Commercial premises — Covenant against alienation — Landlord not to unreasonably withhold consent — Tenant wishing to assign — Landlord seeking amendment to existing lease — Whether landlord entitled to insist upon amendment as precondition of assignment — First instance decision in tenant’s favour — Whether landlord’s insistence that earlier licence to assign be executed was reasonable — Landlord’s appeal dismissed
In 1985 a lease was entered into between the then landlords, M Ltd, and Roux Continuation Ltd as tenant of 61 and 63 Lower Sloane Street, Chelsea; the term was for 20 years at a rent of £20,500 subject to review. There was a covenant against alienation without prior licence in writing of the landlord “which shall not be unreasonably withheld …”. The tenant used the premises as a restaurant, operated by the plaintiffs, Roux Restaurants Ltd. The defendant (“Jaison”) acquired the freehold in 1986. In order to synchronise the leasehold ownership of the premises with the operator, the plaintiffs approached Jaison in 1990 that the lease be assigned to them, Continuation being little more than a shell company.
Subject to a guarantee, Jaison had no objection to the assignment but asked for an amendment to the existing lease to provide for full recovery of the buildings’ outgoings. The tenant pointed out that the rent would have to reflect the repairing liability and the landlord suggested that the deed of variation should not take effect until the next review date. However, in subsequent correspondence the grant of a licence to assign became conditional on the tenant’s agreement to a deed of variation. The tenant took the view that it was unreasonable to attach a condition to the licence to assign unrelated to the assignment. The lease was then assigned to the plaintiff without consent although the tenant was prepared to enter into discussion concerning the change in the lease’s terms as requested by Jaison. The tenant then sought a further licence to assign the remainder of the term of the lease to a Mr R. The landlord refused consent unless the earlier licence to assign was properly executed. The tenant successfully contended at first instance that Jaison had sought a transaction extraneous to the lease before agreeing to the assignment so that their refusal was unreasonable.
Held The landlord’s appeal was dismissed.
1. The purpose of the covenant against assignment without the consent of the landlord was to protect the lessor from having his premises used or occupied in an undesirable way or by having an undesirable tenant or assignee. As a corollary to that, a landlord was not entitled to refuse his consent to an assignment on grounds which had nothing to do with their relationship in regard to the subject-matter of the lease, or because the refusal was designed to achieve a collateral purpose unconnected with the lease’s terms: International Drilling v Louisville Investments [1986] Ch 513.
2. The alienation clause in the lease had to be construed of its date, viz October 18 1985 with view to ascertaining the intention of the parties.
3. There was no doubt that it was intended to protect the lessor as against a lessee who might be objectionable and from the point of view of the property to prevent the lessor from having to accept a lessee whose use of the property might be reasonably regarded objectionable.
4. In the present case there was no objection to R nor to his use and therefore the licence was unreasonably withheld.
5. The requirement by Jaison that the plaintiffs should sign the licence, which should have been entered into previously, was not a circumstance which would have then been in the contemplation of the parties as constituting reasonable grounds for withholding consent.
John Furber QC and Caroline Shea (instructed by Chethams) appeared for the appellant landlord; Jonathan Gaunt QC (instructed by Clarkes, of Reading) appeared for the respondent tenant.