Landlord and tenant — Forfeiture of lease — Breach of covenant against subletting part of premises without landlords’ consent — Restriction on assignment and subletting during last 7 years of 38 years’ term — Subletting to a person who was respectable and responsible but was likely to be able to claim Rent Act protection at the termination of sublease — Question was whether county court judge was right in granting the defendant lessees unconditional relief against forfeiture — Judge was influenced by the fact that when the lease was granted (in 1949) the parties sought to guard against the introduction of unsuitable subtenants and did not have in mind the risk of the lessors being saddled with a statutory tenant under the Rent Acts — Held that the judge was in error — West Layton Ltd v Ford and other authorities reviewed — The correct principle was that the question whether consent was reasonably or unreasonably withheld had to be determined according to the facts and law existing when the question arose — In the circumstances of the present case (although not necessarily as a universal rule) when it was found that the subtenancy would damage the reversion, because of the inherent risk of a statutory tenancy arising under the Rent Act, the landlords were justified in withholding consent — Relevance of the existence of shorthold tenure under the Housing Act 1980 at the time when the assignment was made, as this would have enabled a term to be created without attracting security of tenure — Appeal allowed
This was an
appeal from a decision of Judge Monier-Williams at West London County Court
dismissing the claim of the plaintiffs, Leeward Securities Ltd, against the
defendants (present respondents), Lilyheath Properties Ltd, for possession of
premises at 54 Stanhope Gardens, London SW7, and damages for breach of
covenant.
David
Neuberger (instructed by Jaques & Lewis) appeared on behalf of the
appellants; Roger Ellis (instructed by Michael Freeman & Co) represented
the respondents. The second defendant in the county court, the subtenant, Miss
Wasserman, took no part in the appeal.
Giving
judgment, OLIVER LJ said: This is the plaintiffs’ appeal from an order of His
Honour Judge Monier-Williams in the West London County Court on June 21 1983,
dismissing the plaintiffs’ claim for possession of some residential premises at
54 Stanhope Gardens, London SW7, and for damages for breach of covenant. The
ground upon which possession was sought was that the plaintiffs had forfeited
the first defendants’ lease because of their breach of covenant in the lease
against subletting without the landlords’ consent, they having sublet,
admittedly without the landlords’ consent, a part of the premises to the second
defendant, Miss Wasserman.
The lease with
which the appeal is concerned was dated January 7 1949 and was made between the
Earl of Harrington of the one part and one Kitty Martelli of the other part. By
it the Earl demised the whole of the premises to the tenant for a term of 38
years from June 24 1948, so that the lease is due to expire by effluxion of
time on June 24 1986. The lease contained a user covenant, which is clause
2(xv), which restricted the permitted use of the premises to one or other of
two modes of enjoyment, that is, either as a single private dwelling-house or
as four furnished service suites with a common dining-room on the ground floor,
the remainder of the ground floor and the basement to be used as a private
residence for the lessee.
For the major
part of the term the lease was freely assignable, but by clause 2(xviii) the
lessee covenanted during the last seven years of the term (that is, from June
24 1979 onwards) not to assign, transfer or part with possession of the demised
premises or any part thereof (otherwise than by will) nor to part with or share
the possession or occupation thereof or any part thereof without the previous
consent in writing of the lessor. There is no dispute that, as a matter of
construction, the requirement of the lessor’s written consent applies not
merely to the latter part of that clause but to the whole of it. The effect of
that is, of course, that by virtue of the Landlord and Tenant Act 1927 there is
read into the covenant a proviso that the lessor’s consent shall not be
unreasonably withheld.
In 1950 there
was a consensual variation of the user covenant by a licence which permitted
the lessee to incorporate the common dining-room into her flat, so that
thenceforth the premises consisted of a sort of maisonette on the ground floor
and basement and the four furnished service suites above. At some time between
then and September 1961 the reversion had become vested in a Mr Weatherby and a
Mr Foster and the residue of the term had become vested in Lady Binney. On
September 18 1961 those parties entered into a licence which authorised Lady
Binney to convert the entire premises into six self-contained residential
flats. The work of conversion was in fact completed in April 1962.
