Landlord and tenant — Assignment of long lease — Complaint by tenants that consent to assignment had been unreasonably withheld — House in bad condition on the Grosvenor Estate — Plaintiff tenants had taken an assignment from predecessors who had failed to carry out repairs — Plaintiffs had not entered into a direct covenant to observe the terms of the lease but were, of course, liable while the lease was vested in them — Plaintiffs drew up a scheme of works which was approved by defendant landlords, but before the scheme could be implemented plaintiffs entered into an agreement to assign to a neighbouring proprietor who was interested in the possibility of combining the two houses — As time went on, the defendants were becoming concerned about the delay in carrying out repairs and it was evident that the proposed assignee did not want to carry out the plaintiffs’ scheme — In reply to the plaintiffs’ pressure for the completion of the licence to assign the defendants laid down as conditions of the grant a strict timetable for the completion of the works and requirements to guarantee the security of the proposed assignees’ financial position — Eventually the present originating summons was issued
landlords referred to the propositions set out by Balcombe LJ in International
Drilling Fluids v Louisville Investments (Uxbridge) Ltd and claimed that, in view of
the ruinous state of the premises and the failures of the plaintiffs and their
predecessors in title, they were entitled to be satisfied that a prospective
assignee was ready, willing and able to put the house into good repair within a
reasonable time — They were not so satisfied because the prospective assignee
(1) had not agreed to a timetable for the works, (2) had broken promises to
execute some urgent works, (3) had been balked
find another purchaser and sell at a profit, and (4) had not satisfied the
financial conditions required by the estate
considered that these reasons formed the basis of a decision to refuse consent
to which the defendants might reasonably have come — He rejected a number of
objections put forward by the plaintiffs, including a suggestion that the
refusal imposed a burden on them disproportionate to the benefit to the
defendants — Plaintiffs’ summons 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
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
This was an
application by the tenants, Orlando Investments Ltd, for a declaration that
consent to the assignment of their lease of a house at 25 Wilton Crescent,
London SW1, had been unreasonably refused by their landlords, Grosvenor Estate
Belgravia, an unlimited company holding a reversionary lease from the trustees
of the Grosvenor Estate.
Mark
Blackett-Ord (instructed by Dawson & Co) appeared on behalf of the
plaintiffs; Paul de la Piquerie (instructed by Boodle Hatfield) represented the
defendants.
Giving
judgment, HOFFMANN J said: This is an application by a tenant of a house on the
Grosvenor Estate for a declaration that consent to an assignment has been
unreasonably withheld. The house is 25 Wilton Crescent. The tenant is a
corporate vehicle of His Highness Sayyid Qais bin Tarik Al-Said, a citizen of
the Sultanate of Oman, who has guaranteed the company’s obligations under the
lease. The reversion is vested in the defendant, an unlimited company which
holds a reversionary lease from the trustees of the Grosvenor Estate.
The lease is
for a term of 51 years from March 25 1985 at a ground rent of £3,200 (subject
to review) and was granted to the plaintiff’s predecessor, Gable House
Properties plc, on June 10 1985. At that time the house was in a very poor
state of repair. The tenant covenanted that the house would be put into repair
and used as a single private dwelling-house. There was also a covenant against
assignment without the written consent of the landlord, such consent not to be
unreasonably withheld.
The tenant did
not carry out any repairs, but within six months sold the lease to the
plaintiff for £900,000. Licence to assign was granted on January 21 1986. The
plaintiff did not enter into a direct covenant to observe the terms of the
lease and consequently any further liability on the part of the plaintiff or
its surety will cease upon an assignment of the lease.
In the first
half of 1986 there were negotiations between the plaintiff and the Grosvenor
Estate concerning a scheme for alterations which the plaintiff wished to
undertake. In June 1986 the estate gave approval to the plaintiff’s scheme
subject to various conditions including the execution of a formal licence and
to the obtaining of listed building and planning consents. The works were to be
commenced within six months and completed within 18 months. Although the
consents were obtained, there was considerable delay in starting the work and
the plaintiff does not appear to have placed a contract with a builder until
the second half of 1987. Then, before any work had begun, the plaintiff
received an offer to buy the house for £1.25m. This was from a Mr Dupee, the
owner of the house next door, who had the idea that the two houses could be
combined. The plaintiff cancelled the contract with the builders and instead
entered into a contract dated October 8 1987 to sell to a company controlled by
Mr Dupee, subject to condition 11(5) of the National Conditions of Sale (20th
ed) which requires the vendor to use its best endeavors to obtain a licence to
assign.
