Landlord and tenant — Consent to assignments and change of use of demised premises — Whether withholding of consent unreasonable — Application by tenants for declarations that consents had been unreasonably withheld — Plaintiffs were two doctors and present use of the relevant premises was for business as medical practitioners and for residence — Plaintiffs were underlessees and occupied the basement, ground floor and first floor of the building, which was in Shepherd Market in London W1 — The proposed assignees occupied an adjoining part of the same building, with a retail shop on the ground floor — They were also underlessees and the defendant landlords held the reversions on both underleases — The proposal was that after assignment the proposed assignees, who were in the travel business, would carry on the business of travel agents and tour operators in the premises occupied by the plaintiffs; an application had been made for planning permission for a change of use for that purpose — The plaintiffs’ underlease was nearing expiry and the defendant landlords, who had plans for substantial reconstruction, suggested a surrender of the plaintiffs’ underlease rather than a grant of the consents which were sought — However, after months of inconclusive correspondence the plaintiffs issued the present originating summons seeking declarations that the defendants’ withholding or refusal of consent to assignment and change of use was unreasonable
plaintiffs’ underlease contained qualified covenants preventing change of user
and assignment without consent; in the case of the covenant against assignment
the covenant provided that consent would not be unreasonably withheld in the
case of a substantial and reputable assignee — After consideration of the
evidence and a review of authorities, in particular the propositions stated by
Balcombe LJ in International Drilling Ltd v Louisville Investments
(Uxbridge) Ltd, the judge refused the declarations sought by the plaintiffs —
As regards the assignment, the references relating to the proposed assignees
were of a particularly qualified and non-enthusiastic character and the offer
of a bank guarantee in addition did not make sufficient difference; it was also
clear that the proposed use by the assignee would be contrary to the user
covenant in the plaintiffs’ underlease, unless there was consent to a change —
As regards change of user, the proposed assignee intended to rely on a planning
permission which had been granted for retail use; the objection to this was
that the plaintiffs’ premises, taken by themselves, were unsuitable for retail
use, having no street frontage, with the consequence that they would be
unmarketable as a separate unit with a retail user and there was no certainty
that a reversion to medical or ordinary office use would be permitted —
Plaintiffs’ claim for relief failed under each heading
The following
cases are referred to in this report.
British
Bakeries (Midlands) Ltd v Michael Testler &
Co Ltd [1986] 1 EGLR 64; (1986) 277 EG 1245
Geland
Manufacturing Co Ltd v Levy Estates Co Ltd
[1962] EGD 465; (1962) 181 EG 209
Granada
TV Network Ltd v Great Universal Stores Ltd
[1963] EGD 520; (1963) 187 EG 391
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
Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658;
[1973] 2 All ER 337; (1973) 25 P&CR 332; [1973] EGD 377; 227 EG 1849, CA
Packaging
Centre Ltd v Poland Street Estate Ltd [1961]
EGD 377; (1961) 178 EG 189, CA
This was an
originating summons by plaintiffs, Dr Warren and Dr Anderson, occupiers by
virtue of an underlease of premises consisting of part of a building at 54
Shepherd Market, London W1, seeking declarations as to the true construction of
clauses in the underlease, the reversion of which was held by the defendants,
Marketing Exchange for Africa Ltd.
G C C
Fetherstonhaugh (instructed by Wedlake Bell for Maples Teesdale) appeared on
behalf of the plaintiffs; Edward Cole (instructed by Swingland & Co)
represented the defendants.
Giving
judgment, JUDGE FINLAY QC said: The plaintiffs, Dr Warren and Dr Atkinson, own
certain premises at 54 Shepherd Market, in the Parish of St George, Hanover
Square, under a London lease dated November 19 1980, whereby these premises,
which comprise a waiting room on the ground floor, consulting room and vaults
in the basement, and further premises on the first floor of the building known
as 54 Shepherd Market, were demised to the plaintiffs for a term of 10 years
from December 23 1978, subject to the rent which at the commencement of the
term was £3,250 but is now, during the last five years of the term, £5,500 per
annum. The lease contains divers covenants by the lessees with the lessor, and
those which are relevant to these proceedings are contained in clauses 2.14 and
2.16 of the lease. Subclause 2.14 provides that the lessees will use the
demised premises as reception and consulting rooms and offices for the purposes
of the lessees’ business of medical practitioners, and/or for private
residence, or such other use as shall first be approved in writing by the
lessor, such approval not to be unreasonably withheld. Subclause 2.16 provided
that the lessees will not assign, charge, underlet or part with the possession
or occupation of the demised premises or any part thereof without the written
consent of the lessor and superior lessor first obtained, which consent in the
case of the lessor shall not be unreasonably withheld in the case of a
substantial and reputable assignee or underlessee — and then there followed a
provision about the obtaining of a direct covenant by the intended assignee
with the lessor to pay the rent reserved by the lease, and observe and perform
all the covenants of the lessee therein contained.
On October 29
1986 Messrs Wedlake Bell, acting for the plaintiffs, wrote to the solicitors
for the defendant company, with whom apparently they had been in telephone
communication, informing them that their clients had already agreed in
principle to assign the residue of the underlease to a company, Lamington
Travel Ltd, and the letter went on to make application for the consent of the
landlord, which it was appreciated would be required, to the assignment and to
the proposed change of use, the writer of the letter stating ‘I am assuming
that the proposed use of the premises by Lamington Travel Ltd will be that of
offices in connection with the business of a travel agency’, and they indicate
at the end of the letter, in which they ask
consent, by giving an undertaking, that the lessor’s reasonable legal costs in
connection with the licence will be met by their client.