Now the
licence did not simply authorise the alteration. It also imposed certain
restrictions on alienation. Clause 3(d) of the licence was in these terms:
Without
prejudice to subclause (e) of this clause not at any time to underlet or permit
to be underlet the demised premises or any of the said flats otherwise than in
accordance with the provisions of the First Schedule hereto.
Then subclause
(e) was in these terms:
Not at any
time to assign or transfer any of the said flats separately from the remainder
of the said premises for the residue of the term granted by the lease or assign
or transfer any part being less than the whole of the said premises for the
residue of the said term —
and then there
were provisions which I need not read about letters of administration and so
on. Subclause (f) was in these terms:
Not to permit
any of the said flats to be occupied otherwise than as the residence of one
family only and not to permit any lodgers or paying guests to reside therein
nor permit any part of the same to be sublet furnished or unfurnished or the
said flats to be sublet furnished for a period of less than two months.
I turn now to
the schedule which was referred to and that contained a number of provisions
relating to the terms of an underletting of any of the flats or indeed the
premises as a whole. Clause 2 of the schedule provided as follows:
Each and
every underletting of the whole of the demised premises shall be by way of an
underlease and counterpart containing covenants on the part of
contained in the lease as varied by this licence and the rent to be reserved by
such underlease shall not be less than £300 per annum exclusive of rates and
other outgoings. 3. Each and every underletting of the said flats or any of
them (other than a furnished underletting for a term not exceeding three years)
shall be by way of underlease and counterpart. 4. The rent reserved by each
such underlease (including an underletting for a term not exceeding three
years) shall be not less than £50 per annum for each of the said flats included
in such underlease in each case exclusive of rates and other outgoings.
Then the final
clause, clause 5, provided in subclause (iii) as follows:
In the case
of any such underlease either (a) intended to run during the last seven years
of the said term granted by the lease or during any part of the last seven
years or (b) granted at any time during such last seven years it shall be
obligatory that each such underlease shall contain an express covenant by the
underlessee not to assign transfer underlet or part with possession of the
premises demised to him either during the last seven years of the term thereby
granted or during the term thereby granted (as the case may be) without the
written consent of the lessor (meaning the lessor under the lease) having been
first obtained.
The next
relevant event was that the plaintiffs acquired the reversion in 1979. At some
time, it seems, probably before then, the premises had become vested in the
first defendants, Lilyheath, for the residue of the term of the lease. The top
flat of the premises was either then, or subsequently became, vacant and
Lilyheath became desirous of making it available to Miss Wasserman, who was at
that time the tenant of the upper floor in some neighbouring premises, 40
Stanhope Gardens. That property was owned by an associated company of Lilyheath
which was desirous of selling off the flats but which, since Miss Wasserman was
a tenant protected by the Rent Acts, was faced with the necessity of providing
her with suitable alternative accommodation elsewhere. That function, they
thought, was admirably fulfilled by the top flat at no 54 and although she
would equally become a protected tenant of that flat, Lilyheath appears to have
concluded — whether rightly or wrongly was not investigated at the trial — that
she would in fact be willing to leave before the expiration of the lease. As I
say, that was not investigated, and the learned judge rightly attached no
importance to it. So the effect of an underletting to Miss Wasserman was — as
the learned judge expressly accepted — that the plaintiffs ran the risk of
being saddled with a statutory tenant of the top flat when the lease expired in
1986. Perhaps not surprisingly, they would have been reluctant in those
circumstances to give their consent to the subletting, but in fact they were
not directly asked for such consent until after the event occurred, because on
December 23 1982 Lilyheath granted Miss Wasserman a sublease of the top flat in
no 54 for two years from January 1 1983, taking from her, as was required by
the schedule to which I have referred, an absolute covenant against assigning,
subletting, charging, sharing or parting with possession.
Although the
plaintiffs had not formally been asked for consent in relation to this
property, there had been in fact some correspondence between the parties with
regard to another property owned by the plaintiffs — no 56 — from which it had
clearly emerged that they were not in any circumstances prepared to give their
consent to a subletting to a tenant who might be entitled to claim the
protection of the Rent Act, since this would be damaging to their reversion,
though they would have been prepared to give consent to lettings to limited
companies, and possibly (although this may be in doubt) to protected shorthold
tenants or to holiday lettings.