Even before
the agreement to sell to Mr Dupee, the Grosvenor Estate had been showing
concern about the delay in carrying out repairs. On October 6 1987 it gave
notice of its intention to serve a formal notice of breach of covenant. On the
following day the plaintiff’s solicitor replied asking the estate to hold its
hand until the sale to Mr Dupee had been completed. He added:
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 Estate’s
surveyor in this connection.
The plaintiff
then made formal application for a licence to assign and on October 23 1987 the
estate’s solicitors replied saying:
Consideration
has been given to your application for a licence to assign against the
background of the fact that, as mentioned in our letter of October 6, this
property is in a very poor state of repair. Both Gable House Properties and
your client Company have failed to meet their Lease obligations in this respect
and neither company has carried out works of conversion to reinstate private
dwelling-house use in accordance with approved drawings.
The letter went
on to state conditions upon which a licence would be granted. In summary, these
amounted to a requirement that Mr Dupee would covenant to carry out the
plaintiff’s scheme, starting by the end of the year and finishing by September
29 1988 and that references would be produced to show that Mr Dupee or his
company had or had access to enough money (estimated at about £400,000) to put
the house into repair.
It soon became
apparent that Mr Dupee did not want to carry out the plaintiff’s scheme. He had
ideas of his own, which, as I have mentioned, included combining parts of the
house with his existing premises. There followed negotiations between the
estate’s surveyor and Mr Dupee and his advisers, which seem to have been
conducted in a somewhat relaxed fashion by the latter, much to the irritation
of the plaintiff. The estate would in no circumstances agree to the joining of
the two houses and the negotiations reached no conclusion. In the meanwhile the
house remained in ruinous condition. On January 4 1988 the estate served a
notice under section 146 of the Law of Property Act 1925 which required certain
essential works to be carried out by March 31 1988 and the premises to be put
into full repair by December 31 1988. The estate say that Mr Dupee, in the
course of the negotiations, promised that he would carry out the essential
works, first by March 31 and then by April 30, but that both these dates passed
without anything being done. There is nothing to controvert this evidence.
On March 29
1988 the plaintiff’s solicitor’s patience snapped and he wrote a peremptory
letter to the estate’s solicitors asking for a licence to assign within seven
days. A draft of the licence in common form had already been agreed; the
undertakings by Mr Dupee as to the nature of the works to be executed were
intended to be embodied in a separate agreement. The estate’s solicitors
replied on March 30 1988:
. . . it may
well be that bearing in mind that there is an outstanding 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.
The
plaintiff’s solicitor replied with a threat of legal proceedings and on April
18 1988 the estate’s solicitors spelled out the conditions upon which a licence
would be granted:
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 three 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 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 to
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.
On April 25
the originating summons in this action was issued. Since then nothing further
has been heard directly from Mr Dupee except a letter from his solicitor to the
plaintiff dated June 20 asking for his deposit back. But the plaintiff’s
solicitor wrote to the estate on March 31 saying that Mr Dupee’s company was
abandoning the negotiations for consent to a new scheme of alterations but
would ‘accept in full the terms of the underlease’. The plaintiff has also
obtained a banker’s reference on Mr Dupee and his company which says:
Whilst your
figures are higher than we have seen we believe that the director is a man of
some means and should prove good for the amount of your inquiry. Expenditure
between £400,000 and £500,000.
The
expenditure contemplated by Mr Dupee for the house and repairs was actually
£1.75 million.
