting. The landlord contended that upon an assignment or underletting the qualified right continued notwithstanding the direct and absolute covenant against assignment or underletting any assignee or underlessee was obliged to enter into.
Held The application was dismissed.
The arbitrator was entitled to hold that the effect of the alienation clause was that the tenant was entitled to assign or underlet once, subject to the qualifications as to rent and the landlord’s reasonable consent, but that by reason of the direct covenant that any assignee or underlessee was obliged to make with the landlord, no further assignment or underletting was possible.
David Neuberger QC (instructed by Beachcroft Stanleys) appeared for the plaintiff; and Paul Morgan (instructed by the Treasury Solicitor) appeared for the defendant.