Lamington
Travel Ltd is a company which is in occupation of the adjoining part of the
building known by the same number, 54, or 54A, Shepherd Market, and these
adjoining premises comprise a retail shop on the ground floor, with a window
fronting on the street, and they are entered by a separate entrance from the
premises comprised in the underlease which I have mentioned. Lamington Travel
Ltd occupy the shop premises, with some facility offices attached to it, under
a lease which was granted for a term of 25 years and was dated September 21 1983.
It will be noted that the two terms, that is that 25-year term, and the 10-year
term granted by the lease of November 19 1980, are far from being coterminous.
The company
Marketing Exchange for Africa Ltd acquired the reversion on both the lease of
November 19 1980 and, as I understand it, that of September 21 1983. The
managing director of the defendant company is Mr Sidali. I think he describes
himself as a director and one having control of the defendant company, rather
than managing director. He is in occupation of the second and third floors of
54 Shepherd Market, and access to those floors is obtained through the front
door which leads into the premises demised by the underlease. The stairs which
lead to the second and third floors are, I understand, also used, or the lower
part of the stairs is used, for access to the first floor, which is comprised
in the underlease. The request for consent and for details of the lessor’s
requirements in connection with those consents was answered by a letter from
the defendant company’s solicitors in which it was indicated that the lessor
proposed (and in this judgment I will simply refer to the lessor and not the
underlessor) upon the expiration of the underlease to carry out substantial
works of construction, and would oppose the grant of a new tenancy when the
10-year term expired on December 23 1988, and they went on to suggest that in
these circumstances it would really be more convenient that there should be a
surrender of the lease rather than a grant of the consents applied for. They
went on to deal with the conditions for granting consent which the lessor
regarded as important, and set out these conditions. I need not deal with the
detail, but they went on to say that, before consenting to the licence to assign,
the lessor would require an undertaking for costs and references for the
proposed assignee, as detailed in a letter of October 30 1986, and certain
other matters that I need not at this juncture refer to.
On or about
December 10 1986 the lessor received notification of an application being made
on behalf of Lamington Travel Ltd for planning permission to change the use of
part of the ground floor, the basement and first floor of 54 Shepherd Market,
that is the premises comprised in the underlease, to offices to be used in
connection with the business of travel agent and tour operator under Class II
referred to in the schedule to the Town and Country Planning (Use Classes)
Order 1972, Class II being office user.
At about the
end of December or beginning of January there was forwarded to the lessor
certain references relating to the proposed assignee company. The letter
enclosing these also stated that C Hoare & Co of Fleet Street, the
well-known bankers, indicated their willingness to provide a reference if
approached ‘by your client’s bankers’. The references comprise a reference from
chartered accountants who had acted for Lamington Travel Ltd and who in their
letter on November 2 1986 said:
We have acted
as auditors of the above company [that is Lamington Travel] for approximately
one year. We had previously acted for members of the Lee family for many years.
I should say
that Mr Lee was a director at this time of Lamington Travel Ltd
On the basis
of the knowledge of our clients we would not expect them to enter into a
commitment which they were unable to fulfil. The opinion expressed in this
letter is given in good faith without the incurring of any liability by
ourselves.
The second
reference was dated December 10 1986 and came from a firm of solicitors, Judge
& Priestley, who said:
To whom it
may concern, we have been asked by Lamington Travel Ltd to provide a trade
reference for them, as we understand that they are presently proposing to take
additional premises adjacent to their offices at Shepherd Market in Curzon
Street. We confirm we have acted for Lamington Travel now for a period in
excess of one year, and have found them to act in a professional like manner
throughout this time. They have honoured all agreements with us and as far as
we know they continue to operate from 54 Shepherd Market in Curzon Street as a
travel agency. We trust this letter will be sufficient for your requirements.
If, however, you have any further matters to discuss please do not hesitate to
contact the writer, our Mr North,
and the letter
is signed in the firm’s name, over the typed indication C North. Mr North, from
the writing paper used by the firm of Judge & Priestley, does not appear to
be a partner in that firm.
On or about
January 28 1987 there was forwarded a letter to the defendant company or its
solicitors, from solicitors Maples Teesdale, who took over the matter from the
solicitors formerly acting for the plaintiffs in the matter (and, indeed, there
was some overlapping of responsibility, for reasons connected with the
institution of certain proceedings which I will mention hereafter, between
Wedlake Bell and Maples Teesdale, both of whom acted for the plaintiffs).
Maples Teesdale wrote on January 28:
Lamington
Travel is a recently-formed company and as such is currently building up its
business. We have acted for Mr M C Page Wood, the company chairman and a
substantial shareholder, for many years. We do not believe that any company in
which he played a significant part would enter into a commitment it could not
fulfil.
That letter
indicates a misunderstanding on behalf of Maples Teesdale about the
incorporation of the company of Lamington Travel Ltd, because that company was
incorporated under a different name, Holdershaw Insurance Services Ltd, on June
9 1972; the name of the company was changed to John Hurwan Marine and Overseas
Ltd on February 6 1973, a name which perhaps indicates a continuation of some
insurance business, and on March 8 1985 the company’s name was changed again to
John Holme and Farrell Ltd, and finally on November 18 1985 to Lamington Travel
Ltd. The directors of the company had been changed in the year ended March 31
1986, but in the preceding year the report of the directors indicated that the
company had been dormant from April 1 1984 until commencing business as travel
agents and brokers on February 11 1985. In the following year, that is the year
ended March 31 1986, Mr Page Wood, who is referred to in Maples Teesdale’s
letter, became chairman of the directors, there remaining as directors Mr Lee,
who had been a director since February 1985, when it will be recalled the
travel agency business commenced, but Mr Holman, whose name is incorporated in
the earlier names of the company, had resigned as chairman by the year ended
March 31 1986. That information contained in the reports for the years ended
March 31 1985 and March 31 1986 came to the knowledge of the solicitors acting
for the defendants, and it also emerged from the directors’ report for the
latter year that there had been an extension of the business of the company,
Lamington Travel Ltd, because that report stated:
Following the
change of ownership during the year and the comparatively short time that the
company has been trading, the directors considered the result for the year end
to have been reasonable.
