Landlord and tenant — Proposed assignment of long lease — Complaint by tenants that landlords’ consent to assignment had been unreasonably refused — Tenants’ appeal from decision of Hoffmann J dismissing their complaint — Appellants were in fact underlessees of a large house in Belgravia, their landlords (the present respondents) holding a headlease from the trustees of the Grosvenor Estate
property was in extremely bad condition, there having been extensive breaches
of repairing covenants — Appellants had themselves taken an assignment from
predecessors who had failed to carry out necessary works — Underlease included
repairing covenants and covenants restricting assignments, to keep as a private
dwelling-house and restricting alterations — Appellants drew up a schedule of
works which was approved by the respondent landlords, but before it could be
implemented appellants entered into an agreement to assign the underlease to a
neighbouring proprietor who was interested in the possibility of combining the
two houses — Time dragged on and it became evident that the proposed assignees
did not want to carry out the appellants’ scheme — Respondents became
increasingly concerned about the delay in carrying out the works and, in reply
to the appellants’ pressure to complete the licence to assign, laid down a
strict time-table for completion of the works and requirements for guaranteeing
the security of the proposed assignees’ financial position — Respondents also
required direct covenants from the proposed assignees and their guarantor —
Eventually the appellants sought a declaration that the respondents had acted
unreasonably
referred for guidance to the principles set out by Balcome LJ in International
Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd and examined in the light of
these principles the reasons given by the respondents for refusing consent —
These reasons were: (1) the unwillingness of the proposed assignees to observe
a time-table for the works of repair; (2) a breach of promise to execute urgent
repairs; (3) a possible lack of incentive by the proposed assignees to complete
the works, as the plan to combine the two houses had been frustrated by the
respondents; and (4) the absence of financial references in respect of the
proposed assignees and their willingness to enter into a performance bond or
deposit — Hoffmann J accepted these reasons as justifying the respondents’
refusal of consent
of Appeal it was accepted that the first of the reasons given by the
respondents should be left out of account as it related to events which had
occurred after the material date when the question of reasonableness had to be
judged — The court, however, despite arguments by the appellants to the
contrary, upheld Hoffmann J’s endorsement of the remaining three reasons — The
court then considered the possible application of the following three
propositions of law put forward by the appellants: (1) it is unreasonable for a
landlord to withhold consent to an assignment if he will have the same rights
against the assignee as he had against the assignor; (2) a landlord can rely
only on reasons which actually influenced his mind at the relevant date; and
(3) it is unreasonable for a landlord to refuse his consent when such refusal
will produce an unreasonable disproportion between the benefit to the landlord
and the detriment to the tenant — The court did not question the validity of
these propositions but held that, on the facts, the respondent landlords’
conduct did not conflict with any of them — Hoffmann J had arrived at an
entirely correct conclusion — Appeal dismissed
The following
cases are referred to in this report.
Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR
1019; [1982] 2 All ER 890; (1982) 44 P&CR 266; [1983] EGD 492; 266 EG 1189,
[1983] 1 EGLR 65, CA
Farr v Ginnings (1928) 44 TLR 249
Goldstein v Saunders [1915] 1 Ch 549
International Drilling Fluids Ltd v Louisville Investments
(Uxbridge) Ltd [1986] Ch 513; [1986] 2 WLR 581; [1986] 1 All ER 321; (1985)
51 P&CR 187; [1986] 1 EGLR 39; (1985) 277 EG 62, CA
Killick v Second Covent Garden Property Co
Ltd [1973] 1 WLR 658; [1973] 2 All ER 337; (1973) 25 P&CR 332; [1973]
EGD 377; 227 EG 1849, CA
This was an
appeal by the plaintiffs, Orlando Investments Ltd, from the decision of
Hoffmann J (reported at [1988] 2 EGLR 97) in which he dismissed the plaintiffs’
originating summons seeking a declaration that consent to the assignment of
their underlease of a house at 25 Wilton Crescent, London SW1, had been
unreasonably refused by their landlords, Grosvenor Estate Belgravia, an
unlimited company holding the premises under a headlease granted by the
trustees of the Grosvenor Estate. The proposed assignment of the underlease was
to PCE Investments Ltd, a company owned and controlled by the owner of the
next-door property, 24 Wilton Crescent, Mr Paul Dupee.