A day or two
before the subletting to Miss Wasserman Lilyheath’s solicitors wrote to the
plaintiffs’ solicitors announcing that they intended to sublet to her and
stating that they were satisfied — as no doubt was the case — that she was in
all respects a good and respectable tenant. They then proceeded with the
sublease.
On January 6
1983 the plaintiffs wrote formally refusing consent to any subletting of no 54
which would result in a protected tenancy under the Rent Act. Hence these
proceedings. Happily, Miss Wasserman is not in peril of being homeless, because
Lilyheath are willing and have agreed to provide her with accommodation
elsewhere if this appeal should succeed.
It is not in
dispute that the subletting was in breach of covenant, so that the plaintiffs
are technically entitled to forfeit the lease. The substantial question before
this court, and before the learned judge, was and is, should the lessee,
Lilyheath, be granted unconditional relief, as the learned judge held, or
should relief be subject to a condition that Miss Wasserman should vacate the
top flat and surrender any term created by the sublease to her?
The learned
judge reached the conclusion that he did for reasons which can be summarised in
a series of propositions thus:
(1) Since up to the last
seven years of the term the lessee was, as a matter of law, free to sublet in a
way which would have enabled the subtenant to obtain Rent Act protection, the
prevention of such protection could not have been the purpose of the
restriction on subletting during the last seven years.
(2) As matter of
construction, therefore, the purpose of the covenant was to enable the lessee
to ensure that the subtenants holding over when the lease expired were
respectable and responsible persons.
(3) Therefore, in the case of
a responsible tenant it would not be reasonable for the landlord to withhold
consent on the ground that such a tenant might be a tenant protected by the
Rent Act, even though the presence of a Rent Act protected tenant would in fact
depreciate the reversion.
(4) Accordingly, the breach
of covenant was a technical one, because if permission had been sought it could
not have reasonably been refused.
(5) Thus the case was one
where it was appropriate to grant in full relief from forfeiture.
The learned
judge in his construction of the restrictive clause said this:
I bear in
mind that the term was for 38 years and until the last seven years — namely as
from June 24 1979 — there was no restriction on assigning or underletting the
whole or part of the premises. It would have been wholly in accordance with the
alienation clause in the lease for the predecessor of Lilyheath prior to this
date to have saddled Leeward or their predecessors with a protected tenant,
although they would of course after 1961 have been bound by the terms of the
licence to have taken an absolute covenant against alienation should such
underlease run during the last seven years of the term. How should the covenant
in the lease relating to alienation be construed together with the analogous
paragraph in the licence? Is there
anything in it which would warrant my finding that the parties had in mind the
undesirability of being saddled with a statutory tenant? I think not. The impression given is that the
landlords were clearly concerned about the last seven years of the lease but
that that concern was more consistent with the character of the tenant during
those last seven years with a view to obtaining a respectable and responsible
person. It was in other words control over the persona of the tenant rather
than the status of that tenant on the premises. It is true that the words ‘respectable
and responsible person’ were not used. Perhaps from a drafting standpoint they
would have given this more emphasis, but I do not consider their absence to be
conclusive.
A little later
on he went on:
It is clear
from the evidence of Mr McCalmont that Leeward set themselves against a letting
in any of their properties which notwithstanding the character of the tenant
might result in the tenant ultimately being protected by the Rent Act. I am by
no means saying that this is not a factor which is capable of being taken into
account, provided it can be done on a true construction of the covenant. From
my judgment on the facts of this case such a construction is not open to
Leeward.
