Commercial lease — Prohibition against assignment without landlord’s prior consent — Consent not to be unreasonably withheld — Tenant given option under lease to determine after 10 years — Proposed assignee intending to determine — Whether landlord’s refusal unreasonable — Judgment for landlord
On April 4 1985, a lease was granted of 8-10 Great George Street, London SW1, to the predecessors in title of the plaintiff landlord. The original tenant was ICI Petroleum Ltd, now Enterprise Petroleum Ltd (“EPL”), the proposed assignee. Clause 3(14) of the lease contained an absolute prohibition against assignment by the tenant with the proviso that if all the covenants were complied with then assignment of the whole of the premises would be permitted with the previous consent in writing of the landlord which consent should not be unreasonably withheld. By clause 5(13) of the lease, EPL, and EPL alone, was granted a right to determine the lease at the 10th year of the term (ie March 8 1995) upon giving the landlord more than 12 months previous notice in writing.
EPL assigned its interest to O&Y in 1987. In May 1992 O&Y went into administration. The rent was to be reviewed at five-yearly intervals and had risen from £360,000 pa at commencement to £1,015,000. On December 10 1992 O&Y’s administrators informed OPIL, by formal application, that it intended to assign to EPL and that they intended to complete the transfer in advance of receiving consent. OPIL obtained an injunction the same day to restrain that assignment. The landlord then refused to grant consent on the ground that, if EPL determined the lease, the rent would likely to be reduced by over 50%; that there would probably be a void of a year or more; and that the determination would have an adverse effect on their reversion. It was clear from affidavit evidence that EPL intended to exercise its option to determine.
Held Judgment for the landlord.
1. There was no real dispute as to the facts which showed, inter alia, by evidence of the valuers that there was a major slump in property market and in particular in the commercial sector. At present rental values and, even on an assumed improvement in about 18 months time, the rent likely to be received would be about £500,000 which was under half the present rent.
2. Under common law, a person who averred a fact had to prove it. By statute however, a landlord who refused consent to an assignment had to justify it and show that the refusal was reasonable, thereby reversing the traditional burden of proof.
3. The landlord argued that the terms of clause 3(14) had to be construed and that those were perfectly clear words. By an assignment to EPL the landlord would be severely damaged although there was no objection to EPL per se. It was the disarray of the property market which was the factor that prompted the landlord’s refusal so that the landlord was justified — in this particular instance — reasonably to refuse consent to an assignment. Thereby the statutory burden of proof on the landlord would be satisfied.
4. The question of whether a refusal was reasonable should not be decided by construction of the whole lease but within the meaning of a particular covenant. It was a question of fact which the propositions of law had to satisfy. It was plain that a reasonable landlord could properly come to the conclusion to which the plaintiff landlord had come and the injunction against an assignment to EPL would be continued until after March 8 1995.
Nicholas Patten QC (instructed by Taylor Joynson Garrett) appeared for the plaintiff landlord; Terence Etherton QC and Wayne Clark (instructed by Allen & Overy) appeared for O&Y.
