Statutory renewal of business lease – Application to settle terms in accordance with section 35 of Landlord and Tenant Act 1954 – Landlord proposing unqualified right to insist on authorised guarantee agreement before consenting to assignment – Tenant urging reasonableness qualification – Whether tenant should forego benefit of Landlord and Tenant (Covenants) Act 1995 – Tenant’s wording approved
The applicant was the tenant of one of 18 shop units in the Southgate Centre, Bath, that had been let during the 1970s, in each case for a term expiring in June 1999. Each lease contained a qualified covenant against assigning the entire premises, and a further covenant, in para 17(c) of the third schedule, not to assign unless the assignee entered into a direct covenant with the landlord to observe the terms of the lease.
In June 1998 the tenant served a request under section 26 of the Landlord and Tenant Act 1954 for a new tenancy commencing in June 1999. While not opposed to renewal, the respondent landlord was aware that, unless the tenant entered into an authorised guarantee agreement (AGA) complying with section 16 of the Landlord and Tenant (Covenants) Act 1995, the terms of the new lease would, by virtue of section 5 of that Act, cease to bind the tenant in the event of assignment. The landlord accordingly proposed a new version of para 17(c) to the effect that any licence to assign would be subject to a condition (the AGA condition) that the tenant would enter into an AGA. The parties were aware that, by virtue of section 22 of the Act (amending section 19 of the Landlord and Tenant Act 1927), the adoption of the AGA condition would entitle the landlord to insist upon an AGA in any circumstances, regardless of any question of unreasonableness. The tenant accordingly counter-proposed that the condition be qualified by the words “where reasonable”.
Following the rejection of its counter-proposal, the tenant applied under the Landlord and Tenant Act 1954 to have the terms of the new para 17(c) settled by the court, and urged the court to incorporate the two words in dispute.
Held: The application was allowed.
1. The wording proposed by the tenant struck a fair balance between the interests of the parties. By section 35 of the 1954 Act, as amended by Schedule 1 to the 1995 Act, the court had to have regard to the terms of the current tenancy and all the relevant circumstances, including the provisions of the 1995 Act. Following the guidance given by the House of Lords in O’May v City of London Real Property Co Ltd [1982] 1 EGLR 76, there had to be a good reason for imposing a new term against the will of one of the parties. The fact that the tenant was in a more favourable position than under the current lease did not afford such a reason, as that had been brought about by the sea change made by the 1995 Act as regards post-assignment liability in general.
2. Nor would it be a correct exercise of a judicial discretion to introduce a term that would deprive the tenant of the benefit of a supervening act that would otherwise operate in his favour: see Cairnplace v CBL (Property Investment) Co [1984] 1 EGLR 69; Lewis & Peat Ltd v Regis Property Co Ltd [1970] EGD 481.
3. The tenant’s wording could not be seen as ungenerous to the landlord, given that, in the event of an alleged unreasonable refusal of consent, the burden would lie on the tenant to show that no reasonable landlord would insist on an AGA.
4. While it was significant that the other lessees in the centre had agreed to the landlord’s wording, that factor did not outweigh the considerations that favoured the tenant’s case.
Timothy Dutton (instructed by Denton Wilde Sapte) appeared for the applicant; Edwin Johnson (instructed by Clifford Chance) appeared for the respondent.
Alan Cooklin, barrister
