Crestfort Ltd and Others v Tesco Stores Ltd and Another
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE LIGHTMAN,Mr Justice Lightman |
| Judgment Date | 25 May 2005 |
| Neutral Citation | [2005] EWHC 805 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC04CO2107 |
| Date | 25 May 2005 |
[2005] EWHC 805 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Lightman
Case No: HC04CO2107
Mr Alan Johns (instructed by Pinsent Masons, 30 Aylesbury Street, London EC1R 0ER) for the Claimants/Part 20 Defendants
Mr Stephen Jourdan (instructed by Dewar Hogan, 4 Creed Court, 5 Ludgate Hill, London EC4M 7AA) for the First Defendant /Part 20 Claimant
Miss Elizabeth Fitzgerald (instructed by Pickworths, 6 Victoria Street, St Albans, Hertfordshire AL1 3JB) for the Second Defendant
Hearing dates: 6 th—8 th April, 18 th—19 th April & 22 nd April 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Lightman
This action arises from the grant by the first defendant Tesco Stores Limited ("Tesco") of an underlease ("the Underlease") to the second defendant Magspeed Limited ("Magspeed") of premises the subject of a lease ("the Lease") held by Tesco of which the freehold reversion was vested in the first and second claimant ("the Landlords"). By the Lease Tesco was subject to a covenant restricting its right to grant any such underlease. In this action the Landlords claim that Tesco granted the Underlease in breach of that covenant and that Magspeed when accepting the Underlease knew of the breach and in accepting the Underlease unlawfully interfered with the contractual relations between the Landlords and Tesco; and the Landlords seek by way of relief an order that Magspeed surrender, and Tesco accept the surrender of, the Underlease and damages from both Tesco and Magspeed (whom I shall refer to together as "the Defendants").
At the trial the Landlords were represented by Mr Alan Johns, Tesco by Mr Stephen Jourdan and Magspeed by Ms Elizabeth Fitzgerald. I gratefully acknowledge the quality of the assistance which each of them provided.
FACTUAL BACKGROUND
The relevant factual background can be ascertained from the contemporary documentation and the evidence of the witnesses. The Claimants' witnesses were Mr Erik Robson ("Mr Robson") a partner in the Robson Associates (the Landlords' agents) and Mr Amir Zarbafi ("Mr Zarbafi") the Landlords' adviser with full power to act on their behalf. Tesco's witnesses were Mr Mark Edwards ("Mr Edwards") a property executive employed in Tesco's Asset and Estate Management Department and Mr Frederick Tarrant ("Mr Tarrant") a client director employed by AON Limited, Tesco's insurance brokers. Magspeed's witness was Mr Martin Olley ("Mr Olley") the managing director of Magspeed. There was also in evidence a joint report of the parties' experts Mr B D O'Connor FRICS and Mr J V Hulme FRICS.
The Landlords hold as trustees for the third claimant the freehold in a large single storey warehouse and office building of about 105,918 square feet on a site of about 4.5 acres known as Gloystarne Unit, Denbeigh Road, Bletchley, Milton Keynes ("the Premises"). The Landlords granted a charge ("the Charge") over the Premises to Anglo Irish Bank Corporation Plc ("the Bank"). The Charge imposed insurance obligations on the Landlords, breach of which could trigger enforcement. By the Lease, which is dated the 5 th February 1981 made between the Landlords' predecessors in title Midland Bank Trust Company Limited ("Midland") and Tesco Holdings Limited ("Holdings") (then named Tesco Stores Limited) Midland demised the Premises to Holdings for the term of 25 years from the 8 th February 1981. In 1989 Holdings assigned the Lease to Gloystarne & Co Ltd ("Gloystarne"). Gloystarne later went into administration. To mitigate the liability of Holdings under the covenants in the Lease Holdings and Gloystarne agreed that another company within the Tesco group of companies, namely Tesco, should take an assignment of the Lease and take whatever action was available to mitigate the impact on Tesco of the continuing liabilities under the covenants in the Lease. The Landlords agreed to this assignment. On the 1 st October 2003, the Landlords by a licence to assign ("the Licence") consented to the assignment of the Lease to Tesco and Gloystarne by its administrators assigned the Lease to Tesco.