Mr Neuberger,
on behalf of the plaintiffs, criticises this, because he says that the learned
judge has, in effect substituted for the statutory proviso ‘such consent not to
be unreasonably withheld’ a totally different formula ‘such consent not to be
withheld in the case of a respectable and responsible tenant’ — a conclusion which
in fact coincides largely with Mr Ellis’ submission that what, on analysis, the
covenant was intended to protect the landlord against was not an unsuitable
type of tenancy (which nobody could have contemplated as a possibility in 1949,
since sublettings were restricted to furnished sublettings which would not be
then subject to the Rent Acts, but should have been contemplated but were not
provided for in 1961) but against an unsuitable tenant. Although there were no
Rent Acts in force in 1961, it was, Mr Ellis submitted, a reasonable
supposition that they might return if there were a change of government, and
therefore that the unsuitable type of tenant contemplated by the parties in the
covenant was a tenant who was in some way personally or financially
unacceptable.
The learned
judge, in a very clear and helpful judgment, considered, first of all, a number
of authorities dealing with the reasonableness or otherwise of the landlord’s
refusal to a subletting or assignment proposed by his tenant, which would
result in the landlord being saddled with a protected tenant, and he held that
this was not a case where he could say, on the facts, that the tenants were
seeking to create a protected tenancy out of the fag-end of a lease. Some of
those cases, as he pointed out, drew a distinction between
a distinction which the learned judge, in my judgment, quite rightly rejected
as a determinative test, although he was of the view that, if and so far as the
distinction had any validity, this was a normal assignment.
What laid the
groundwork for and ultimately led to the learned judge’s conclusion was the
decision of this court in the case of West Layton Ltd v Ford
[1979] QB 593. That was a case of a 14-year lease of a butcher’s shop with
living accommodation over it, where the lessee covenanted, inter alia:
not to assign
. . . underlet or part with possession of any part of the . . . premises except
a letting on a service tenancy or occupancy of the living accommodation . . .
to any employee of the lessee or on a fully furnished tenancy for which
furnished tenancy the landlord’s consent in writing shall first be . . .
obtained and such consent for such a letting shall not be unreasonably withheld
. . .
That lease had
been granted in 1971 and, of course, in August 1974 the Rent Act 1974 gave
protection to furnished premises. In November 1976 the landlords having
acquired the freehold reversion, in August 1977 the tenant sought the
landlords’ consent to subletting the living accommodation to subtenants who
were respectable and responsible persons. The landlords refused that consent on
the ground that the tenants would be protected by the Rent Act. This court
held, allowing the appeal from the county court, that there were no special
rules relating to cases where the proposed assignee would obtain benefits under
the Rent Acts, and that whether consent was reasonably withheld in the
circumstances or not depended not on whether the proposed subletting was
‘normal’ or ‘abnormal’ but what upon its true construction was the purpose of
the covenant, and that in the circumstances of that case a refusal was
reasonable.
The particular
passage which deals with this aspect of the matter is in the judgment of Roskill
LJ at p 602, where he says:
I do not find
it necessary to refer to more than a few of the cases. The cases suggest that
there has grown up a practice of asking the question: Is the proposed
assignment a ‘normal’ assignment or an ‘abnormal’ assignment? If it be the former, then the consent is said
to be unreasonably withheld. If, on the other hand, it is the latter, then the
consent is said to be not unreasonably withheld. I respectfully question
whether, although that phraseology appears to have been used more than once in
the cases, it is very helpful phraseology.
Then he reviews
the cases and he concludes by respectfully agreeing with Lord Denning MR in the
cast of Bickel v Duke of Westminster [1977] QB 517 in a judgment
which cast doubt upon the value of the terms ‘normal’ and ‘abnormal’. In Bickel’s
case, as indeed in Norfolk Capital Group Ltd v Kitway Ltd [1977]
QB 506, cases which I will have to refer to briefly a little later, the
question involved was whether the landlords were reasonable in refusing consent
to an assignment to a person who would be entitled after the assignment to
claim the benefit of the Leasehold Reform Act, which had conferred, of course,
the right to acquire the freehold and which had come into force since the dates
at which the respective leases in those cases were granted.