Mark
Blackett-Ord (instructed by Dawson & Co) appeared on behalf of the
appellants; Paul de la Piquerie (instructed by Boodle Hatfield) represented the
respondents.
Giving the
first judgment at the invitation of May LJ, NOURSE LJ said: This is a case in
which a tenant claims that his landlord has unreasonably refused consent to a
proposed assignment of the lease. There have been admitted and extensive
breaches of the tenant’s repairing covenants, in respect of which a section 146
notice has been served. Before that there were lengthy negotiations for a
scheme of alterations and improvements to the premises. The negotiations having
come to nothing and the section 146 notice not having been complied with, the
landlord stipulated that the proposed assignee and guarantor should enter into
direct covenants to carry out the repairs and also that the proposed assignee
should provide security for the performance of those covenants. On July 19 1988
Hoffmann J held that it was not unreasonable for the landlord to refuse his
consent if those stipulations were not met. The tenant has now appealed to this
court.
The demised
premises consist of a large house, 25 Wilton Crescent, London SW1, together
with a mews garage at the rear forming part of 9 Wilton Row. The landlord is
the defendant, Grosvenor Estates Belgravia, an unlimited company which holds
the premises under a headlease granted to it by the trustees of the Grosvenor
Estate. By an underlease dated June 10 1985 and made between the defendant as
landlord of the one part and a company called Gable House Properties plc
(‘Gable House’) as tenant of the other part, the premises were demised for a
term of 51 years from March 25 1985 at no premium and at an initial yearly rent
of £3,200, subject to review. By clause 2, the tenant covenanted: (III) that it
would at all times during the term well and sufficiently repair, paint, paper
and cleanse the whole of the demised premises; (IX)(a) that it should not
assign the demised premises otherwise than as a whole and would assign only
with the previous written licence of the landlord or its solicitors (provided
that such licence should not be unreasonably withheld); (X) that the demised
premises should be kept and used as a single private dwelling-house and private
garage in the occupation of one family only, and (XII) that no alteration
should be made to the premises except in accordance with a certain drawing and
specification.
It is only
this morning, during the argument of Mr de la Piquerie for the defendant, that
we have been properly informed as to the circumstances in which the underlease
came to be granted. The premises were previously underlet to another tenant,
being then divided into maisonettes and flats. His term would have expired on
the same date as that until which the term of the current underlease has been
granted, but in 1985 it was surrendered to the defendant. Mr de la Piquerie
suggested that the surrender was made in consideration of a premium paid by
Gable House to the original subtenant. In any event he says that, if not as a
matter of positive obligation under the terms of the underlease (something
which may be open to argument), the understanding was that Gable House would
restore the premises for use as a single dwelling-house. That would explain the
provisions of clause 2 (X) and (XII) of the current underlease. I state those
facts, because they will make it easier to understand what the parties had in
mind at a later stage with which we are more directly concerned. I would add
that it seems to be somewhat unsatisfactory that we should have learnt about
all this at such a late stage and not by way of evidence in the normal way.
On January 22
1986, some seven months after the grant of the underlease, the premises were
transferred by Gable House to the plaintiff, Orlando Investments Ltd, at a
price of £900,000. The assignment effected by that transfer was duly licenced
by the defendant by a licence made on the previous day, in which an individual
joined in order to guarantee the plaintiff’s performance of the tenant’s
covenants in the underlease.
At the date on
which the underlease was granted, and at all times since, the premises have
been in a very poor state of repair. Furthermore, it is evident that during the
seven months or so when the underlease was held by Gable House nothing was done
by it in order to restore the premises for use as a single dwelling-house. Be
that as it may, Mr Blackett-Ord, for the plaintiff, accepts that the effect of
clause 2(III) of the underlease was to impose an obligation on the tenant to
put the premises into a proper state of repair, which obligation descended on
to the shoulders of the plaintiff on the transfer to it of the premises.
