International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd

CourtCourt of Appeal
Docket Number85/0739
JudgeLORD JUSTICE BALCOMBE, LORD JUSTICE MUSTILL, LORD JUSTICE FOX
Judgment Date20 Nov 1985
JurisdictionEngland & Wales
Neutral Citation[1985] EWCA Civ J1120-5

[1985] EWCA Civ J1120-5

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

(MR EDWARD NUGEE, Q.C., sitting as Deputy Judge of the High Court)

Royal Courts of Justice,

Before:

Lord Justice Fox

Lord Justice Mustill

Lord Justice Balcombe

85/0739

Ch. 1984 I No. 5711

International Drilling Fluids Ltd
and
Louisville Investments (Uxbridge) Ltd.

MR K. LEWISON (instructed by Messrs. Helder Roberts & Co., Solicitors, Epsom) appeared on behalf of the Appellants.

MR P. MORGAN (instructed by Messrs. Nabarro Nathanson) appeared on behalf of the Respondents.

LORD JUSTICE BALCOMBE
1

This is an appeal from an order dated 18th June 1985 of Mr Edward Nugee, Q.C., sitting as a deputy High Court Judge, whereby he declared that the refusal of the appellant landlord to grant to the respondent ("the tenant") a licence to assign a lease to Euro Business Services Ltd. ("Euro") was unreasonable. The lease was made on 31st January 1972 between the landlord and Bovis New Homes Southern Ltd. ("Bovis"). The property comprised in the lease is a two-storey office building known as Colne House, Highbridge Industrial Estate, Uxbridge. High-bridge Industrial Estate is owned by the landlord.

2

The term of the lease is for 30 years from 25th December 1971, so it now has some 16 years to run. The initial rent was £12,500 per annum, but there is a rent review clause, exerciseable only upwards at 5 yearly intervals, and the current rent is £46,000 per annum. The user clause in the lease prohibits the use of the property "for any purpose other than as offices within the meaning of Class II of the Town and Country Planning (Use Classes) Order 1963 with ancillary showrooms…." The relevant part of the lessee's covenant against assignment is in the following terms: "…. not at any time during the term hereby granted to assign the whole of the demised premises without the licence in writing of the lessor being previously obtained such licence not to be unreasonably withheld".

3

The lease was assigned by Bovis to the tenant by an assignment dated 1st March 1978. By a deed dated 28th February 1978 the landlord granted Bovis licence to assign the lease to the tenant, and the tenant entered into a direct covenant with the landlord for payment of the rent reserved by the lease. So the landlord now has the benefit of two direct covenants for payment of the rent—that of Bovis, and that of the tenant. The tenant is a subsidiary of a well-known public company, and its accounts for the year ended 30th September 1983 showed an annual profit (after tax) of £470,000 on a turnover of almost £15m., with fixed assets of £2.l6m. and net current assets of £963,000.

4

The tenant occupied Colne House as a single office block for its own use. In July 1983 the tenant instructed Messrs. Leslie Lintott & Associates ("Lintott"), Surveyors and Valuers, to try to find someone who would take an assignment of the lease of GolneHouse, without any premium, since the tenant wished to move to new premises. The learned Judge said he was satisfied that Lintotts had taken the appropriate steps to market the property, but nevertheless, until shortly before the trial of the action, only one serious enquiry had been received. That was from a Mr Brodie and a Mr Gluck, who wished to use the building for the provision of serviced office accommodation. This is a form of business which has developed in recent years to meet the demand for office facilities which can be used on a short-term basis. There are a growing number of businesses which do not wish to take permanent office accommodation, but want to have the temporary use of offices which are fully furnished and which provide the services of a receptionist, telephonist and typist, and such facilities as word processing, photocopying and telex and telephone equipment.