The principles
upon which the courts decide whether consent to assignment has been
unreasonably withheld have been recently summarised by Balcombe LJ in International
Drilling Fluids v Louisville Investments (Uxbridge) Ltd [1986] Ch
513*. Mr de la Piquerie relies on two: first, that the onus of proving that
consent has been unreasonably withheld is on the tenant; second, that it is not
necessary for the landlord to prove that the conclusions which led him to
refuse consent were justified, if they were conclusions which might be reached
by a reasonable man in the circumstances. The estate says that having regard to
the ruinous state of the premises and the failures of, first, Gable House
Properties plc and then the plaintiff to comply with the repairing covenants or
even the notice of breach of covenant relating to urgent works, it was entitled
to be satisfied that a prospective assignee was ready, willing and able to put
the house into good repair within a reasonable time. It was not so satisfied in
respect of Mr Dupee and his company for several reasons. 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.
*Editor’s
note: Also reported at [1986] 1 EGLR 39; (1986) 277 EG 62.
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. But I must deal in more
detail with some of the engagingly presented submissions of Mr Blackett-Ord on
behalf of the plaintiff.
First, he said
that the estate were not entitled to take any point on Mr Dupee’s financial standing
because that had not actually influenced their minds when they refused consent:
see Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019, at
p 1034† . I do not think that this is supported by the evidence. 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.
† Editor’s
note: Also reported at (1982) 266 EG 1189, [1983] 1 EGLR 65.
Second, he
said that the estate could not rely upon the fact that the house was in
disrepair as a sufficient reason in itself for refusing consent. That may be
true, but I do not think that the estate’s refusal can be so construed. It is
clear that if the estate were satisfied that Mr Dupee was ready, willing and
able to comply with the repairing covenants within a reasonably short period,
it would grant a licence notwithstanding the lamentable breaches of covenant
which presently exist. The refusal relates not simply to the breaches of
covenant but to the desirability of the proposed assignee as a tenant who can
be relied upon to remedy those breaches. That is a proper ground for the estate
to take into account; see the first proposition of Balcombe LJ in the International
Drilling case.
Third, he said
that in asking for a covenant to execute the repairs within a specified
timetable and ‘to [the estate’s] complete satisfaction’ the estate was being
unreasonable because it was asking for more than its contractual entitlement
under the lease. It should be content with its right to bring forfeiture
proceedings against Mr Dupee’s company. It seems to me, however, that in view
of the past delays in compliance with the repairing covenants, it cannot be
unreasonable for the estate to view with reluctance the possibility that,
instead of the repairs being swiftly put in hand, it will at some future date
be faced with an application by Mr Dupee for a licence to assign to yet another
purchaser. The prospect of having to commence proceedings for the forfeiture of
a valuable lease, which would be time-consuming and uncertain, is unattractive.
I do not think that it is unfair for the estate to demand evidence of a
commitment to the undertaking of the work by the acceptance of a specific
timetable and the provision of security for payment. It was also suggested that
the words ‘to [the estate’s] complete satisfaction’ introduced an unreasonable
element of subjectivity, but the language of the repairing covenant was
substantially the same and no point was taken by the plaintiff on the precise
wording of the condition.
Fourth, Mr
Blackett-Ord said that the burden on the tenant caused by refusal was
disproportionate to the benefit which would be gained by the landlord and the
refusal was on that ground unreasonable. The repairing obligations in the lease
were extremely onerous and there was nothing which the plaintiff could do to
compel Mr Dupee to accept the estate’s conditions. Meanwhile the plaintiff was
running up its liability for interest on the money borrowed to buy the house
and might lose the contract with Mr Dupee altogether. As far as the estate were
concerned, there was no real prejudice, because sooner or later the repairs
would be done or, if they were not, the lease would be forfeited.
In my view,
the burden imposed on the plaintiff is not unreasonable. It bought the lease
with full knowledge of the extent of the necessary repairs and promised to have
them done. It is now free to assign the lease provided only that it can find an
assignee who is ready, willing and able to perform the obligations which it
should have performed itself. There should be no difficulty about finding such
an assignee. It all depends upon the price which he is asked to pay. It is possible
that, having regard to those obligations, he may not be willing to pay as much
as Mr Dupee. But that is not, in my view, a reason why the estate should have
to accept a continued state of disrepair while the house is passed from what
may be one speculative purchaser to another.
The summons is
therefore dismissed.