However, no steps were taken to enforce that obligation while negotiations took
place between the plaintiff and the defendant in the first half of 1986 for
alterations and improvements to the premises which the plaintiff wished to
undertake. That scheme, which has come to be known as the Orlando scheme, was
approved by the defendant in June 1986, subject to the execution of a formal licence
and the obtaining of listed building and planning consents, the works to be
commenced within six months and completed within 18 months. The necessary
consents were duly obtained, but the works were not commenced within six
months. It was not until the second half of 1987 that the plaintiff engaged a
builder to carry them out. Meanwhile the defendant had been expressing concern
about the delay and the deteriorating state of the premises. On October 6 1987
it gave notice of its intention to serve a section 146 notice.
That proposal
was overtaken at that stage, because on October 8 1987 the plaintiff entered
into an agreement for the sale of the underlease to PCE Investments Ltd, a
company owned and controlled by the owner of the next-door property, 24 Wilton
Crescent, Mr Paul Dupee, at a price of £1.25m, the date fixed for completion
being November 9 1987. The agreement incorporated the National Conditions of
Sale, 20th ed, clause 11(5) of which provided that the sale was subject to the
reversioner’s licence being obtained, where necessary, the purchaser supplying
such information and references, if any, as might reasonably be required of
him, the vendor to use his best endeavours to obtain such licence and to pay
the fee for the same. It went on to provide that, if the licence could not be
obtained, the vendor might rescind the contract on the same terms as if the
purchaser had persisted in an objection to the title which the vendor was
unable to remove. At about the time that it entered into that agreement, the
plaintiff cancelled its contract with the builder, who had not by that time
progressed very far with the works.
Between
October 7 1987 and April 18 1988 there ensued a correspondence between the
solicitors on each side, which culminated in the defendant’s agreement to
consent to an assignment to Mr Dupee’s company only on the terms to which I
have referred. It is in large part by reference to this correspondence that the
reasonableness or unreasonableness of the defendant’s attitude is to be judged.
I must therefore refer to the more important of the letters.
On October 7
the plaintiff’s solicitor, in giving notice of the impending sale to Mr Dupee
and his forthcoming application for a licence to assign, said:
It is fully appreciated that you are entitled
to impose conditions as regards the carrying out of necessary works in
connection with the granting of licence to assign and I shall be grateful if
you will please keep in close touch with the Estates’ surveyor in this
connection.
Formal
application for the licence was made on the following day and bank references
for the company relating to its ability to meet the rent of £3,200 followed
shortly afterwards. The defendant’s initial assumption was that Mr Dupee was
going to take over the Orlando scheme. On October 23 its solicitors wrote to
the plaintiff’s solicitor stating that it was prepared to consider agreeing to
the proposed assignment only on certain terms, including the following:
3 Mr Dupee to guarantee the proposed Assignee
Company, PCE Investments Limited.
4 References are to be produced to indicate
that the proposed Assignee/Surety have or have access to sufficient funds, say
£400,000, in order to put the property into repair.
By November 17
the defendant’s solicitors had been told by Mr Dupee’s surveyor that he did not
like the Orlando scheme. On November 30 there was a meeting between Mr Dupee’s
solicitor (I think that Mr Dupee himself was not present) and the defendant’s
surveyor and solicitors, when conditions were laid down on behalf of the
defendant, which were later described on the one side as ‘very tough and to an
extent unreasonable’ and on the other as ‘very firm, but fair rather than
tough’. It appears, however, that at that meeting it was promised on Mr Dupee’s
behalf that he would carry out essential works to make the premises wind and
watertight by the end of the year. I should interpose here to say that,
although some work on the premises had been done by the plaintiff in 1986, that
was directed to the removal of rubbish and to making the premises secure. Mr
Blackett-Ord does not rely on that as showing that the premises were then made
wind and watertight. It appears that they have never been made wind and
watertight. We have seen photographs taken in May 1988 showing, among other
things, gaping holes above the roof rafters, a state of affairs which is no
doubt responsible for the invasion of the premises by pigeons.
To return to
the correspondence, on January 4 1988 the defendant’s solicitors wrote to the
plaintiff’s solicitor stating that little or no progress had been made towards
making the premises wind and watertight and enclosing copies of a section 146
notice and a covering letter which had been served at the premises that day.
The effect of those documents was to require the essential works to make the
premises wind and watertight to be carried out by March 31 and those necessary
to put them into full repair and good decorative condition by December 31 1988.