5

It was common ground that, if the lease were assigned to Mr Brodie and Mr Gluck, or to a company formed by them, the proposed use of the property would not be in breach of any of the provisions of the lease. Although the landlord's witnesses were not optimistic about the viability of the proposed business, the learned Judge held that Mr Brodie had carried out sufficient research into this field of business to entitle him to form the view that it could be successful at Colne House.

6

Mr Brodie and Mr Gluck first expressed interest in December 1983. An initial application by the tenant for a licence to assign the lease to a particular company owned by them was abandoned, but on 2nd August 1984 the tenant applied to the landlord for licence to assign the lease to Euro, a company owned by Mr Brodie and Mr Gluck, and for whose obligations they were prepared to stand as guarantors. In the meantime, in May 1984, the tenant had vacated Colne House which, at the date of trial, remained empty. Of course the tenant remained, and remains, liable on all its obligations under the lease.

7

On 28th August 1984 the landlord's solicitors wrote saying that their clients were not prepared to grant a licence to assign "on the grounds that the investment value of our clients' interest in the property would be detrimentally affected by the proposed use". These grounds were supplemented by further grounds in a letter from the landlord's solicitors, dated 26th October 1984, but the ground of diminution in the value of the reversion remained, and remains, the principal ground of the landlord's refusal to consent to a licence to the tenant to assign the lease to Euro. Of the other grounds mentioned in the letter of 26th October 1984, two are still relied on by the landlord in its Notice of Appeal: (i) the viability of the proposed business, and (ii) the effect that the proposed user of Colne House might have on the car parking facilities on the Highbridge Industrial Estate.

8

On the principal ground of objection, the learned Judge heard evidence from a number of expert witnesses. His relevant findings of fact can be summarised as follows:

9

(1) By the end of the term of the lease, the site value of the property would be as great as, or greater than, the building value. There was no possibility that the use of the building for serviced offices might have a depreciating effect on the letting value of the property at the end of the lease.

10

(2) In view of the tenant's financial position, there was no significant danger that the rent would not be paid throughout the term.

11

(3) The rent obtainable on future rent reviews would not be prejudiced by the use of the premises as serviced offices.

12

(4) There was no prospect of Colne House being placed on the market or mortgaged to the fullest extent possible. Although this finding was attacked by Mr Lewison, who appeared for the landlord before us (as he did below), I am satisfied that it was justified by the evidence of Mr Dibley (a director of the landlord) which the learned Judge fully rehearsed in his judgment—if one understands "prospect" in its dictionary meaning of "expectation".

13

(5) That reasonable professional men might take the view that, if Colne House were placed on the market, it could fetch less with Euro in occupation of the property carrying on the business of providing serviced offices than with the property having remained vacant for more than a year. The learned Judge said that if it were relevant, he would not himself be satisfied that that would be the case, and I can understand his reluctance to reach such a conclusion, since it does seem surprising that the reversion to an empty property, which no one wishes to occupy as a single unit, should be worth more than one occupied by a company providing (with guarantors) a third source from which payment of the rent, and performance of the obligations under the lease, could be secured.

14

The learned Judge then rehearsed the arguments and the authorities with great care, and his finding on the principal ground was expressed in the following terms:

15

"I accept that the valuation evidence shows that reasonable professional men might take the view that, if Colne House were placed on the market, it could fetch less with Euro in occupation of the property carrying on the business of providing serviced offices than with the property having remained vacant for more than a year. but in the circumstances of this case, in which, so far as the evidence shows, there is no prospect of Colne House being placed on the market or mortgaged to the fullest extent possible, that does not in my judgment constitute a ground for reasonable apprehension of damage to the (landlord's) property interest".

16

He then dealt quite shortly with the car parking problem as a ground for the landlord refusing consent to the assignment to Euro, commenting that even the landlord's own witnesses considered it a minor point, and said that he was not satisfied that the problem was likely to be substantially greater than if the property were assigned to a company which could use it as its own offices. He concluded that he did not consider that the possibility of a small increase in parking problems was enough, either on its own or in conjunction with the alleged diminution in the value of the reversion, to...

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