The
comparatively short time that the company had been trading was the period from
February 11 1985, when the travel agency business started up after the company
had been dormant for some nine or 10 months previously. The report continued:
Towards the
end of the financial year the company finalised arrangements to act as a tour
operator. Trojan Tours has been launched to provide Yacht Charter Holidays to
the Greek and Turkish coast, and Brazil Brazil to offer specialised holiday
tours to Brazil. The directors would expect that the increased business
generated will enable it to trade profitably.
That
information appears to accord with a letter of February 2 1987 from Wedlake
Bell to Swingland & Co, acting for the defendants which stated:
The proposed
assignee intends to use the property as a travel agent and tour operator. This
will, however, depend on the outcome of the counsel (sic) Meeting
— and I think
that is a reference to the meeting of the Westminster Council, or some
committee of it —
next month.
Provided that the outcome of the planning application is successful, then we do
not consider that your client can unreasonably withhold its consent to the
change of use.
On February 3
1987 Swingland & Co, wrote to Wedlake Bell, pointing out that Maples
Teesdale were under the same erroneous impression as the first-mentioned firm
in thinking that Lamington Travel Ltd was in its first few years of trading,
and that it had previously carried on business under the other names that I
have mentioned. They also pointed out that Lamington had acquired the business
of John Farrell Ltd, the original lessee (that is of the lease of
that company, that it had accumulated losses in its last year of trading in
excess of £60,000; and further, that the business now carried on by Lamington
had achieved a consistent loss which might or might not be arrested by those
who are now managing the business. They then said: ‘There is no reason why our
clients should be obliged to risk accepting Lamington Travel as a tenant.’ They then indicated that they had taken
counsel’s advice and had been advised that they were not obliged to accept
guarantors if the proposed assignee was unsatisfactory. They then stated:
We therefore
confirm that our client is not prepared to accept the proposed assignee. If you
wish to issue proceedings we confirm that we are authorised to accept service.
There has been
some submission made to me as to whether or not the defendants refused to
accept the assignment or are merely withholding it. That issue arises in
relation to the date when the proceedings now before me were issued, which was
May 27 1987, but does not strictly speaking arise in relation to the date
February 3 1987 which is the date of the letter from which I have just quoted.
But it appears to me to be quite clear that at that latter period, February 3
1987, the defendants were refusing consent to the proposed assignment.
John Farrell
Ltd, having learned of the institution of the new business of a tour operator,
on February 12 1987 issued a writ claiming against Lamington Travel Ltd for
possession of the premises comprised in the underlease on the ground of
forfeiture by reason of a breach of the covenant as to user in the lease of
September 21 1983, that lease containing a covenant to use the demised premises
as a shop and offices for the purpose of the lessee’s business of travel
agents. That writ was issued on the footing that the business of a tour
operator was different from that of a travel agent, a matter to which I will
have to advert later in this judgment. The proceedings instituted by that writ
have not proceeded very far. The statement of claim has been amended; there has
been a defence, a counterclaim, and a reply and a defence to the counterclaim.
Subject to that, the forfeiture proceedings have not been resumed and are
currently, as I understand it, in a state which might be described with the
words applied in one of the directors’ reports which I have mentioned to the
company Lamington Travel Ltd, that is to say, dormant.
On March 24
1987 the plaintiffs’ solicitors wrote again to the defendants’ solicitors
raising once more their clients’ application for licence to assign and for
consent to change of use. They enclosed with their letter a copy of a letter of
guarantee issued by Hoare & Co, of which they said: ‘you will note they are
prepared if requested to provide a guarantee in respect of rent and other outgoings
to a figure of £10,000 per annum’. The letter also stated that two directors of
Lamington, Mr Page Wood and Mr Lee, were prepared to act as guarantors if the
defendants so required. They stated further that planning permission had been
given for change of use to that of a retail travel agency, subject to certain
conditions attached in the admission. They went on to require the defendants’
solicitors within seven days of the date of this letter, that is on or before
March 31 1987, to confirm that the lessor was prepared to consent to both the
assignment and the change of use to the use permitted by the planning
permission of March 16 1987.
The letter
from Hoare & Co said in its substantial part:
We write at
the request of our above customer
that is
Lamington Travel Ltd
to advise you
that the company has maintained an account in our books since it was formed. We
have known some of the directors for a long period and believe them to be
respectable and trustworthy individuals. The company is a properly constituted
limited company and in our opinion is good for its normal business engagement
including the rent of the defendants. In this respect we would advise you that
if requested we would be prepared in principle to provide a guarantee in
respect of rent and other outgoings to a figure of, say, £23,000 per annum
subject to agreeing the terms of the guarantee.
The planning
permission referred to in the letter that I have just mentioned of March 24
1987 was dated March 16 and it gave permission for a period of five years from
that date for the use of the basement part of the ground and first floor for
the retail travel agency, subject to the following conditions, that the first
floor shall not be used otherwise than as offices ancillary to the retail use
of the basement and ground floor and shall not normally be open to members of
the public; and, second, that access to the basement and ground floor shall
only be through the shop entrance on the ground floor, that is the shop
entrance to the shop premises comprised in the other 25-year lease. The reasons
for these two conditions were to safeguard the amenity of the other occupiers
in the building.
