Premises let to two solicitors in partnership — Covenant against assignment — Proviso allowing assignment without consent in relation to carrying on of “the business” — One solicitor ceasing to practise and the other continuing as sole practitioner — Purported assignment to limited company as partner in “the business” — Intention to develop licensing business as separate entity — Whether in breach of covenant — First instance decision in landlord’s favour — Appeal dismissed
In 1989, the respondent freeholder granted a 10-year lease of a suite of offices on the first and second floors and part of the ground floor of 103 High Street, Croydon, to the appellant solicitor, B, together with another solicitor, F, at a rent of £24,000 pa. The lease described B and F as “both solicitors … [hereinafter called the lessee]” and provided that the “lessee” should include the lessee’s successors in title. There was a covenant against assignment without the lessor’s previous written consent. A proviso to that covenant stipulated: “(ii) With the intention that the lessee may … treat … their interests in the … premises as assets of the business which they carry on…the lessee may at any time … without consent … assign … to any partner or partners of the lessee in such business”. Further, the landlords would not require guarantors where there was an assignment under (ii) (supra). The partners occupied part of the ground floor and first floor and they licensed other occupants for use of the second floor.
In 1991 F retired from the partnership and the interest in the lease was assigned to B. In 1992 fire destroyed a large part of the premises, badly damaging the first floor and rendering the second floor unusable so that the licensees left. In November 1992 the appellant entered into an agreement with the first defendant, Temple House Ltd, of which B was the sole shareholder and only director. The stated purpose of the partnership was that B wished to “hive off the licensing and services aspect of the business of solicitors” into an independent business which would have a separate identity from the practice. The intention was to turn the whole of Temple House into serviced offices. B executed an assignment of the lease to the first defendant company without the landlord’s consent. At first instance the judge held that the assignment was not permitted because the first defendant at the date of the assignment was not in partnership as a solicitor and that a limited company could under no circumstances take part in that business. B appealed submitting that the words of the proviso were not confined to the business of solicitors.
Held The appeal was dismissed.
1. It was agreed that the construction of covenants in leases should be ascertained from the parties’ mutual intention from the contractual words used. The court should therefore determine what reasonable persons in their position would have intended: Philpots (Woking) Ltd v Surrey Conveyancers Ltd [1986] 1 EGLR 97.
2. In the context reasonable people would regard the business referred to in the clause as the partners’ business as solicitors in partnership together.
3. In such a business it would not be possible for the appellant to assign to a limited company which could not practise in partnership with him.
4. It was significant that the assignment permitted between partners was one to which the provisions as to guarantors did not apply.
5. Even if that were too restrictive an interpretation, the assignment was still invalid because there was no “business” of licensing occupation of the second floor at the time of assignment due to the fire. Further the intention was to start a wholly new business comprising the whole of the premises as serviced offices.
Derek Holwill (instructed by Buss Murton, of Tunbridge Wells) appeared for the appellant; Simon Williams (instructed by Pittalis & Co) appeared for the second respondent; the first respondent, Temple House Ltd, did not appear and was not represented.