It is accepted by Mr Blackett-Ord that the plaintiff was not thereby required
to do any works which it was not obliged to do under the repairing covenant
contained in clause 2(III) of the underlease. Although the notice duly drew the
plaintiff’s attention to its right to serve a counternotice claiming the
benefit of the Leasehold Property (Repairs) Act 1938, no such counternotice,
apparently by an oversight, was served within the appropriate 28 days’ period.
There was
another meeting, this time attended by Mr Dupee personally, on January 13. By
that time it was clear that the fundamental difficulty which had arisen with Mr
Dupee was that he wanted to join the premises up with 24 Wilton Crescent. We
have been told by Mr de la Piquerie that three possible schemes were discussed,
the most modest of which was that there should be access through a single door
in the basement only. But the defendant, as it was entitled to be, was adamant
that no such access should be permitted. On the other hand, there can be no
doubt that the
through, rather than that it should have to rely on its section 146 notice,
which at best would lead to the property only being put into full repair and
would not lead to the premises being restored for use as a single dwelling-house.
The dilemma was stated in a letter from the defendant’s solicitors to Mr
Dupee’s solicitor on January 27, when a draft agreement embodying a Dupee
scheme which would have been acceptable to the defendant was enclosed:
Your Client does not want to carry out
the Orlando Scheme. The Estate has accepted this in principle despite the fact
that the Orlando Scheme has planning and Listed Building Consent and is
virtually ready to go. However, we must put a time limit on Mr Dupee’s
alternative and make provision for what happens if he fails to obtain the
necessary consents for such alternative within a certain period. Mr Lindgren
and I have given a lot of thought to this and have come to the conclusion that
it is not satisfactory for the Estate to be able to forfeit the Lease. I think
that there must be a good chance that Mr Dupee could thwart this by putting the
premises into reasonable repair without carrying out a full scheme to convert
into a single house. Both sides would then be in somewhat of a mess — Mr Dupee
because it is doubtful if the property could be used and the Estate because
there would be an empty and unsatisfactory building.
Accordingly in clause 11 of the enclosed
draft I have built back in the Orlando Scheme. Your Client has until the end of
the year to obtain the necessary approvals and consents for his preferred
Scheme but if he should fail in this respect then it is felt that the only
sensible fall-back is the Orlando Scheme.
On February 3
the defendant’s solicitor wrote to the plaintiff’s solicitor referring to the
proposal that the premises were to be acquired by Mr Dupee through a company.
The letter said:
Nevertheless, I am taking instructions as
to whether or not the Estate is prepared still to proceed in this way and
whether or not it requires references for Mr Dupee. Subject to this I enclose a
draft Licence, with spare copy.
On March 7 the
defendant’s solicitor wrote to the plaintiff’s solicitor dealing with two
points on the draft agreement for the Dupee scheme, one of which concerned the
timing of the withdrawal of the section 146 notice:
The section 146 Notice relates to the
very poor condition of the building as a whole. Carrying out works to make the
premises wind and water tight by the end of March (now extended to the end of
April) goes hardly any way at all towards satisfying the breach. However, I am
sure that once the Estate can be satisfied that Mr Dupee really will be getting
on with the building programme, to the extent that drawings have been submitted
and approved, I shall no doubt be authorised to withdraw the notice.
The Estate is adamant that there be a
fall back to your Client’s scheme. It is the only sensible alternative.
It appears that the fall back to Mr
Dupee’s scheme was to be a reversion to the Orlando scheme. The last paragraph
of that letter was in these terms:
I accept entirely that all parties wish
the problems to be resolved and that there probably will have to be a
considerable element of trust whatever is in the Agreement. However, the
Estate’s attitude with regard to this property is that your Client Company and
the previous Lessee have somewhat conditioned the wariness of the Estate’s
approach. If it were not that the Estate knows Mr Dupee and that he is capable
of carrying out work to a good standard they would not even be talking to him
in relation to this property but this does not mean that the Estate will not
seek to impose realistic conditions through the Agreement.