On March 27
1984 Swingland & Co on behalf of the defendants replied to the renewed
application for consent made on March 24. In relation to the licence to assign,
they stated that their client needed to be satisfied that the following matters
were resolved satisfactorily, and then they mention seven different matters,
the first of which was that the consent of the superior lessor to the
assignment had to be obtained, and the last and seventh of which was that they
would ask counsel whether a bank guarantee made any difference to the advice
which had been indicated in an earlier letter, namely, that a guarantee would
not cure the situation if the assignee company was itself inadequate and that
the lessor was not obliged to accept a guarantor if the covenant of the
assignee was inadequate. As to change of use, they dealt with objections based
upon the fact that the planning permission had been granted for Class I, that
is retail use; they indicated that their clients would be happy to see office
use in the basement, ground and first floors of 54 Shepherd Market, and that
that in fact was the use for which Maples Teesdale had indicated that their
client was applying when serving the section 27 notice that gave notification
of the planning application. I should interpose here to say that the
application was originally for office use, that is Class II use, but the
Westminster Council, apparently in some informal way, indicated that it should
be amended. It was amended, without the defendants being notified, to apply for
Class I use, that is retail use, so that the premises were used in conjunction
with the premises next door, hence the condition I have mentioned about access
and the first condition that the use of the first floor should be ancillary to
the retail use of the basement and ground floor. But the defendants were not
made aware of the alteration in the planning permission for any application and
only learned that something different had happened when they were apprised of
the nature of the permission actually granted and the conditions attached to
it. The letter then said:
The reason
our clients will not consent is that that use is inappropriate
(that is the
use permitted by the latest planning permission)
for the
premises demised by your client’s lease, unless the premises presently occupied
by Lamington Travel Ltd and those occupied by your clients are in common
ownership; since the two leases do not expire contemporaneously our clients
will be left with property which can no longer be used as offices and is
completely inappropriate for retail use.
The letter
ends:
Our client is
not acting unreasonably in refusing the change of use. We are not yet satisfied
that it is appropriate to grant a licence to assign for the reasons given
above. If you should choose to commence proceedings we can confirm we are
authorised to accept service of them on our client’s behalf.
It appears to
me that that amounted to a refusal of the application for change of use,
although it left open the possibility that, although consent to assignment had
already earlier been refused in altered circumstances, it might be
reconsidered.
On April 14
1987 the plaintiffs issued an originating summons in which they sought relief
substantially similar to that sought in the present proceedings. On that same
date (and I think the proceedings had been served in some way so as to permit a
reply on the same day) Swingland & Co wrote to Maples Teesdale saying that
the commencement of proceedings is premature, and they point out that it appears:
for example
that you have decided to commence proceedings without first obtaining the
consent of the superior landlord to the assignment. It can scarcely be
unreasonable for our clients to oppose consent to an assignment which if
effected without the superior landlord’s consent would put our client in breach
of its covenant in the head lease.
In the
following month, in May, there was further correspondence between solicitors. I
should say that the volume of correspondence in this matter is formidable in the
extreme and I have confined myself to citing short passages from letters which
are of very considerable length. On May 8 Swingland & Co were writing a
very long letter which dealt with numerous other matters, but they had not yet
received further advice from counsel concerning the question of the guarantee.
I think that is referring to a guarantee by Hoare & Co, and they indicate
that there are many outstanding issues which need to be clarified. On the
subject of change of use, they stated, among other things, that their client’s
objection was that the premises were
whatsoever. They went on:
Once the
planning permission for this use is implemented the existing use will be lost,
and there is no guarantee that a further application to the planning department
would be successful. The premises would be totally unmarketable as a street
unit with retail user. We do not believe that this point can be more simply
stated.
As an upshot
of the correspondence in May, which I need not go through in anything like full
detail, on May 13 the plaintiffs’ solicitors wrote acknowledging that on the
date of issue and service of the originating summons they had not received the
consent of the superior lessor, ‘although this was forthcoming shortly
afterwards’. They advert to the fact that counsel has drawn attention to the
fact that the originating summons issued on April 14 refers to ‘Your client’s
refusal to grant licence for the assignment and consent for change of use,
whereas strictly speaking your client is withholding the granting of consent in
each case’, and having regard to that, and to the fact that it was only after
the issue of April 14 proceedings that they obtained consent, they indicated
that if these points were going to be taken up they would take the necessary
steps to rectify them. They did not get any assurance that these matters were
not going to be taken up, and consequently on May 27 the present proceedings
were issued. But it is perhaps worth noting that on that very day, May 27, in
reply to a long letter from Swingland & Co, which among other things
indicated that they would be happy to draft a form of bank guarantee (and there
has been a good deal of correspondence about who should get in touch with whom
about this bank guarantee, but beyond saying that the plaintiffs’ solicitors
were for a long time trying to insist that the defendants’ bankers should get
in touch with Hoare & Co to agree a form, the correspondence on that
proceeded at a very slow rate, but came to this point when Swingland & Co
were stating on the 19th that they were happy to draft a form of guarantee), on
that very day when the proceedings by the plaintiffs were issued, their
solicitors wrote, among other things: ‘We look forward to receiving the draft
form of guarantee.’
