Proposed assignment with replacement surety — Landlord’s refusal of consent — Whether objectively reasonable — Whether proposed replacement surety was “acceptable” as a matter of construction — Landlord’s appeal dismissed
On September 9 1988 Scan Alpha Ltd granted Turpex Ltd an underlease of 40-44 Harrington Gardens, London SW7, taking three individual sureties. The term was for 32 years at an initial rent of £300,000 pa with upwards-only reviews. The underlease contained a covenant against assignment without the landlords’ consent, “such consent not to be unreasonably withheld”. It also made the sureties liable to accept a new lease should it be disclaimed by the liquidator. Torpex Ltd mortgaged the underlease to Den Norske Bank. By April 1991, Torpex had defaulted on the mortgages and receivers were appointed by the bank. They assigned the underlease to a wholly-owned subsidiary of the bank, Kened Ltd (“the tenant”). The landlords’ consent to assignment was given in a license, which joined the bank as surety. Clause 9 of the license provided for the release of the surety on assignment, provided that if the landlord so required, the assignee had to give a “suitable replacement surety … of sufficient financial status … to comply with the covenants”.
The reversion was assigned to Connie Investments Ltd (“the landlord”). The tenant applied to the landlord for consent to assign to a new English company with no trading history formed to invest in hotels (R). R was 85% owned by Kuwait & Algerian Investment Co (KAIC), a Luxembourg registered company with a limited, albeit extendable, life. KAIC was offered as an “acceptable” replacement surety pursuant to clause 9. The landlord’s consent was refused. The reasons given were that: R’s covenant was of no value; KAIC had insufficient status in the UK; and that as a registered Luxembourg company, enforcement would be by the Brussels Convention.
In 1993 the High Court held that: the landlord’s refusal of consent to R was unreasonable; KAIC would be an acceptable replacement surety provided that its life was extended; and an English address for service was given. The landlord appealed on the following grounds: there was no evidence to conclude that no reasonable landlord would properly withhold consent; it was wrongly held that the landlord was not entitled to know the details of the proposed assignment and any reverse premium; and on the test of whether a replacement surety was “acceptable”, ie whether it was a subjective or objective test.
Held The appeal was dismissed.
1. The judge had applied the correct test as to whether the landlord had acted reasonably, viz whether no reasonable landlord could have withheld consent. He had not substituted his subjective viewpoint.
2. A landlord was entitled to see any particulars which concerned him. That would include a sublease on a subletting, but not the assignment.
3. The tenant’s failure to inform the landlord of a reverse premium for the assignment would preclude the tenant from relying on that information.
4. The underlying intention of clause 9 of the licence was to give the assignee/surety the right to replace the bank with a new surety. The clause did not state that the replacement should be as good as, or better than, the bank. Accordingly, the test for an “acceptable” replacement surety was objective.
5. Obiter: An issue for future determination was whether since the passing of the Landlord and Tenant Act 1988 a landlord could rely on reasons operating on his mind at the time of refusal which he failed to state in breach of his statutory duty.
Edward Denehan (instructed by Hugh Cartwright & Amin) appeared for the tenant; Christopher Pymont (instructed by Stephenson Harwood) appeared for the landlord.