Nothing much
further happened until March 29. On that day, as Hoffmann J put it, the plaintiff’s
solicitor’s patience snapped, and he wrote a peremptory letter to the
defendant’s solicitors asking for a licence to assign within seven days. On
March 30 the defendant’s solicitor replied in reference to the essential works
as follows:
You may remember that at our meetings Mr
Dupee agreed to carry these out by the end of March, later extended to the end
of April. Unless and until I have received a report in this respect I am
certainly not going to take any further your application for a Licence to Assign
and it may well be that, bearing in mind that there is an outstanding Notice of
Breach of Covenant, the Estate will not be prepared to grant a Licence to
Assign until the future of this building has become more clear. In other words,
the Estate will be looking not only for the emergency works to be carried out
but also to have a firm covenant that general works will be done to put the
building into habitable condition.
On April 11
the plaintiff’s solicitor threatened legal proceedings and on April 18 the
defendant’s solicitors replied as follows:
We understand from our client that
despite the section 146 Notice served on January 4 1988, the property remains
in a most serious state of disrepair and that no steps have been taken to carry
out the essential works shown on the list attached to the Section 146 Notice.
Accordingly, our client would only be
prepared to licence the assignment to PCE Investments Limited on the following
conditions:
1 The
proposed assignee and guarantor covenant with our client in the licence to
assign that the essential works will be carried out to our client’s complete
satisfaction within 3 months of the completion of the assignment, and the
remaining works required to remedy the disrepair will be carried out within 12
months from the completion of the assignment, again to our client’s complete
satisfaction.
2 The
proposed assignee will provide security for carrying out the works either by
way of a performance bond or by the deposit in a joint deposit account with our
client of the cost of the works. Payments from this account would only be made
as and when the various stages of the works are completed to our client’s complete
satisfaction. We have spoken with our client concerning the cost of all the
works, and we are informed that in our client’s opinion the works will cost
£500,000.
Those conditions were not acceptable to
the plaintiff and on April 25 it issued the originating summons in these
proceedings, claiming a declaration that the defendant’s refusal to grant a
licence to assign was unreasonable.
It is
unnecessary to consider events after April 18 1988, because it is on the
material which was then available to the defendant that the question whether
its refusal to consent was reasonable or unreasonable must be judged.
For guidance
as to the principles on which the courts decide whether consent to an
assignment has been unreasonably withheld, Hoffmann J referred to the summary
contained in the judgment of Balcombe LJ in International Drilling Fluids
Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 at pp 519
to 521*. The general rule is that consent may be withheld if there is reason to
suppose that the proposed assignee may commit substantial breaches of the
lessee’s covenants; for example, through being unable or unwilling to pay the
rent or by using the premises for some prohibited purpose. Conversely, consent
may not be withheld for a reason which is unrelated to the lessee’s covenants
and their performance, more especially if the landlord’s purpose is to secure
for himself an advantage to which the lease does not entitle him.
*Editor’s note: Also reported at [1986] 1
EGLR 39 at pp 40-41; (1985) 277 EG 62
The
defendant’s case is that on April 18 1988, faced with a request for a licence
to assign at a time when it appeared that neither the Orlando scheme nor any
Dupee scheme was any longer a practical possibility, and in the light of the
fact that no repairs had been done since the grant of the underlease in June
1985, it was entitled to be satisfied that a prospective assignee was ready,
willing and able, within a reasonable time, to do the repairs which ought to
have been done within a reasonable time after June 10 1985. Hoffmann J set out
the reasons which the defendant had put before him for its not being so
satisfied in respect of Mr Dupee and his company as follows:
First, because he had been unwilling to
agree to the condition requiring the works of repair to be completed according
to a specific timetable. Second, because he had broken promises to execute the
urgent works. Third, because the object with which he had originally bought the
house, namely to join it to his own, had been prevented by the estate’s refusal
of consent and he might therefore have no incentive to do anything except find
another purchaser to whom he could sell at a profit. Fourth, because the estate
had no financial references for Mr Dupee or his company beyond their ability to
pay the ground rent and he was unwilling to accept the condition requiring a
performance bond or deposit.
In my judgment, these reasons, relating
as they all do to the suitability of the proposed assignee as a tenant of these
particular premises, formed the basis of a conclusion to refuse consent to
which the estate could reasonably have come. On this short ground I would
dismiss the application.