By the
originating summons the plaintiffs seek four declarations: first, a declaration
that on the true construction of the above-mentioned lease and the underlease,
which I have mentioned, and in the events which had happened, the withholding
by the defendants of their consent to grant a licence to assign the said lease
to Lamington Travel Ltd was unreasonable; second, a declaration that
notwithstanding that withholding of consent the plaintiffs without any licence
from the defendants are entitled to assign the lease to Lamington Travel Ltd;
third, a declaration that on the true construction of the above-mentioned
lease, and in the events which had happened, a refusal of the defendants to
grant a consent for the change of use of the premises demised in the said lease
was unreasonable; and, fourth, a declaration that notwithstanding the refusal,
the plaintiffs, without any consent from the defendants, are entitled to change
the use of the premises.
Mr Fetherstonhaugh
submitted that the second and fourth of these declarations sought relief to
this effect, that if I were to hold that the defendants’ refusal to grant, for
example, the licence to assign was not unreasonable, because I had refused the
declaration sought under para 1 of the originating summons, nevertheless, under
para 2 I could properly make a declaration that if satisfied now it would be in
the current circumstances unreasonable to refuse consent to the assignment, I
could then declare that the plaintiffs, without any licence from the defendants
were entitled to assign the lease. He made a similar submission in relation to
the fourth declaration as to change of user. I am unable to accept that
submission. It is well settled that if a lease contains a covenant, for
example, not to assign without the consent of the landlord, and the landlord
unreasonably refuses to consent, whether there is an expressed provision that
consent shall not be unreasonably withheld or whether the statutory provisions import
that such condition is implied, then the tenant is at liberty, without further
ado, to assign the lease. The same thing applies to a covenant against change
of user, and indeed any other type of covenant, where there is a provision that
consent is not to be unreasonably withheld. These well-established and
well-known authorities do not, in my judgment, amount to this, that if consent
is reasonably withheld then if at some subsequent date a further application in
different circumstances could not reasonably be refused, the tenant is in
different circumstances entitled without more to assign the lease or, as the
case may be, change the use.
The matters
which have to be considered in dealing with the issue of whether consent has
been unreasonably withheld were very fully considered by the Court of Appeal in
International Drilling Ltd v Louisville Investments (Uxbridge) Ltd
[1986] 1 Ch 513. Balcombe LJ at p 519 said this, having considered the various
authorities referred to:
From the
authorities I deduce the following propositions of law. (1) The purpose of a
covenant against assignment without the consent of the landlord, such consent
not to be unreasonably withheld, is to protect the lessor from having his
premises used or occupied in an undesirable way, or by an undesirable tenant or
assignee . . .
He refers in
this enunciation of propositions of law to various authorities that I need not
refer to specifically.
(2) As a corollary to the first proposition, a
landlord is not entitled to refuse his consent to an assignment on grounds
which have nothing whatever to do with the relationship of landlord and tenant
in regard to the subject-matter of the lease: see Houlder Brothers & Co
Ltd v Gibbs, a decision which (despite some criticism) is binding on
this court: Bickel v Duke of Westminster [1977] QB 517. A recent
example of a case where the landlord’s consent was unreasonably withheld
because the refusal was designed to achieve a collateral purpose unconnected
with the terms of the lease is Bromley Park Garden Estates Ltd v Moss
[1982] 1 WLR 1019.
(3) The onus of proving that consent has been
unreasonably withheld is on the tenant: see Shanly v Ward (1913)
29 TLR 714 and Pimms Ltd v Tallow Chandlers Co [1964] 2 QB 547,
564.
(4) 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: Pimms Ltd v Tallow Chandlers Co [1964] 2 QB 547,
564.
(5) It may be reasonable for the landlord to
refuse his consent to an assignment on the ground of the purpose for which the
proposed assignee intends to use the premises, even though that purpose is not
forbidden by the lease: see Bates v Donaldson [1896] 2 QB 241,
244.
(6) There is a divergence of authority on the
question, in considering whether the landlord’s refusal of consent is
reasonable, whether it is permissible to have regard to the consequences to the
tenant if consent to the proposed assignment is withheld.
and then he goes
on and deals with that, which does not arise in the present case. I have heard
no evidence whatsoever about what the consequences would be to the tenants if
the consent is properly withheld.
(7) Subject to the propositions set out above, it
is in each case a question of fact, depending upon all the circumstances,
whether the landlord’s consent to an assignment is being unreasonably withheld.
I deal first
with the question: was the landlords’ consent to the assignment of the lease
being unreasonably withheld at the date of the issue of the present
proceedings? It will be recalled that at
an earlier date there had been a refusal of consent to the change of use; that
was on March 27 1987. At the date of May 27 1987, when the present proceedings
were issued, that earlier refusal had been to some extent abrogated by a
further consideration of the matter. But at May 27 the situation, as I see it
on the evidence before me, was that the landlords had before them the evidence
furnished by the three references I have mentioned; the notification that in
principle Hoare & Co would be prepared to give a guarantee up to a sum of,
say, £23,000 per annum, but subject to consideration of the terms of the
guarantee which had not at that juncture been formulated. The landlords also
knew from the directors’ reports that a business as a tour operator had been
instituted and, indeed, had been informed that it was as a tour agent and
travel operator that the proposed assignees proposed to use the premises. There
were, further, the evidence as to the financial stability and state of the
company, Lamington Travel Ltd, furnished by the accounts for the year ended
March 31 1985, as being the report and accounts of John Holman Travel Ltd, and
those of Lamington Travel Ltd for the year ended March 31 1986. There were not
at this juncture available to the landlords the accounts which were later
forwarded to them for the year ended March 31 1987. The accounts for the latest
year available, that is March 31 1986, showed that the loss for the year was
£14,876, a slight improvement on the loss for the earlier year — but taking
note that that earlier year involved trading for only a very short period
between February and March — of £17,293, there having been a long period of
some nine to ten months before that during which the company had been dormant.
