Tenant seeking licence to assign long lease – Landlord anxious to procure surrender of lease – Whether refusal of consent reasonably based on alleged breach of repairing covenant
The plaintiffs held a terrace in London W1, under a 125-year full-repairing lease granted in 1991 by G Ltd for a substantial premium and an annual rent of 12.5% of the rack rental value. The plaintiffs covenanted, inter alia, to decorate at certain intervals, not to effect unlicensed alterations, and not to part with possession without the licence of the landlord, such licence not to be unreasonably withheld. In 1994 the reversion was acquired by the defendant company, controlled by a Mr Lee who had previously obtained a surveyor’s report recording no serious defects. On July 10 1996, Mr Lee, having learned that the lease was for sale at an asking price of £1.8m, offered to take a surrender for a payment of £1.55m. To the anger of Mr Lee that offer was rejected. On July 16 1996 Mr Lee sent a fax marked “Urgent” to his managing agents, referring to the 1994 inspection, and directing them to “rush” a reinspection. The agents duly complied. On the same day the plaintiffs agreed to sell the lease to a third party (Cadogan) for £1.7m. On July 24 1996 the plaintiffs formally applied for the defendants’ licence to assign to Cadogan. On July 29 1996 the agents, ignoring the application, served a notice under section 146 of the Law of Property Act 1925 conforming with the Leasehold Property (Repairs) Act 1938. The notice alleged unauthorised alterations and failure to decorate, and referred to a schedule of dilapidations shortly to be served. By a letter dated August 8 1996 the defendants’ solicitors acknowledged receipt of a 1938 Act counternotice served by the plaintiffs and, referring to the licence application, added that their clients regarded the lease as at an end by reason of the breaches alleged. Having received a schedule of dilapidations on August 20 1996, the plaintiffs issued proceedings for a declaration that consent to the proposed assignment had been unreasonably withheld. At the trial no breach was established of the decorating covenant or the covenant against alterations. It was further found that the defects alleged in 1996 (in particular, a partly corroded steel beam not affecting the stability of the premises) were no more serious than those reported in 1994.
Held Judgment was given for the plaintiffs.
1. It could be inferred from the facts and the largely meaningless letter of August 8 1996 that the reason for refusal was to force negotiation of a surrender, a collateral advantage manifestly unrelated to the purpose of the alienation restriction: see International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 EGLR 39.
2. Nor would the assignment prejudice future action on the repairing covenant as the disrepair was neither extensive, nor long standing, nor unlikely to be remedied by the assignee: see Farr v Ginnings (1928) 44 TLR 249; Cosh v Fraser (1964) 189 EG 421; Orlando Investments Ltd v Grosvenor Estate Belgravia [1989] 2 EGLR 74; Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658.
3. The defendants could not contend that consent would extinguish (by waiver) the right to forfeit as the relevant breaches were continuing: Yorkshire Metropolitan Properties Ltd v Co-operative Retail Services Ltd [1997] EGCS 57, Neuberger J distinguished.
Jonathan Brock QC and Michael Daiches (instructed by Nabarro Nathanson) appeared for the plaintiff; Kim Lewison QC (instructed by Herbert Smith) appeared for the defendant.
