Landlord Protect Ltd v St Anselm Develpment Company Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Stanley Burnton,Lord Justice Wilson,Lord Justice Waller |
| Judgment Date | 20 February 2009 |
| Neutral Citation | [2009] EWCA Civ 99 |
| Docket Number | Case No: A3/2008/1732 |
| Date | 20 February 2009 |
| Court | Court of Appeal (Civil Division) |
[2009] EWCA Civ 99
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
HH JUDGE HODGE QC sitting as a Judge of the High Court
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Waller
Lord Justice Wilson and
Lord Justice Stanley Burnton
Case No: A3/2008/1732
HC 07 C00302
Mr John Furber QC (instructed by McGrigors LLP) for the Appellant
Mr Martin Rodger QC (instructed by Guy Clapham & Co) for the Respondent
Hearing date: 27 January 2009
Lord Justice Stanley Burnton:
Introduction
This appeal raises short but not straightforward questions as to the construction and effect, and thus of the reasonableness, of a condition required by the landlord in relation to the proposed assignment of a lease. The Appellant was the buyer under a contract entered into with the Respondent to purchase the unexpired residue of the term created by the lease. The Appellant rescinded the contract on the ground that the condition was unreasonable. HH Judge Hodge QC, sitting as a judge of the Chancery Division, held that the landlord's requirement of the condition had been reasonable and dismissed the Appellant's claim for return of the deposit paid under the contract.
The facts
At an auction on 13 July 2006, the Appellant contracted to purchase the Respondent's head leasehold interest in a block of 26 residential flats at 13 to 17 Clarges Street, London W1. The agreed price was £1,050,000. The Appellant paid a deposit of £105,000. The head lease was dated 29 October 1964 and was for a term of 99 years from 29 September 1964. By clause 2(s) of the lease, the head landlord's consent was required to the assignment of the lease to the Appellant. It was a covenant on the part of the lessee:
“not to assign part or parts only of the demised premises and not to underlet or part with possession or assign the whole of the demised premises without the consent in writing of the Landlord first had and obtained but such consent shall not be unreasonably withheld in the case of a respectable and responsible assignee or sub-tenant being offered.”
The sale contract incorporated the 1st May 2002 edition of the Common Auction Conditions published by the RICS. General Condition 9 contained provisions relating to obtaining of the head landlord's consent to the assignment and was therefore applicable:
“9.1 Where the Lot is leasehold land and licence to assign is required
(a) the Contract is conditional on it being obtained by way of formal licence if that is what the landlord or the relevant lease requires
(b) the Agreed Completion Date is if necessary postponed to the date five Business Days after the Seller has given notice to the Buyer that licence has been obtained.
9.2 The Seller must
(a) use all reasonable endeavours to obtain each licence required; and
(b) enter into any authorised guarantee agreement properly required under the Lease.
9.3 The Buyer must
(a) promptly provide references and other relevant information,
(b) if properly required under the terms of the Lease execute such licence or other direct deed of covenant as may be required and provide guarantees, a rent deposit or other security.
9.4 If within 3 months of the Contract Date (or such longer period as the Seller and Buyer agree) all required licences have not been obtained the Seller or the Buyer may by notice to the other rescind the Contract at any time before all licences are obtained. Rescission is without prejudice to the claims of either Seller or Buyer for breach of this condition 9.”
Clause 8 of the General Conditions provided:
“8. If the Contract is rescinded or otherwise brought to an end
…
(b) the Seller must return the deposit and any interest on it to the Buyer.”
The 3 month period specified in clause 9.4 was extended by agreement between the Appellant and the Respondent until close of business on 27 October 2006.