The covenant as to user contained in the underlease was considered by the
landlords to be one of which the tenants would be in breach, bearing in mind, I
apprehend, some earlier agreement for the use currently or at that time for
which the premises were being put or had been put by the plaintiffs, that is as
a doctor’s surgery, the proposed use by the assignees as travel agents and tour
operators would, in the view of the
covenant as to user. I was referred to a passage in the report of a decision of
Peter Gibson J in British Bakeries (Midlands) Ltd v Michael Testler
& Co Ltd [1986] 1 EGLR 64 at p 65. Peter Gibson J said:
The point
then taken was the alleged breach of covenant, despite the repeated assurances
that the assignees would not change the user. I need not, however, take up time
on this point as Mr Neuberger
counsel for
the defendant
accepts that,
in the light of the decision of the Court of Appeal in Killick v Second
Covent Garden Property Co Ltd [1973] 1 WLR 658, even if the landlord did
expect there to be a breach of the user covenant, it would not be a sufficient
reason for withholding consent.
That encapsulates,
no doubt, the decision in Killick v Second Covent Garden Property Co
Ltd, but it does not, I think, illuminate the point there dealt with for
the purposes of the present application. In Killick v Second Covent
Garden Property Co Ltd there was a user covenant whereby the lessee could
not use the premises for any purpose other than the trade or business of a
printer. On an application for a declaration that the landlord had unreasonably
withheld consent, where the consent had been refused to a company which
proposed to use the premises as offices, the judge below had held that there
would be no breach of the user covenant and granted the declaration. It was
held on an appeal by the landlord that, even if on its true construction the
user covenant precluded the assignee using the premises as offices, it is not a
necessary consequence of the assignment that there would be any breach of
covenant, because once the assignment had been made the landlord would have the
same rights to enforce the user covenant against the assignee as they had had
against the underlessee, and that therefore the landlord’s refusal of consent
was unreasonable.
[Editor’s
note: At this point in his judgment as transcribed and approved His Honour
cited the following passage from the judgment of Stamp LJ in Killick’s
case at p 662A. The cases referred to are Packaging Centre Ltd v Poland
Street Estate Ltd (1961) 178 EG 189 and Granada TV Network Ltd v Great
Universal Stores Ltd (1963) 187 EG 391, which had been cited to Stamp LJ in
support of the proposition that the withholding of consent in such a case as Killick
necessarily involved a breach of the user covenant.]
Those cases
are, in my judgment, not applicable where, as here, the giving of consent to an
assignment does not of itself preclude the landlords from thereafter insisting
that the terms of the user covenant be strictly complied with. Of course, a
landlord who gives his consent to an assignment knowing that the assignee intends
to use the premises in breach of a user covenant may incautiously estop himself
from thereafter relying upon the covenant or may waive the right to enforce it.
But a landlord who is minded to refuse consent to an assignment on account of
the user covenant is not acting incautiously; and nothing could have been
easier than for the landlords here, while giving their consent, expressly to
reserve their right to enforce the user covenant against the assignee. Here, be
it observed, the proposed assignee was content to accept that position,
relying, as I understand it, on the view that the part of the user covenant
prohibiting use otherwise than for printing was qualified by the last eleven
words of the user covenant and that if the landlords refused their consent to
use as offices that consent would be unreasonably withheld.
That decision
appears to me to go no further than this, that if the landlord has some
expectation that there will, if the proposed assignment is granted, be a change
of user which is contrary to the user covenant in the lease, then that
circumstance does not justify him in refusing consent to assignment if
otherwise such consent could not reasonably be refused. But that appears to me
to be very different from the present case. Here the business of the proposed
assignees is that of a travel agent and tour operator. To use the premises
comprised in the underlease for that purpose would, unless there was a consent
under the user covenant to a change of user, constitute a breach of the user covenant.
And since the only business carried on by the proposed assignees is that of a
travel agent and tour operator, it appears to me that the assignment itself
would inevitably give rise to a breach of the user covenant unless, of course,
there had been consent to a change of user. In these circumstances I am unable
to accept Mr Fetherstonhaugh’s submission that I should treat the application
to consent to assignment as a matter entirely separate from the matter of the
application for a change of use. Since the proposed assignees merely wish to
use the premises for their own business, and since the user for that business
would constitute a change of use, the two appear to me inevitably connected,
and the landlords were, in my judgment, entitled to take into account the
effect of granting permission for the assignment if the result of that was, as
I find it would be, that that would lead itself to a breach of the covenant as
to user.