The
defendant’s evidence as to these matters is contained in an affidavit of its
deputy chief building surveyor, Mr N A Hughes [BSc ARICS], sworn on June 3
1988, principally in para 10:
The conditions imposed in the letter of
the 18th April 1988 were imposed in the light of (1) the repeated promises by
Mr Dupee to put the premises into wind and watertight condition, which promises
were broken, (2) the inability of Mr Dupee to implement the plans which he
wished to implement when he entered into the contract due to the refusal of the
Defendant, (3) the failure of the proposed assignee and/or surety to furnish
the necessary evidence that either or both of them had access to sufficient
funds to put the property into good repair. The Defendant did not have
confidence in the absence of a security bond being proffered that the repairs
would be carried out by the prospective assignee. The Defendant feared that it
would find itself in the same position which it finds itself today, namely that
a period in excess of some two years has passed since the Plaintiff acquired
the Lease with the premises in a continuing deteriorating condition and no
works of repair being carried out. In short, the Defendant had lost confidence
in the prospective assignee abiding by his promises and carrying out the
necessary works of repair without giving security.
I will deal
with each of the four reasons as stated by the judge in
attitude after April 18 when the conditions were imposed. As I have said,
events after that date are immaterial and so that is a reason which ought to be
left out of account. However, Mr Dupee’s attitude as to the urgency of the
repairs is sufficiently demonstrated by the second reason, which on the
evidence is well made out. Apart from the references in the correspondence to
what was said at meetings, there is another passage in Mr Hughes’ affidavit of
June 3 1988 at para 7 where he refers to those discussions:
During the course of those discussions Mr
Dupee has promised initially to carry out necessary works to make the building
wind and water-tight by the end of 1987 which date was subsequently extended by
agreement to the end of February 1988, further extended by agreement between
the Defendant and Mr Dupee until March 1988, and finally until the 30th April
1988. Each of those promises has been systematically broken. The premises have
not been made wind and watertight and remain partially open to the elements to
this day.
On p 3 of his judgment the learned judge
said, and Mr Blackett-Ord accepts, that there was nothing to controvert that
evidence.
The third
reason, although not perhaps on its own a conclusive one, is also made out. It
is, I think, an extension, by inference, of the second consideration mentioned
in para 10 of Mr Hughes’ affidavit. In the light of Mr Dupee’s apparent
reluctance to go ahead without some connecting access between the two
properties, the defendant, in my view reasonably, feared that he would not be
prepared to do anything about the repairs himself.
As to the
second and third reasons, Mr Blackett-Ord has argued strongly that they were
unfair to the plaintiff, partly because Mr Dupee would not in practice have
been able to do any repairs before he could be sure that his purchase would
proceed and partly because the real object of the defendant was not to get the
repairs done but to ensure that some scheme of alteration and improvement was
carried out. I do not think there is anything in the first of these points. It
was well open to the judge to infer from the evidence as a whole that the
plaintiff would gladly have allowed Mr Dupee into the premises to make them
wind and watertight and there is no evidence to suggest that those essential
works would in any way have interfered with or prejudiced any scheme of
alteration and improvement which Mr Dupee might have wanted to carry out. The
second point is one of greater substance, but on consideration I do not think
that it enables the plaintiff to get home. It is no doubt perfectly correct
that the defendant would have preferred a scheme of alteration and improvement
and it was prepared to wait until nearly three months after the service of the
section 146 notice in order to see whether some accommodation with Mr Dupee
could be found. It might have been prepared to wait even longer. But that was
never put to the test, because it was not the defendant, but the plaintiff,
with its peremptory request for consent to an assignment, which brought matters
to a head. At that stage it seems that there was no alternative reasonably open
to the defendant, albeit that it might lead to a state of affairs which would
be very much a second choice, except to fall back on its section 146 notice and
to proceed on the footing that, at any rate so far as the plaintiff or Mr Dupee
was concerned, no scheme of alteration and improvement was possible.
The
plaintiff’s peremptory request is also part of the answer to another point made
by Mr Blackett-Ord, which was that the plaintiff had no control over Mr Dupee
and that it was therefore unreasonable to impose conditions which the plaintiff
could not get him to meet. The other part of the answer is, as Mr de la
Piquerie pointed out, that it was the plaintiff’s own choice to enter into the
agreement to sell the premises to Mr Dupee in October 1987 without first finding
out what the defendant would have required of him in relation to the premises.