Roskill LJ
said this at p 605:
I also agree
with an observation made by Lawton LJ during the argument of this appeal: that
it is impossible to see why there should be some rule applicable to Rent Act cases
on one side of the line and some different rule applicable to the Leasehold
Reform Act cases on the other side of the line. I think that the right
approach, as Lord Denning MR suggested in the Bickel case [1977] QB 517, is to
look first of all at the covenant and construe that covenant in order to see
what its purpose was when the parties entered into it; what each party, one the
holder of the reversion, the other the assignee of the benefit of the relevant
term, must be taken to have understood when they acquired the relevant interest
on either side. It is plain, when one looks at this covenant, that its purpose
was that the lessee should have the benefit of living accommodation for the use
of any of his staff linked with the carrying on of the business of butchery;
but that if he wished to go beyond that user and to use that accommodation for
some purpose disconnected with butchery, he must grant no more than a furnished
tenancy for which he must obtain the landlord’s written consent, which was not
to be unreasonably withheld. The landlord has not got to consider anybody
else’s interests except his own. He is the person who has in all the
circumstances to decide whether or not he will grant consent. As Lord Denning
MR said, circumstances may vary endlessly. In the present case one of the
matters which has caused a change of circumstances is the passing of the Rent
Act 1974; just as, in cases of leases entered into before 1967, the passing of
the Leasehold Reform Act 1967 altered the background.
He goes on:
It seems to
me that the effect of the request which this landlord has had made to him by
the tenant is to invite him to agree to alter the nature of the property which
was being let from commercial property, namely, a butcher’s shop with residential
accommodation above, to property which would be let on a multiple tenancy — by
which I mean to more tenants or lessees than one, because there will be not
only the tenancy of the shop but also the separate subtenancy upstairs of the
residential accommodation, which would be a tenancy attracting Rent Act
protection. That is indeed conceded.
He then
concludes:
. . . even
if, contrary to my view, it is still right to ask oneself the question whether
this proposed subletting is ‘normal’ or ‘abnormal’, I would answer the question
by saying that it is ‘abnormal’ in this sense, that it is proposed that there
should be a different user of a part of the premises, namely, independent
residential user, different from and dissociated from the business the letting for
which this lease was primarily intended, namely the carrying on of a butcher’s
business at these premises in Bath Road, Hounslow.
It will be
observed, therefore, that Roskill LJ echoes what Lord Denning had already said,
that the circumstances may vary endlessly. I think it is appropriate at this
stage, as that has been mentioned, that I should mention that this case is, of
course, like all cases of this sort, a case which depends necessarily on its
own individual facts and in giving judgment I desire to avoid any suggestion
that I am seeking to lay down any general principle which is applicable to
cases where application is made for consent to an assignment or subletting to a
tenant who is or may be protected by the Rent Act. We have to look at it in the
context of this covenant imposed in this lease for the last seven
years of this term and in the circumstances in which the assignment with
which this appeal was concerned was made.
Mr Neuberger
does not contest that the learned judge was right to use the West Layton
case as a guide for arriving at his conclusion, but he submits that it was
wrong in that he confused the purpose of the covenant, that is to protect the
value of the landlord’s reversion of the premises, with the particular type of
damage to the reversion which the parties might reasonably have foreseen when
the covenant was imposed.
One can take
the matter in three stages. In 1949 the Rent Acts then in force did not apply
to furnished lettings. So that when the parties entered into their lease, which
provided only for occupation of the ground floor by the lessee herself — and
that under a long lease with a ground rent which would not have attracted the
Rent Acts — and as regards the remainder of the premises that they were to be
let furnished, it is clear that the user covenant itself prohibited at that
point of time a user which would have attracted Rent Act protection. In 1961
when the licence was entered into for the conversion of the premises into
residential flats — which were capable, of course, of being let unfurnished —
there was no Rent Act protection in force since the Rent Act of 1957. But, as
the learned judge pointed out, after 1961, when the law was changed in 1965, it
would have been possible, and indeed almost inevitable, for the tenant under
the lease to create sublettings without the consent of the landlord, up to June
24 1979, which might have had the result that at the end of the lease there
would be tenants in some or all of the flats who were entitled to hold over and
claim statutory tenancies under the Rent Acts. The learned judge also suggested
that, in 1961, even though the parties would not then have had the Rent Acts in
contemplation because they did not apply, nevertheless they must have had in
mind the contemplation that it was possible for the tenant to create a tenancy
which, although not subject to the Rent Act, could have saddled the landlord
with a protected tenant under Part I of the Landlord and Tenant Act 1954, that
is, a long lease for more than 21 years at a low rent, that is a rent less than
two-thirds of the rateable value. That clearly was in fact a misunderstanding,
because it is now conceded by Mr Ellis that the effect of clauses 2 and 4 of
the schedule to the licence undoubtedly had the effect that no tenancy within
Part I of the Landlord and Tenant Act could have been created, the only purpose
of specifying, as the schedule does there, the rents at which the whole of the
premises or individual flats are to be let being to ensure that the rents
payable under sublettings would be in excess of the relevant figure of
two-thirds of the rateable value.
