Building lease — Hotel — Consent of landlords required for alterations after construction — Proposed extension — Condition attached to consent restricting use of extension — Competition — Whether condition protecting landlord’s legitimate concerns
The claimants owned a leisure complex comprising a golf course, a clubhouse, bars and restaurants. They granted a lease of part of the site to the defendant with a view to developing an hotel. The lease prohibited the defendant from altering the hotel, once constructed, without the claimants’ consent, which was not to be unreasonably withheld or delayed. Para 7 of schedule 7 to the lease stated that the claimants were not to use their premises in a way that would adversely affect the defendant’s income from the permitted use of the hotel. The permitted use included a “Conference Centre” and “Management Training Centre”.
The defendant subsequently sought consent for an extension to the hotel. The claimants agreed to give consent only on conditions that the defendant considered to be unreasonable. Proceedings ensued but were compromised, and most issues were resolved. Thereafter, the claimants granted a licence to carry out the works, but attached a condition to be incorporated into the lease “in the event that the Court shall determine that it is reasonable”. The condition required the defendant not to use any of the meeting or conference facilities in the extension “otherwise than for functions and activities which are directly related or connected to management training conferences held at the Premises”.
The court was asked to determine whether the claimants were being reasonable in imposing such a condition. The claimants argued that the condition was necessary to prevent competition with their own extensive wedding and functions business. They contended that the defendant had changed the direction of its business away from its core of management training and conferences and was trying to attract the sort of business carried on by the claimants.
Held: The condition was not reasonable.
Whether a landlord could rely upon perceived damage to its trading interests in adjoining or neighbouring property as a ground for imposing a condition would be a question of fact in every case. In an appropriate case, a landlord would be entitled to object to alterations provided it had a reasonable objection to the proposed use of the altered property, whether that use was the same as, or different from, the use carried on in the remainder of the property. In the present case, the claimants were right to be concerned about the threat that the defendant’s change of direction might pose to their own business, and they were entitled to protect themselves against perceived competition to their weddings and functions business. In those circumstances, a condition of the sort they wished to impose could not be said to be unreasonable. However, the claimants could not rely upon any competitive concerns with regard to the provision of management training or conferences, since those formed part of the defendant’s existing business and were protected by para 7. The proposed condition, which permitted only management training and excluded all other types of conference, would preclude the defendant from carrying on activities that constituted part of its existing business. Accordingly, the condition went further than what could be deemed reasonable to protect the claimants’ legitimate concerns. The lease would not, therefore, be varied to incorporate it: International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd (1986) 277 EG 62, Iqbal v Thakrar [2004] EWCA Civ 592, Ashworth Frazer Ltd v Gloucester City Council (No 2) [2001] UKHL 59; [2002] 05 EG 133 and Mount Eden Land Ltd v Straudley Investments Ltd (1997) 74 P&CR 306 considered.
John Male QC (instructed by Beachcroft Wansbroughs) appeared for the claimants; Nicholas Dowding QC (instructed by Ashurst Morris Crisp) appeared for the defendant.
Sally Dobson, barrister