I now come to
the fourth reason, which Mr Blackett-Ord has also strongly attacked, on the
ground that Mr Dupee’s financial standing and his ability to pay for the
repairs had been accepted long before April 18, so that it was unreasonable of
the defendant to require security. Mr Blackett-Ord submits that the effect of
the last paragraph of the defendant’s solicitor’s letter of March 7 was to
dispense with the requirement for references in regard to Mr Dupee. Hoffmann J
dealt with Mr Blackett-Ord’s argument on the fourth reason in this way:
In their initial reply to the request for
a licence, the estate’s solicitors had said on October 23 1987 that references
would have to be produced to show that Mr Dupee had access to sufficient funds
to put the property into repair. Mr Blackett-Ord said that this requirement was
afterwards dropped, but there is nothing in the correspondence to show that it
was. It was not expressly mentioned while Mr Dupee was negotiating with the
estate for his alternative scheme, but that does not suggest that it was
abandoned. On February 3 the estate’s solicitor said that he was taking
instructions on whether the estate required references for Mr Dupee and when
the estate formulated its conditions for granting a licence, the performance
bond condition was included. In my judgment, the evidence shows that concern
about whether Mr Dupee would have the ready money to pay for the repairs was a
matter which influenced the estate in refusing consent.
I agree with the learned judge that on a
fair reading of the correspondence, there is nothing, not even in the letter of
March 7, which shows that the requirement was dropped. In any event, as I have
said, by April 18 the position was different. The defendant was not considering
consent to an assignment which would have led to some Dupee scheme. It had by
then been forced to realise that it was going to have to rely on the section
146 notice. It does not appear to me that it would necessarily have been
unreasonable for the defendant at that stage to introduce some new condition
for giving its consent.
In regard to
the specific conditions spelled out in the letter of April 18, Mr Blackett-Ord
argued that the first, standing alone, was unreasonable. He did not really
object to the proposal that the company and Mr Dupee should enter into direct
covenants with the defendant to carry out the works within the periods
specified. But he said that for them to be done to the defendant’s complete
satisfaction would achieve for the defendant an advantage to which it was not
entitled under the terms of the repairing covenant. If there is anything at all
in that point, it is so small as to be de minimis. The true view, as I
think, is that, if the covenant was duly complied with, it would not avail the
defendant to say that it was not completely satisfied as to the works. It may
well be that it would have been unreasonable for the defendant to impose the
first condition, had it not been for the history in this case; the material
considerations being, first, that this was the second proposed assignment when
no repairs had been done and, second, that it was an assignment to a proposed
assignee who had already shown himself entirely disinclined to carry out
essential works to make the premises wind and watertight.
It was really
towards the second condition that Mr Blackett-Ord’s complaints were directed.
He submitted that even if, as I have now held, it was reasonable for financial
references to be required, it was unreasonable to require security for the due
execution of the repairs, either by way of performance bond or by way of
deposit. I am unable to accept that submission. It is made entirely clear by Mr
Hughes’ evidence that the purpose of obtaining the security was not simply to
demonstrate Mr Dupee’s ability to pay for the repairs. It was to demonstrate
his willingness to do them. Mr Blackett-Ord says that his willingness to do
them was irrelevant, but in my view, after all that had gone before, it was not
unreasonable for the defendant to require that there should be money on the
table. It was reasonable to expect that a prospective assignee, who professed
himself willing to perform the tenant’s covenants in the underlease, would be
willing to give that additional proof of his willingness.
Mr
Blackett-Ord has also relied on three propositions of law. First, he submits
that it is unreasonable for a landlord to withhold consent to an assignment if
he will have the same rights against the assignee as he has against the
assignor. As authority for that proposition Mr Blackett-Ord referred us to the
decision of this court in Killick v Second Covent Garden Property Co
Ltd [1973] 1 WLR 658. In that case both the lease and underlease of the
premises contained a covenant that they should not be used for any other
purpose than the trade or business of a printer. The lessee and underlessee
desired to assign the lease and underlease to a company which proposed to use
the premises as offices. At the date of the assignment there had not been a
breach of the user covenants, because the premises were indeed being used for
the trade or business of a printer. There was a dispute as to whether the
proposed use as offices would in fact have been in breach of the user
covenants. The decision of this court was that it was unreasonable for the
landlord to refuse his consent, because if there had thereafter been a breach
of the covenants, his remedies would have been exactly the same against the
assignee as they would have been against the assignor. In my view, that
principle does not assist a tenant in a case where, at the date of the proposed
assignment, there are long-standing and extensive breaches of the covenant to
repair. In such circumstances the landlord is in general entitled to refuse his
consent unless he can be reasonably satisfied that the proposed assignee will
remedy the breaches.