The argument
then proceeded that since it was possible that the tenant could create, at any
rate after 1965, a protected tenancy, the object of the restriction could not
be to prevent such a tenancy
have had, or did not have, that in mind. Mr Ellis’ submission is that that was
left to be taken care of, and exclusively taken care of, by the user covenant
in the lease and in the licence and, in so far as alienation was restricted by
the alienation clause, the learned judge’s construction of that clause as one
which refers only to the respectability and responsibility of the tenant is one
that can be supported.
In my
judgment, Mr Neuberger is right in his submissions. He submits, first of all,
that in principle a landlord’s consent is not unreasonably withheld if the
reason for the refusal is one which a reasonable landlord, taking into account
his own interest, could reasonably rely upon. He refers, and I do not think I
need refer to it in any detail, to Shanly v Ward (1913) 29 TLR
714 and to West Layton v Ford. Secondly, he says that the
landlords here believed that the subletting to Miss Wasserman would
detrimentally affect their interest in the premises and reduce their control
over the premises. That is really not disputed and indeed was accepted by the
learned judge, who said in his judgment that he accepted that there was a
genuine risk of a statutory tenancy being created after the expiration of Miss
Wasserman’s lease. He also has referred to Bickel v Duke of
Westminster, to which I have already briefly referred. I should, I think,
just refer to p 524 of the report of the case in [1977] QB 517. That was, as I
have said, a case in which the lease was granted before the coming into force
of the Leasehold Reform Act 1967 and the ground for refusal of consent to an
assignment, which was taking place towards the end of the term, was that it
would entitle the assignee to claim the benefit of the Act. Lord Denning MR
then said this, having looked at some of the previous cases, including a case
of Swanson v Forton [1949] Ch 143:
If those
cases can properly be regarded as laying down propositions of law, I would
agree that we ought to hold the landlords’ refusal to be unreasonable. But I do
not think they do lay down any propositions of law, and for this reason. The
words of the contract are perfectly clear English words: ‘such licence shall
not be unreasonably withheld’. When those words come to be applied in any
particular case, I do not think the court can, or should, determine by strict
rules the grounds on which a landlord may, or may not, reasonably refuse his
consent. He is not limited by the contract to any particular grounds. Nor
should the courts limit him. Not even under the guise of construing the words.
The landlord has to exercise his judgment in all sorts of circumstances. It is
impossible for him, or for the courts, to envisage them all. When this lease
was granted in 1947 no one could have foreseen that 20 years later Parliament
would give a tenant a right to buy up the freehold. Seeing that the
circumstances are infinitely various, it is impossible to formulate strict
rules as to how a landlord should exercise his power of refusal. The utmost
that the courts can do is to give guidance to those who have to consider the
problem. As one decision follows another, people will get to know the likely
result in any given set of circumstances. But no one decision will be a binding
precedent as a strict rule of law.
One deduces
from that case this, that the mere fact that the reason for the landlord’s
withholding his consent is some supervening legislation not foreseen by the
parties at the time is not a ground for saying that the withholding of consent
is unreasonable. Swanson v Forton, to which I have referred, is
again an example of that. That was a case in which the assignment had taken
place during the very last few days of the term and it was said:
the matters
to be considered in deciding whether a landlord’s refusal to an assignment is
reasonable are not limited to matters which will arise during the currency of a
lease. The delayed effect of the assignment on the position of the parties
after the termination of the lease has to be considered.