The Lease contained the following covenants and provisions:
i) (by clause 2) it was provided that the rent should be reviewed every five years. The current reviewed rent is £400,000 per annum;
ii) (by clause 4(5)-(8)) the tenant covenanted that the tenant should repair and decorate the Premises and keep the open areas in good order and by clause 4(14) the tenant covenanted to repair defects of which the landlord gave notice;
iii) (by clause 4(15)) it was provided that, if the tenant failed to repair after the landlord gave notice, the landlord could enter the Premises and repair at the tenant's expense;
iv) (by clause 4(27) the tenant covenanted not to assign, underlet or part with possession of part only of the Premises;
v) (by clause 4(28)) the tenant entered into a covenant regarding assignment in the following terms:
"Not to assign underlet or part with or share the possession of the whole of the demised premises without the previous consent in writing of the Landlord (which consent shall not be unreasonably withheld) PROVIDED ALWAYS that:—
(a) In the case of an assignment any intended assignee has first by deed covenanted directly with the Landlord that during the residue of the term then subsisting the assignee will pay the rent reserved by and will observe and perform the covenants and conditions contained herein including a covenant not to further assign the demised premises without such consent as aforesaid
(b) On the grant of any permitted Underlease the Tenant shall obtain:—
(i) an unqualified covenant on the part of the Underlessee not to assign or underlet or part with the possession of part only of the premises thereby demised and
(ii) a covenant on the part of the Underlessee that the Underlessee will not assign underlet or part with or share the possession of the whole of the premises thereby demised without obtaining the previous written consent of the Landlord such consent not to be unreasonably withheld or delayed and to provide in such Underlease that any underleases granted out of such Underlease whether immediate or mediate shall contain a similar provision
(c) The Tenant will not accept or pay or agree to accept or pay any fine or premium in consideration for the grant of any Underlease or tenancy that may at any time relate to the demised premises
(d) Any permitted Underlease shall be granted subject to like covenants and conditions as are herein contained except as to the rent thereby reserved and the length of the term thereby granted."
vi) (by clause 5(ii)) the landlord covenanted to insure the Premises against "the insured risks" and (if so required) to produce evidence of payment of the current premium for such insurance to the tenant once yearly and a certified copy of the insurance policy on reasonable demand. Clause 1(2) defined "insured risks" as including property owners' liabilities and three years' loss of rent;
vii) (by clause 2) the tenant covenanted to pay by way of additional rent the insurance premium expended by the landlord.
The Licence contained (in clause 3.14) a covenant by Tesco with the Landlords that as from the date of the assignment until the expiration of the term of the Lease Tesco would pay the rents reserved by the Lease and observe and perform the tenant's covenants and conditions contained in the Lease. By clause 7 of the Licence the Landlords and Tesco agreed that, as a personal concession to Tesco during the period that Tesco should remain the tenant under the Lease and whilst neither Tesco nor any other lawful occupier was in occupation, the Landlords should be under no obligation to insure and have no right to any refund of insurance premium and that in place thereof Tesco should insure the Premises in the joint names of the Landlords and Tesco against loss or damage by the "insured risks" (as defined in the Lease) with reputable insurers or underwriters on the usual terms of that insurer or underwriter in the full reinstatement value of the Premises. No other requirement was laid down as to the terms or character of the insurance policy.
At the date of the assignment to Tesco, whilst the structure of the Premises was sound, the Premises were in a dilapidated condition with the warehouse heating system beyond repair and the sprinkler system had been removed. The Landlords in March 2004 obtained a tender for carrying out all the necessary repairs in the sum of £498,255. Tesco was determined (and throughout has remained determined) not to meet its repairing obligations or incur any cost in this regard unless forced to do so. Beyond this liability in respect of repairs Tesco had a liability for an annual rent of £400,000 and annual security costs of about £60,000. In an endeavour to reduce the burden of meeting these costs Tesco instructed agents, Alexander Reece Thompson ("ART") a firm of chartered surveyors, to market the Premises and find an occupier as soon as it could. ART in December 2004 found Magspeed and heads of terms ("the Head of Terms") were agreed "subject to contract" on the 12 th January 2004.
I must go back to October 2003 to pick up the correspondence between the parties about insurance and repairs. By letter dated the 10 th October 2003 addressed "to whom it may concern" Mr Bayliss of AON, Tesco's insurance broker, confirmed that Tesco had...
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