Landlord and tenant — Breach of covenant against subletting — Whether restrictive covenant — Whether landlords entitled to interlocutory mandatory injunction against tenant and subtenants
By a lease
dated June 7 1990 the first defendant held a term of 54 St John Street, London
EC1, from the plaintiff landlords for 25 years. Clause 8(18) of the lease
contained a covenant by the tenant not to assign the lease without the consent
of the landlords, such consent not to be unreasonably withheld in certain
circumstances. It was a precondition of any underletting that the subtenants
should enter into a direct covenant with the landlords and that the form of the
sublease should be approved by the landlords. On July 11 1994 the tenant
executed a sublease of the premises to the trustees for the second defendants
in breach of clause 8(18). The landlords sought mandatory injunctions against
the first defendant tenant for breach of contract and against the second
defendant subtenants for inducing a breach of contract alternatively for breaching
clause 8(18) on the basis that it was a restrictive covenant binding on them.
the immediate surrender of the sublease. There was a plain breach of a
contractual obligation by the tenant. There was also a plain case of inducing
or aiding a breach of contract by the subtenants there being an agreement,
knowledge of the contractual right in question and an intent to injure the
landlord. There was no reason why a covenant against alienation could not be a
restrictive covenant; an injunction was granted on that ground as well.
The following
cases are referred to in this report.
Esso
Petroleum Co Ltd v Kingswood Motors (Addlestone)
Ltd [1974] QB 142; [1973] 3 WLR 780; [1973] 3 All ER 1057
Tulk v Moxhay (1848) 2 Ph 774; [1843–60] All ER Rep 9
This was an
application by the plaintiffs, Hemingway Securities Ltd, by motion for interim
relief against the first and second defendants, Dunraven Ltd and the trustees
for Robinson Low & Francis.
Terence Etherton
QC (instructed by Ashurst Morris Crisp) appeared for the plaintiffs; Simon
Berry QC (instructed by Hardwick & Co) appeared for the first defendant;
Marc Dight (instructed by Walker Martineau) appeared for the second defendants.
Giving
judgment, Jacob J said: I
have before me an application for interim relief by some landlords, now called
Hemingway Securities Ltd. The interim relief concerns some property at 54 St
John Street, London, in Islington. These premises were let by the landlords by
a lease dated June 7 1990 for a term of 25 years at an initial rent of £145,000
pa. The lessee was the first defendant, Dunraven Ltd, as it is now called.
The lease
contains, as is common, provisions against alienation of the lease without
certain conditions being satisfied. The particular clause is clause 8(18),
which provides as follows:
Save as
permitted by the proviso to this provision
— not, that is
to say, the lessee will not —
make or
suffer any assignment underletting sharing or parting with possession or charge
or mortgage of part only of the demised premises or suffer any person to occupy
the whole or any part of the demised premises as licensee or tenant at will,
provided that the consent of the lessor shall not be unreasonably withheld to
underletting assignment charge or mortgage of the whole of the demised premises
or the underletting of the whole of one or more individual floors of the
demised premises.
Clause
8(18)(d) contains the precondition that:
before any
underletting or assignment of the demised premises as a whole to procure that
the underlessee or assignee shall enter, prior to completion of any underlease
or assignment and as a condition precedent to the lessor giving the lessor’s
consent thereto, into a deed of covenant with the lessor containing a direct
covenant with the lessor to pay the rent reserved in this lease except in the
case of an underletting in which case the rent reserved in the underlease shall
be substituted for the rent reserved by this lease, and to observe the form of
the lessee’s covenant and the stipulations agreements provisions and conditions
contained in this lease.
This was a
precondition of a direct covenant. There were also preconditions as to the form
of the underlease being first approved by the lessor’s solicitors and a
precondition inherent in the system that there should be a request for consent
which might be granted depending on whether the request was reasonable.
On July 15
1994 the lessors received a letter from the first defendant’s solicitors, which
stated that the first defendant had sold its business as surveyors and was no
longer trading and that its former board of directors had resigned. The letter
went on to say:
54 St John
Street is presently being occupied on a short term basis by the successor to
the practice which acquired the business. Once this arrangement comes to an end
our clients will have no further requirement for the premises.
The letter was
silent as to the short-term basis. It was silent as to who the successor to the
practice was.
The true facts
emerged piecemeal. In fact, as emerged only yesterday, I think, the lessees had
on July 11 1994 executed an underlease of the premises to four individuals as
trustees for a partnership called Robinson Low & Francis, who are the
second defendants.
I cannot
understand why the letter of July 15 did not reveal that fact. It is said that
it would have been revealed in due course in negotiations, which were sought by
the letter. Even to have sprung it in negotiations would hardly have been attractive.
Manifestly, the entering into the sublease involved a breach of clause 8(18).
