Forfeiture action for breach of covenant against assignment — Landlord contractually entitled to insist on further security in certain circumstances — Landlord insisting on additional guarantors before consenting to assignment to private company — Tenant proceeding with assignment without such consent — Whether landlord’s right to insist subject to reasonableness and other considerations — Whether tenant entitled to relief against forfeiture — Forfeiture claim allowed
The premises in dispute (the property) were a retail clothing shop, with offices above, located in Oxford Street, London W1. In September 1993, a predecessor of the claimant landlord granted a 15-year lease of the premises to C Ltd, a company that was jointly owned by M and his wife (W), who together operated a number of such shops. At all material times, the rent of the property was £370,000 pa. The lease contained a covenant by the lessee (the alienation covenant) that prohibited assignment of the entire property to anyone who had not previously covenanted with the lessor to observe the terms of the lease. A proviso to the alienation covenant declared that where an intended assignee was a private company, the lessor could insist upon guarantees being given by two or more directors of the intended assignee, such directors being of suitable standing as may be approved by the lessor.
In 1997, M and W separated on terms that envisaged the property being transferred to a company wholly owned by M. In May 2001, C Ltd applied to the claimant landlord for a licence to assign the lease to the defendant company (Towerstone), enclosing three financial references. The claimant replied, expressing dissatisfaction with the references and drawing attention to the proviso to the alienation covenant. C Ltd provided further financial information, stating that M would be the sole guarantor. The claimant pressed for further information relating both to Towerstone and the current financial standing of M. By a letter dated 13 June 2001, C Ltd confirmed that M would be the sole director of Towerstone. The letter went on to complain that the further inquiries were unreasonable and excessive, and concluded by stating that a continuing refusal of consent would be treated as a breach of the Landlord and Tenant Act 1988. In correspondence over the following two weeks, C Ltd offered a further guarantor, but the claimant found the references relating to that guarantor to be unsatisfactory. In July 2001, C Ltd assigned the lease to Towerstone. The claimant, having issued a notice under section 146 of the Law of Property Act 1925, brought an action to forfeit the lease for breach of the alienation covenant.
Before the court, Towerstone accepted that, on the authority of Vaux Group plc v Lilley [1991] 1 EGLR 60, the proviso to the alienation covenant gave the claimant a contractual entitlement to insist upon its terms, which was not subject to any statutory requirement of reasonableness. Towerstone nevertheless contended, inter alia, that: (i) as a matter of construction, it was an implied term that any request made by the lessor pursuant to the proviso had to be genuinely intended to ensure the lessor’s financial security; and (ii) there was no such intention in the instant case.
Held: The forfeiture claim was allowed.
1. While accepting the implied term contended for by Towerstone, it was plain that the claimant had done no more than exercise its right to require such further security as it thought was appropriate in the circumstances. It was entirely legitimate to be concerned about details of inquiries made to referees and the referees’ qualifications to give the references: see British Bakeries (Midlands) Ltd v Michael Testler & Co Ltd [1986] 1 EGLR 64 and Ponderosa International Development Inc v Pengap Securities (Bristol) Ltd [1986] 1 EGLR 66. The claimant was further rightly concerned, inter alia, about the liabilities, contingent and otherwise, that M had incurred in his various business activities, and the fact that the profits allegedly earned by Towerstone were, for the greater part, attributable to the sale of fixed assets.
2. Relief against forfeiture was denied. Not only was the breach deliberate, but M had, on the evidence*, displayed a reprehensible lack of frankness in his dealings with the claimant and others.
* Editor’s note: Much of the evidence related to prior events.
James Aldridge (instructed by Stephenson Harwood) appeared for the claimant; Roger Bartlett (instructed by Porter Crossick) appeared for the defendant.
Alan Cooklin, barrister