The landlords’
solicitors, in the course of the correspondence, made very clear their
understanding of what was meant by a tour operator. When Mr Page Wood came to
give evidence it was to the effect that the term ‘tour operator’ had two quite
distinct meanings. One was that used in describing the kind of operation where
a firm or company makes block holiday bookings in hotels in desirable places
and at the same time makes arrangements to charter flights to enable
holidaymakers to get to those hotels. A business of that kind inevitably
involves the taking of substantial financial risk by the tour operator,
although no doubt, and it is reasonably normal in such circumstances, there is
also the prospect of substantial financial gain. But Mr Page Wood said that the
expression ‘tour operator’ could also be applied to those carrying out a
different kind of operation, that is to say, someone who tailor-makes tours to
some foreign place for a customer who desires to do certain particular things
and visit certain particular places and who has his hotel and travel
arrangements made for him by the tour operator. Mr Page Wood told me that it
was in that sense that Lamington Travel proposed to carry out the business of
tour operator. He dealt with the matter on the footing, as I understand his
evidence, that this was a type of business which they proposed to embark upon
and had done in only a very small way up to the present time. The evidence
which he gave appeared to me to accord rather ill with what is indicated in
that directors’ report to which I referred, which indicated the establishment of
arrangements to operate two tour operating exercises, one under the name of
Trojan Tours and another under the name of Brazil Brazil, but he was not
cross-examined on that matter and I have to accept his evidence that the word
‘tour operator’ can be applied to the two kinds of operation which I have
mentioned. But at the time when these proceedings where instituted, the only
sense of ‘tour operator’ that emerged from the correspondence was that of the
first kind of operation, that which had involved financial risk and financial
prospects. The solicitors for the plaintiffs, possibly because they were not
acting directly for Lamington, did not disabuse the solicitors for the
defendants and informed them that the words ‘tour operator’ meant something
entirely different. It is, of course, surprising that, if it did have merely in
this connection the meaning which Mr Page Wood said applied to the operation
which Lamington carries out, it was thought necessary by those advising
Lamington to make a further application for a planning permission which would
cover the use of the premises for the business of a tour operator. Such a
further application was in fact later made. The operation described by Mr Page
Wood of tailor-making travel arrangements for a particular customer appears to
me to fall precisely within the ambit of the business which I understand that
to be carried out by a travel agent, although no doubt it involved a more
personalised service than what is involved in merely helping a customer to fill
up an application form for a package tour.
For the
reasons I have indicated, I consider that the landlords were entitled to have
regard to the proposal by the proposed assignee to carry on business as a tour
operator, and could only understand that as having the meaning of the enlarged
type of operation, as described by Mr Page Wood, because it was only when Mr
Page Wood gave evidence last week that it emerged that there was this second
meaning, the one which appears to me to be no different from a particular aspect
of a travel agent’s business. Accordingly, I consider that the landlords were
entitled to be apprehensive not only of a consent to an assignment which gives
rise to a change of use but also that the carrying out of a tour operator’s
business would not increase the financial stability of the proposed assignee,
but would expose to further possible loss a company which, up to the time about
which the landlords had information, appeared only to have been operating at a
loss.
There were
further matters to which I have not hitherto adverted, which were relied upon
by the landlords as an objection to the assignment. They related to a certain
conduct of a Mr Lee, whom I have mentioned already as being director of the
company Lamington Travel Ltd. He has ceased to be a director, and maybe those
objections have disappeared, and they are not very much relied upon by Mr Cole
for the defendants. I leave these to the side, but in my judgment the other
matters, the nature of the references furnished for Lamington, which are of a
particularly qualified and not at all enthusiastic character; the matter
relating to the tour operation and the user of the premises, and the fact that
the Hoare & Co guarantee
appear to me to be grounds which enable the landlords reasonably to withhold
consent. The fact that they had at considerable length discussed their
requirements merely, I think, demonstrates that they were seeking to find a
reasonable way out of the difficulties which they saw, but I am satisfied that
these difficulties had not at May 27 1987 been resolved. The declaration sought
in the present proceedings is that the withholding by the defendants of their
consent to grant a licence to assign to Lamington Travel Ltd was unreasonable.
That declaration, in my judgment, the plaintiffs are not entitled to. It
follows from what I have already said that they are not entitled to the
declaration that notwithstanding such withholding of consent, they are entitled
without any licence from the defendants, to assign the lease to Lamington
Travel Ltd.
I turn to the
third declaration sought, that relating to the withholding of consent for
change of use. The planning permission that the proposed assignee would have
relied upon if consent to an assignment had been granted was a planning
permission for retail use. It is true that the use was use in connection with
the use of the premises as offices in connection with a retail business, but
the use was a retail use and not a permission of use as offices simpliciter.
The submission was made by Mr Fetherstonhaugh that this was a mere technical
difficulty relating to planning law. If it had been a mere technicality I doubt
very much whether the Westminster Council would have done other than grant the
permission for office use. The fact is that they indicated that the application
should be modified to apply for permission of a Class I, that is retail, use.
The landlords’ position was made succinctly clear in the letter from which I
have already quoted, that is the letter of May 8 1987, where they said:
Our client’s
objection is that the premises are unsuitable by their nature for retail use.
The premises have no street frontage whatsoever. Once the planning permission
for this use is implemented the existing use will be lost and there is no
guarantee that a further application to the planning department would be
successful. The premises would be totally unmarketable as a discrete unit with
a retail user. We do not believe that this point can be more simply stated.
That was the
objection, and it amounts to this, that if the change of use was effected by
the tenants, the proposed assignees going into possession and acting on the
basis of the user permission which they have obtained from the planning
authority, there would be a possibility that there could not be a reversion
either to the use as a doctor’s surgery or to office user simpliciter. Mr
Fetherstonhaugh submits that there is no evidence before me that permission for
use as offices should not be obtained in the future if required. There are, I
think, two points on that. It is not for the defendants, in my judgment, to
show that permission for office use would not be obtainable; it appears to me
that there is sufficient material before me to indicate the possibility that it
might not. That arises from the suggestion of insistence by the Westminster
City Council that the first planning application should be changed to one for
retail rather than office user. If the only user permissible were user for
retail purposes, then the premises could only be used in conjunction with the
next-door premises occupied by Lamington Travel Ltd, because the evidence, in
my judgment, clearly indicates that on their own the premises comprised in the
underlease could not effectively be used for retail purposes. There being no
certainty that planning permission for office user would be obtained if the
occupation of the two parts of the building came to be separated, I have come
to the conclusion that the landlords had reasonable grounds for withholding
consent to the application for a change of user made by the plaintiffs so that
Lamington Travel Ltd could occupy the premises with that changed user. It
follows that the plaintiffs are not entitled to the declaration sought under
paras 3 and 4 of the original summons.