That is not disputed. Manifestly, the first defendant knew it was acting in
breach of that clause when it entered into the sublease. Manifestly, the second
defendants knew, when they entered into the sublease, that a breach of the main
lease was taking place.
I say the
latter not only because it is conceded but, by looking at the terms of the
sublease, one can also see that in a number of places it refers to the main lease
so that those entering into it must have had it in front of them. In
particular, there is reference, among other things, to clause 8(18).
The commercial
background to what was happening here is that the first defendant had conducted
the business of chartered surveyors and was merging its business with another
business. It seems that the new merged entity did not want these premises for
the future. For a short while they did; that is why a letter of July 15 speaks
of a ‘short term basis which may come to an end and we have no further
requirement for the premises’.
I do not know
the full details of the merger because little evidence has been filed on behalf
of either of the defendants. It seems that the second defendants are now in
possession of the premises, and I was told that they are willing to give an
undertaking to vacate those premises by the end of September.
The plaintiffs
say this is a straightforward case to which there is no defence. They put their
case in two ways: one at common law and one based upon the doctrine of Tulk
v Moxhay (1848) 2 Ph 774. I deal with the common law position first.
The plaintiffs
say here was a plain contractual obligation given by the first defendant; it
broke it; the second defendants knew that it was being broken; here is a plain
case of inducing or aiding a breach of contract, knowing that there is a
breach. I do not see any answer to that claim.
Mr Simon Berry
QC said that this was a case where in effect a conspiracy was being alleged and
it should therefore he established that: (1) there was an agreement; (2) there
was knowledge of the right in question; and (3) there was an intent to injure
the plaintiffs.
It seems to me
that, even on that analysis, all those elements are shown. Plainly there was an
agreement. Plainly there was knowledge of the rights in question; indeed, so
much was conceded. Mr Berry concentrated on an intent to injure. It seems to me
that to defy a clear contractual right of the landlords so that their
commercial position is changed is an intent to injure. It is an intent which
certainly can be spelled out in the sense that it is the natural and probable
consequence of the act concerned.
I therefore
come to the conclusion that, on the first way the case is put, there is no
defence. The question is: what can be done about it?
In Esso
Petroleum Co Ltd v Kingswood Motors (Addlestone) Ltd [1974] QB 142
Bridge J (as he then was) was faced with a similar problem. In that case a
solus tie was broken and the defendants argued that it was now too late for the
court to intervene. Bridge J would have none of it, even on an interlocutory
application. He said at p156H:
I am asked to
enforce the personal liability incurred by a tortfeasor to undo the
consequences of his tort which could have been restrained before it was
committed. In a proper case, I ask myself: what reason can there be in
principle why the tortfeasor should not be ordered to undo that which he has
done?
He then went
on to grant a mandatory injunction, which he did on the basis that the
defendants there had been stealing a march on the plaintiffs.
It seems to me
that exactly the same principle applies here and I think it is appropriate that
a mandatory injunction undoing the consequences of inducing the breach of
contract by the second defendant should be granted.
My only
reservation related to the time point. As I have said, the second defendants
are willing to leave the premises by the end of September, that being the
period when their underlease expires in any event. But, once I have concluded
that there is no triable defence, and I have so concluded, it seems to me that
it would be wrong in principle to allow the second defendants to stay on and in
effect to get the benefit of their tort. True it is that they may find
themselves in more difficulty having to make a sudden exit than they would have
been in if they had not caused the restrictive covenant to be broken; but that
is a problem they made for themselves.
I should say
that the plaintiffs put their case also on the doctrine of Tulk v Moxhay.
They say here is a restrictive covenant; it is well settled that a
restrictive covenant for the benefit of the landlords’ reversion counts for the
purposes for the doctrine of Tulk v Moxhay; the
restrictive covenant accordingly runs with the land; it accordingly binds the
second defendants; they are acting in breach of it and therefore, again, an
injunction to compel them to stop acting in breach of it and in effect to gain
a mandatory injunction should be granted.
Again, I do
not see the answer to this way of putting the plaintiffs’ case. It was
suggested that a covenant against alienation is not a restrictive covenant for
the purposes of the Tulk v Moxhay doctrine. That doctrine was
limited to covenants in respect of the mode of user of property. No direct
authority was cited to that effect and I do not see why, in principle, it
should be so. One can have covenants subject to the doctrine not to build
things without showing plans first; covenants against multiple occupation; and
I do not see why this particular restrictive covenant against alienation should
be treated differently.
On that
ground, too, I would therefore grant the injunction which I have indicated I
intend to grant. The injunction will require the second defendants to surrender
the sublease. I do not propose to make any other injunction requiring the
second defendants to vacate the premises. However, the legal analysis appears
to be that, if they remain in possession knowing of the cessation of their
right to occupy, and are so permitted by the first defendant, there would be
the natural consequences of an assistance of breach of a court order. I will
hear counsel as to the precise form of order.
Orders
accordingly.
