NCR Ltd v Riverland Portfolio No 1 Ltd (No 2)

JurisdictionEngland & Wales
CourtChancery Division
JudgeMR PETER LEAVER QC, Mr Peter Leaver QC
Judgment Date16 Jul 2004
Neutral Citation[2004] EWHC 2073 (Ch)
Docket NumberCase No: HC03C03074

[2004] EWHC 2073 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London WC2A 2LL

Before:

Mr Peter Leaver QC (sitting as a deputy judge of the High Court)

Case No: HC03C03074

Between:
Ncr Limited
Claimant
and
Riverland Portfolio No 1 Limited
Defendant

Mr Derek Wood QC (instructed by Herbert Smith) for the claimant

Mr Jonathan Seitler QC (instructed by Berwin Leighton Paisner) for the defendant

Hearing date: 24 June 2004

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.

Approved Judgment

MR PETER LEAVER QC Mr Peter Leaver QC

INTRODUCTION

1

In these proceedings the claimant, NCR Limited ("NCR"), seeks relief against the defendant, Riverland Portfolio No 1 Limited ("Riverland"), in its capacity as NCR's landlord of an office building known as Solar House, 907–925 High Road, Finchley ("Solar House").

2

These proceedings have already been before the court. On the 2 April 2004 Peter Smith J made a declaration that a proposed underlease of Solar House, the terms of which had been submitted by NCR to Riverland for its consent, was an underletting authorised by clause 3 (11) of the head lease.

3

There are two claims now before the court. First, NCR claims a declaration that Riverland owed, and owes, it a duty, pursuant to section 1 (3) of the Landlord and Tenant Act 1988 ("the Act") within a reasonable time to give consent to the proposed underletting, unless there are reasonable grounds for withholding consent. Secondly, NCR claims a declaration that Riverland has unreasonably withheld and/or delayed its consent to the proposed underletting.

4

The first of those claims is not controversial. It is accepted that Riverland did owe, and owes, that statutory duty. It is the second of those claims that is in dispute. In order to illustrate how that dispute has arisen, it will be necessary to set out, in some detail, the background to the dispute. However, before doing so, it is necessary to set that dispute in context.

THE ACT

5

The relevant provisions of the Act are as follows:

"1. Qualified duty to consent to assigning, underletting etc of premises

(1) This section applies in any case where —

(a) a tenancy includes a covenant on the part of the tenant not to enter into one or more of the following transactions, that is -

(i) assigning,

(ii) underletting,

(iii) charging, or

(iv) parting with the possession of

the premises comprised in the tenancy or any part of the premises without the consent of the landlord or some other person, but

(b) the covenant is subject to the qualification that the consent is not to be unreasonably withheld (whether or not it is also subject to any other qua 4fIcation).

(2) In this section and section 2 of this Act —

(a) references to a proposed transaction are to any assignment, underletting, charging or parting with possession to which the covenant relates, and

(b) references to the person who may consent to such a transaction are to the person who under the covenant may consent to the tenant entering into the proposed transaction.

(3) Where there is served on the person who may consent to a proposed transaction a written application by the tenant for consent to the transaction, he owes a duly to the tenant within a reasonable time —

(a) to give consent, except in a case where it is reasonable not to give consent,

(b) to serve on the tenant written notice of his decision whether or not to give consent specifying in addition —

(i) if the consent is given subject to conditions, the conditions,

(ii) if the consent is withheld, the reasons for withholding it.

(4) Giving consent subject to any condition that is not a reasonable condition does not satisfy the duly under subsection (3)(a) above.

(5) For the purposes of this Act it is reasonable for a person not to give consent to a proposed transaction only in a case where, if he withheld consent and the tenant completed the transaction, the tenant would be in breach of a covenant.

(6) It is for the person who owed any duty under subsection (3) above —

(a) if he gave consent and the question arises whether he gave it within a reasonable time, to show that he did,

(b) if he gave consent subject to any condition and the question arises whether the condition was a reasonable condition, to show that it was,

(c) if he did not give consent and the question arises whether it was reasonable for him not to do so, to show that it was reasonable,

and, if the question arises whether he served notice under that subsection within a reasonable time, to show that he did."