Support for
that view of the matter can be found in Farr v Ginnings (1928) 44
TLR 249. Although the decision is reported only briefly, I think that its ratio
is correctly expressed in the headnote, which is in
Where a lease contains a covenant by the
lessee to repair and a provision that the lessor’s consent to an assignment by
the lessee is not to be unreasonably withheld, the mere fact the lessee is
committing a continuing breach of the covenant to repair does not necessarily
entitle the lessor to refuse his consent to an assignment, at all events where
the amount of disrepair is not very serious.
That was a case which went the other way.
But the repairs which were necessary were not estimated to cost more than £100,
which, even in February 1928, was not a very large sum. Moreover, in the course
of his judgment Clauson J said:
There had been no pressure on the
plaintiff to do the repairs, as nearly two years elapsed before the second
application was made for the repairs to be done. It was quite different from
the case of Goldstein v Sanders [1915] 1 Ch 549, where the state
of things as to repairs was ‘little short of being outrageous’.
In Goldstein v Sanders, a
decision of Eve J, there were other matters which the landlord was able to
complain of, as well as the state of repair. What Eve J said (at p 555) was
that ‘the state of things existing on the premises was little short of being
outrageous’. Be that as it may, the combined effect of those two decisions is
that if there are breaches of the covenant to repair which are anything more
than minimal, more especially if they are extensive and of long standing, it is
not in general unreasonable of a landlord to refuse his consent to an
assignment unless he can be reasonably satisfied that the proposed assignee
will remedy them.
Mr
Blackett-Ord’s second proposition is that the landlord can rely only on reasons
which actually influenced his mind at the relevant date. For that he has relied
on a passage in the judgment of Slade LJ in Bromley Park Garden Estates Ltd
v Moss [1982] 1 WLR 1019 at p 1034. I certainly do not question that
proposition. But, with the immaterial exception of the first reason, it does
not seem to me that the defendant has sought to rely on reasons which did not
actually influence his mind at the relevant date.
Mr
Blackett-Ord’s third proposition is that it is unreasonable for a landlord to
refuse his consent when that will produce an unreasonable disproportion between
the benefit to the landlord and the detriment to the tenant. That was the sixth
proposition stated by Balcombe LJ in the International Drilling case at
p 521. In my view, Mr Blackett-Ord has been unable to relate that proposition
to the facts of the present case in any way which can assist him. The benefit
to the defendant is to get the repairs done. That is no more than what he is
entitled to by virtue of the covenant. The detriment to the plaintiff is that
it will not be able to assign the underlease. It will therefore be left with it
and, if no accommodation can be arrived at, it will have to do the repairs
itself. In one sense that is a detriment to the plaintiff, but, as Mr de la
Piquerie has pointed out, it is not a detriment on which it is entitled to rely
when it purchased the premises with its eyes fully opened both as to the extent
of the disrepair and as to the nature of its obligations.
Having
carefully considered all the arguments which Mr Blackett-Ord has put forward, I
have come to a clear conclusion that the second, third and fourth of the
defendant’s reasons for refusing consent, as recounted by Hoffmann J, were
reasons which influenced the defendant’s mind at the material time. They were
sufficient reasons for the defendant’s refusal of consent except on the terms
stipulated. On the facts of this case it was entirely reasonable for the
defendant to require that the direct covenants of the proposed assignee company
and Mr Dupee should be backed by security in one or other of the forms
stipulated. In my judgment, the refusal of consent was reasonable. I think that
the learned judge came to an entirely correct decision in this case and I would
dismiss this appeal accordingly.
MAY and NEILL
LJJ agreed and did not add anything.
The appeal was dismissed with costs.