Mr Neuberger’s
proposition on that is, first of all, that the effect which Rent Act protection
is going to have on the reversion is a legitimate ground to be taken into
account. Secondly, he deduces from the Bickel case that the mere fact
that the protection may not have been within the contemplation of the parties
at the time of the lease is not a ground for saying that consent is
unreasonably withheld.
Now here, as
it seems to me, the true analysis of the case is that the restriction was one
which was imposed for the purpose of protecting the landlords’ reversion. No
doubt it is true that, at the time when it was imposed, the way in which it was
thought the landlords’ reversion might be damaged during the last seven years
of the term was by the introduction of unsuitable tenants who might possibly
run the property down or give it a bad reputation, so that it was depreciated
when it came back into the landlords’ hands. I accept, for my part, Mr
Neuberger’s statement of the purpose of the covenant, which was to enable the
tenant to deal freely until 1979, there being, at the time when the lease was
entered into, no contemplation of any security of tenure, but that during the
last seven years the landlord should have a degree of control which would
enable him to preserve the value of the reversion.
It seems to me
that, against that background, the question of whether consent has been
reasonably or unreasonably withheld is something which has to be determined
according to the facts and the law as they exist at the time when the question
arises. In fact here, as a result of changes in the law, the covenant, in its
terms at any rate, protects the reversion, not against the danger which was
originally foreseen but against a danger which was not contemplated at the time
of the lease or the licence. But that does not seem to me to matter. I have
already referred to Bickel‘s case and the immediately preceding case of Norfolk
Capital Group Ltd v Kitway [1977] QB 506 to the same effect. There
again this was a case where the danger which the landlord was seeking to
protect himself against was that of a tenant claiming the benefit of the
Leasehold Reform Act which had come into force since the date of the lease.
Mr Ellis says
that, while those cases relate to the Leasehold Reform Act, there is no case
which applies necessarily the same principle of the Rent Acts and that there is
a distinction between them. It is perfectly true that in the Norfolk Capital
Group case Megaw LJ did draw distinctions between the Leasehold Reform Act
and the Rent Acts, but Megaw LJ was a party to the decision in the West
Layton case and agreed with the judgment of Roskill LJ in which the
distinction between the two is rejected.
I, for my
part, cannot agree with the construction of the restriction in this case which
limits the reasonableness or unreasonableness of the consent simply to the
question of the respectability or financial responsibility of the tenant. Once
it is found that the subtenancy would damage the reversion because of the
inherent risk of a statutory tenancy arising, then, in my judgment, the
landlord is entitled to withhold his consent, in the circumstances of this
case. I do not say that that is always going to be the case. It may be that in
the instant case, if we were concerned with an attempt to create a subtenancy
in (say) early 1980, the position might have been very different, because it
could then have been argued with some force that there was no way in which the
landlord could reasonably exploit the premises except by creating a tenancy to
which the Rent Act protection would apply. It seems to me one has to look at
the matter in the light of the circumstances as they existed here and there are
important provisions which had come into force by the time the assignment with
which we are concerned here had come into force, namely, the provisions of the
Housing Act 1980, which relate to shorthold tenure, which would have enabled,
if the tenants had had resort to it, a term to be created which would not have
created security of tenure. It is perfectly true that there is a suggestion in
evidence that the landlords might not have consented to that, but that, I
think, is really irrelevant. They were not asked, and we are not concerned
with, the question whether an unauthorised subletting under the provisions of
the Housing Act 1980 would have constituted a breach of the covenant. We are
concerned here with a case in which there advisedly and admittedly was the
creation of a subtenancy to which the Rent Act protection will apply if the
tenant wishes to hold over.
The learned
judge found that the creation of the subtenancy was a ‘normal’ one — he said
that, in so far as it was necessary to determine whether it was ‘normal’ or
‘abnormal’, he held that it was a ‘normal’ one. With great respect to him, I
disagree with that in the circumstances of this case. The landlords, it was
known, were not agreeable to a subtenancy being created which would be binding
upon them when the lease came to an end. There was a method by which the
tenants could have produced a subtenancy which did not have that result. It is
quite clear that the intention of the tenants here was to create a tenancy
which would indeed have that very effect — it was to be a protected tenancy —
and the reason was that they had to provide Miss Wasserman with a protected
tenancy in order to get vacant possession of the flat of which their associated
company wanted to obtain possession, because as a Rent Act tenant she could
only be got out if suitable alternative accommodation carrying the same
protection could be found for her. That that intention quite clearly existed
emerges from the correspondence in this case.