I have
indicated already that so far as the consent to the assignment is concerned,
the material before the landlord at the date when these proceedings were issued
casts grave doubt upon the adequacy of the proposed assignees. It was submitted
that even though that might be so, nevertheless the offer of a guarantee by
such a guarantor as Hoare’s Bank cured the difficulty. I am by no means
satisfied that this is so, and I prefer the view which is indicated by a very
short report in the Current Law Year Book 1962, where it was held by
Wilberforce J that an assignment to a totally insubstantial company, even
though backed by a guarantee, is quite a different thing to an assignment to a
satisfactory and responsible tenant. That case was one where the proposed
assignee was totally insubstantial. Even if that description is not wholly
applicable to Lamington Travel Ltd, it nevertheless is a company which at the
stage in its history which had been reached so far as the landlords knew at May
27 1987 could not be regarded as a wholly substantial company, and I find that
the offering of a guarantee is not a satisfactory substitute for a satisfactory
and responsible tenant. It may well be that at the present time the situation
is different.
Time has
passed since the end of the year to which the accounts before the landlords
related, that is the year to March 31 1986, and it may well be that there has
been a significant improvement in the stability of Lamington Travel Ltd. I make
no finding as to that, but the short report of the case of Geland
Manufacturing Co Ltd v The Levy Estates Co Ltd (1962) Current Law
Year Book, para 1700, indicates that Wilberforce J
held that
relief from the forfeiture of a lease held by a company in liquidation —
insolvency automatically constituting a breach of a contract in the lease–could
not be obtained by a proposed assignment of the tenancy to a subsidiary of the
insolvent company which, though itself solvent, was insubstantial, even though
the tenant company could provide an acceptable guarantor for future rent. An
assignment to a totally insubstantial company, even though backed by a
guarantee, was quite a different thing from an assignment to a satisfactory and
responsible tenant. It would not be proper to impose such an assignment on the
landlord.
Mr
Fetherstonhaugh further took the point, in regard to the submission by Mr Cole
that I should look at the terms of the covenant in the lease which qualified
the covenant against assignment without consent with the words ‘but which
consent in the case of the lessor shall not be unreasonably withheld in the
case of a substantial and reputable assignee or underlessee,’ that the words
‘in the case of a substantial and reputable assignee or underlessee,’ if they
added anything to the consent not being unreasonably withheld, fell to be
disregarded because of the provisions in section 19 of the Landlord and Tenant
Act 1927. Section 19(1) provides that such a covenant as I am concerned with
shall . . .
be deemed to be subject –(a) to a proviso to the effect that such licence or
consent is not to be unreasonably withheld, but this proviso does not preclude
the right of the landlord to require payment of a reasonable sum in respect of
any legal or other expenses incurred in connection with such licence or
consent.
That provision
is introduced by the words, ‘such covenant, condition or agreement shall,
notwithstanding any express provision to the contrary,’ be deemed to be subject
to such a proviso as I have mentioned. He submits, and I accept the submission,
that the effect of that is that if and in so far as the wording in the lease
‘substantial and reputable assignee or underlessee’ purports to qualify the
provision that consent shall not be unreasonably withheld, then it falls to be
disregarded. I accept that submission, but of course, the question remains: is
the landlord reasonable or unreasonable in withholding consent in the
circumstances and in the light of the information furnished to him. The
landlord, it is well said, is entitled to be told the facts of the matter and
the nature of the proposals to which he is asked to consent. One can only
consider whether he has been reasonable or not in the light of the information
furnished to him at the time when the question of reasonable or not reasonable
arises. Mr Fetherstonhaugh submitted that there must always be some risk to the
landlord, even with the most substantial assignee, and he has cited in that
connection what is said in British Bakeries (Midlands) Ltd v Michael
Testler & Co Ltd, to which I have already referred. I find some
difficulty in following the ground upon which he located in the judgment in
that case any real justification for the principle that there must always be
some risk to any landlord. Quite clearly in one sense that is right. Human
affairs are subject to all kinds of contingencies, but it does not follow that
on a consideration of all the circumstances it is not possible to form a view
as to whether it was reasonable or unreasonable to withhold consent in the case
of a particular assignee. I have already held that there was ground upon which
the landlords in this case, and on the information available to them, could
reasonably withhold consent to the assignment.
Mr Fetherstonhaugh
invited me, if I were against the plaintiffs on the granting of the declaration
as sought by them, to indicate in my judgment what my finding would have been
had the application been made, as it were, on this day with the information now
available. That really involves answering a question which the summons does not
raise. There are, of course, indications in the evidence now before court that
some changes have taken place. There are also indications in that evidence that
the changes that have taken place do not really
27 of this year, because some at least of those appear to be unresolved. For
example, the only planning permission that is applicable currently to the
proposed user of the assignee is one which gives rise to the very same
difficulty as appeared to be a stumbling block in May of this year, that is, a
planning permission which if implemented could render the premises, in the
words of the defendants’ solicitors, unmarketable. I do not think it would be
proper for me to indulge in speculation as to how far the changes that have
taken place since then affect the situation, or whether it would now be
reasonable or unreasonable for the landlords to refuse consent. That would be a
matter which would have to be considered in the light of the relevant
circumstances, and the evidence before me is not really directed to
establishing what those are at the present time. Accordingly, the plaintiffs’
claim for declarative relief fails.