6

Section 4 of the Act is in the following terms:

"A claim that a person has broken any duly under this Act may be made the subject of civil proceedings in like manner as any other claim in tort for breach of statutory duty."

THE LEASE

7

The lease was granted to NCR by Riverland's predecessors in title, Markheath Investments Limited, on 12 December 1984. The term of the lease is 25 years from 25 December 1984. The rent reserved was £338,000, subject to upward-only reviews every five years. The rent is currently £710,000: that sum represents £19.30 per square foot. The final rent review under the terms of the lease is due to take place on 25 December 2004.

8

Clause 3(11)(a) of the lease contains a covenant against underletting. The relevant part of the covenant is in the following terms:

"Not to underlet the whole of the Demised Premises or permit any underlease of the whole of the Demised Premises to be derived directly or indirectly (however remotely) out of this lease unless —

(i) the underlease is granted at the best rent obtainable in the open market without the grantor taking any premium or other capital consideration or (if greater) the rent then payable hereunder and

(ii) the underlease is in possession and on terms whereby all the covenants on the Tenants part contained in this lease and any deed or instrument then supplemental hereto are entered into by the underlessee with the Tenant (or as the case may be with the immediate reversioner) and on conditions and subject to provisions binding on the underlessee the same in all respects as those herein contained (including but not limited to provisions for reviewing the rent thereunder at the same dates and on the same terms as the rent hereunder is to be reviewed but so that the rent payable thereunder shall never be less than that from time to time payable hereunder (or as the case may be that which would have been payable hereunder were this lease then subsisting)) to the intent that if relief from forfeiture shall be granted to the underlessee (but not to the Tenant or any superior underlessee) or if pursuant to Part II of the Landlord and Tenant Act 1954 the underlessee shall continue in occupation of the Demised Premises after the expiry of the 25th year of the Term the Landlord shall not be in a worse position in any respect that had this lease continued in being —

AND

prior to the grant thereof —

(iii) the proposed underlessee has covenanted with the Landlord in the licence next referred to with effect from the date of the grant of the underlease throughout the term thereby created and any statutory continuation or extension thereof to observe and perform the covenants on the underlessee's part and be bound by the conditions and provisions to be contained in such underlease and —

(iv) the Landlord's licence for such underlease has been given under seal (such licence subject to prior compliance with the foregoing provisions not to be unreasonably withheld) ……"

THE AUTHORITIES

9

The Act has been considered by the courts on a number of occasions. A convenient authority with which to start is Ashworth Frazer Limited v Gloucester City Council [2001] WLR 2180. In his speech, at pages 2182E-D Lord Bingham of Cornhill said:

"The landlord's appeal

2. The combined effect of clause 2(viii) of the lease and section 1 of the Landlord and Tenant Act 1988 is in my opinion clear. The tenant covenants not to assign the demised land or any part thereof (other than to a subsidiary of the tenant). But the covenant is not absolute. The tenant may assign with the previous consent in writing of the landlord. The landlord's consent is not to be unreasonably withheld in the case of a respectable and responsible assignee being proposed. Where the tenant makes written application for consent the landlord owes the tenant a duly within a reasonable time to give consent, or give consent subject to notified conditions, or refuse consent for notified reasons. If the reasonableness of any condition imposed by the landlord or the reasonableness of the landlord's withholding of consent is questioned, the landlord must show that the condition or the withholding was reasonable.

3. When a difference is to be resolved between landlord and tenant following the imposition of a condition (an event which need not be separately considered) or a withholding of consent, effect must be given to three overriding principles. The first, as expressed by Balcombe LJ in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513, 520 is that

"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 …"

The same principle was earlier expressed by Sargant LJ in Houlder Bros & Co Ltd v Gibbs [1925] Ch 575, 587.

"in a case of this kind the reason must be something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant, and .. it must not be something wholly extraneous and completely dissociated from the subject matter of the contract."

While difficult borderline questions are bound to...

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