For these
reasons, in my view, the landlords’ consent was reasonably withheld, there
being a way in which the premises could have been properly exploited without
creating any estate binding upon them at the end of the lease. Mr Neuberger has
suggested other
by creating sub-tenancies in favour of companies, or licences, or holiday
lettings. I say nothing about those. It seems to me that the possibility of the
creation of a shorthold was quite sufficient to lead to the conclusion that the
landlords were not unreasonable in withholding their consent to an alternative
method of letting the premises which undoubtedly would have damaged their
reversion.
In those
circumstances, in my judgment, the learned judge arrived at a wrong conclusion
— albeit he directed himself rightly on the law which was applicable — because,
in my judgment, he confused the construction of the relevant clause by
reference to its purpose with the particular danger which the parties may have
had in mind at the time the lease was entered into. It seems to me that one has
to look in general at the purpose of the clause and then ask the question
whether, in all the circumstances, having regard to that purpose, the
landlords’ refusal is a reasonable one in the circumstances, both of law and of
fact, as they existed at the time when the question arises.
For the
reasons, therefore, which I have endeavoured to express, I would allow this
appeal.
Agreeing that
the appeal should be allowed, O’CONNOR LJ said: It is only because we are
differing from the learned judge that I would wish to say, on one topic, a few
words of my own. It seems to me that the learned judge correctly approached the
problem to construe the covenant against alienation in this lease in the
context of the lease and he had to do it at the time when the consent was
applied for, namely, the end of 1982. It seems to me that he fell into error
because in construing the covenant, he did not pay sufficient attention to its
application at the time when it had to be applied. The cases are clear that
that is the time at which the construction has to be applied. In the present
case it is accepted that the covenant was for the protection of the landlords’
reversion. After all, it was a covenant which was to operate only during the
last seven years of a 38-year lease. It is, I think, a different consideration
from what might have applied had the covenant operated throughout the lease.
Secondly, the
cases show that in considering whether a refusal was reasonable or
unreasonable, the court is entitled to, and indeed must, pay attention to, and
take into consideration, such statutory provisions as affect the situation, be
they a Rent Act or Leasehold Reform Act. I need not refer to the passages from
the cases which my lord has already cited. Lawton LJ in West Layton
pointed out at p 606, ‘Whether anything is ‘unreasonable’ depends upon all the
circumstances of the case; and, in relation to lettings, unreasonableness must
be considered against the background of the statutory provisions which are
applicable’ — and I would add ‘at the time when the consent is sought’.
It is
important, for the purposes of the present case, that that proviso be
remembered, because, like my lord, I am satisfied that what makes the refusal
of consent reasonable in the present case is the existence of section 52 of the
1980 Housing Act, in operation certainly by November 1982. But for that, I, for
my part, would have thought that a refusal to consent to a two-year agreement
in 1982, when there was still nearly four years of the original lease to run,
would have been unreasonable — and for this reason, that certainly from 1961 it
was the purpose of this lease that this house should be operated as six
self-contained flats let for occupation by one family each. To have refused consent
but for the existence of section 52 of the 1980 Act would have operated to
place such a restriction on the contemplated user of the premises as would, in
my judgment, have been quite unreasonable. It must not be thought that, because
the introduction of a Rent Act tenant inevitably has an adverse effect upon the
value of the reversion, that that is a sufficient ground for the landlords to
say that they can withhold consent and that the court will hold that that is
reasonable. Each case depends upon the terms of its own agreement and on the
matrix of fact and law existing at the time that consent is asked for.
In the present
case, like my lord, I think the learned judge was wrong to conclude that
consent had been unreasonably withheld and I, too, would allow the appeal.
The appeal
was allowed with costs on the common fund basis in the Court of Appeal and
below. Leave to appeal to the House of Lords refused.