Relevant events after the contract can be taken from the judgment of HH Judge Hodge QC. The Appellant was a dormant company which had never traded. It therefore had no accounts and could provide no accountant or bank references. The head landlord, through its solicitors, Wedlake Bell, was only prepared to give its licence to the proposed assignment if the Appellant's sole director, Andrew Reid, a partner in the firm of Reid Minty and (with his family) the principal ultimate shareholder in the Appellant, was prepared to guarantee the Appellant's performance of its obligations as assignee of the head lease; but Mr Reid was only willing to offer a guarantee if it was limited in duration for a period of 3 years. This was unacceptable to the head landlord. The Appellant therefore issued proceedings in the Central London County Court against the head landlord claiming declarations that it had unreasonably refused its consent to the assignment and/or had imposed unreasonable conditions for the giving of its consent. Specifically, the Appellant sought a declaration that it was unreasonable for the head landlord to impose a requirement for Mr Reid to provide a guarantee more extensive than that which had previously been offered.
The proceedings were expedited and came on for trial before His Honour Judge Cowell on 10 October 2006. On 13 October 2006, he gave judgment dismissing the claim, holding that, in all the circumstances of the case, the head landlord had not been acting unreasonably in rejecting the offer of a guarantee limited in duration to a period of only 3 years. There was discussion following the judgment between counsel for the Appellant and counsel for the head landlord and the judge on what provision relating to the guarantee would be reasonable, but it is not relied upon in the present proceedings.
Following this judgment, the dispute over the precise terms of the guarantee continued. On 19 October 2006 Wedlake Bell submitted a draft licence to assign. As before, it included a covenant by the Appellant to pay the rents and to comply with the lessee's covenants in the lease from the date of the proposed assignment and at all times during the residue of the term. As before, it included a guarantee to be provided by Mr Reid. By Clause 6.6, the guarantee was to be released on a subsequent assignment with the head landlord's consent “provided that a reasonable alternative guarantor is provided by the purchaser”.
On 20 October, the Appellant's solicitors amended this draft, deleting the proviso so that Mr Reid would automatically be released on an assignment with the head landlord's consent. Thus it read:
“In the event of a subsequent assignment with the consent of the Landlord in accordance with the provisions of the Lease the Guarantor shall be released from his liability pursuant to the covenants on the Guarantor's part in this deed.”
Wedlake Bell reinstated the proviso, but amended it so as to provide for Mr Reid to be released on a subsequent assignment with the landlord's consent “provided that a reasonable alternative security is provided by the assignee pursuant to such subsequent assignment”. In its final form it read:
“In the event of a subsequent assignment of the lease effected with the consent of the Landlord the Guarantor shall be released from his liability pursuant to the covenants on the Guarantor's part in this deed provided that a reasonable alternative security is provided by the assignee pursuant to such subsequent assignment.”
The italics are mine.
This alternative formulation was unacceptable to the Appellant. In a letter to Wedlake Bell of 27 October 2006, Reid Minty, then acting on behalf of the Appellant, expressed their view that what the head landlord was seeking was protection to which it was not entitled under the terms of the head lease which, on the authority of Mount Eden Land Limited v Straudley Investments Limited (1996) 74 P & CR 306, would be unreasonable. Reid Minty's expressed reasons for saying this were as follows:
(a) The head landlord had the ability to refuse consent to any assignment if they were not satisfied with the strength of the covenant or any security being offered. Accordingly, the clause proffered by the Appellant was said to provide the head landlord with the protection they had under the terms of the head lease.
(b) The requirement that Mr Reid should only be released from his guarantee if the head landlord consented and a reasonable alternative security was provided by the assignee was a “recipe for future disputes”, which is what the Appellant was seeking to avoid. It was suggested that the requirement of a “reasonable alternative security”, in addition to the head landlord's right to refuse consent, might arguably require a guarantee of equal strength to the guarantee provided by Mr Reid.
As mentioned above, the Appellant and the Respondent had agreed that the period after which either of them could give notice to rescind the sale contract if the head landlord's licence had not by then been obtained expired at the close of business on 27 October 2006. A few minutes after 5.30 pm that day, the Appellant gave notice to the Respondent rescinding the sale contract and requiring the...
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