No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Peter Jackson,Lord Justice Lewison,Lord Justice Floyd |
| Judgment Date | 21 February 2018 |
| Neutral Citation | [2018] EWCA Civ 250 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2016/4009 |
| Date | 21 February 2018 |
[2018] EWCA Civ 250
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
Mr Justice Henderson
CH-2016-000066
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lewison
Lord Justice Floyd
and
Lord Justice Peter Jackson
Case No: A3/2016/4009
Mr Martin Hutchings QC & Mr Jonathan Wills (instructed by Trowers & Hamlins LLP) for the Appellant
Mr Jonathan Seitler QC & Ms Lina Mattsson (instructed by Penningtons Manches LLP) for the Respondent
Hearing date: 15 February 2018
Judgment Approved
The long lessee of a flat applies to the landlord for consent to assign. The landlord is not entitled unreasonably to refuse consent. The landlord refuses consent on three grounds. Of those three grounds, two are reasonable; the third is unreasonable. Is the refusal of consent valid? That is the question raised on this appeal from Henderson J, whose judgment can be found at [2016] EWHC 2438 (Ch); [2017] 1 P & CR 8.
I take the essential facts from the judge's careful judgment. No.1 West India Quay is a 33-storey building comprising a hotel and 158 residential apartments let on long leases by West India Quay. On 17 August 2004, East Tower Apartments Ltd (“ETAL”) took 999-year underleases from West India Quay of 42 apartments (together in some cases with car parking spaces), including the Underleases. ETAL is a company registered in the British Virgin Islands, and it does not itself occupy any of the 42 apartments of which it is underlessee. The apartments are managed for it by Premview Properties Ltd, which is a company based in north London. Premview grants short-term assured shorthold tenancies of the apartments, typically of six to 12 months' duration, and there is therefore a regular turnover of tenants in occupation. These sub-lettings do not require the consent of West India Quay.
For reasons which do not matter, ETAL decided to sell its 42 apartments. Under the terms of the underlease, West India Quay's consent was required “(such consent not to be unreasonably withheld)”. A covenant in this form is usually referred to as a “qualified covenant”. West India Quay gave consent for eight sales. The only conditions imposed by West India Quay for these assignments were payment of all service charges demanded (although these were in dispute and are the subject of Tribunal proceedings) and a fee of £1,250 plus VAT. This fee was paid, without apparent objection, by ETAL.
In relation to apartment 28.08, ETAL first sought West India Quay's consent by a letter dated 27 March 2015. ETAL's letter confirmed its undertaking to pay West India Quay's costs in connection with the licence to assign in the sum of £1,250 plus VAT, whether or not the matter proceeded to completion. Receipt of the letter was acknowledged by West India Quay on 30 March 2015. ETAL was asked to bring the service charge account up to date. This was duly done, albeit under protest, and on 14 April 2015 ETAL informed West India Quay that completion was due to take place on Friday 17 April 2015, so the licence to assign was urgently required. In response, Emma Catterall for West India Quay said that she would “arrange for signature [of the licence to assign] here too”.
Despite this, no licence was signed and returned to ETAL. Instead, on 20 April 2015 West India Quay, for the first time, sought to impose conditions of an inspection and an undertaking to pay £350 plus VAT for a surveyor to inspect the property. These conditions were then repeated in letters dated 22 and 28 April 2015. This was challenged in correspondence by ETAL's solicitors, on the grounds that consent to assign had already been given, and the requirement was in any event unreasonable. Eventually, ETAL agreed on 29 April 2015 to pay the sum requested, but only if the inspection took place on the following day and the licence to assign were executed by 4pm on 1 May 2015. This proposal was not acceptable to West India Quay, but after ETAL threatened to bring proceedings, and further correspondence, West India Quay agreed on this occasion not to insist on the inspection as a condition for granting permission to assign. Their letter added:
“Going forward, each application must be considered on its own facts.”
The consent was finally granted on 13 May 2015, 47 days after the original request on 27 March 2015.
Less than a week later, on 19 May 2015, West India Quay through its in-house solicitor, Chris Christou, sought to impose the same condition in respect of inspection for apartments 27.02 and 27.09, together with an undertaking to pay £1,600 plus VAT as a fee (i.e. the £1,250 previously charged, plus £350 for the surveyor). What he said was:
“The fee regarding the Landlord's Licence to Assign is estimated at £1,600.00 plus VAT. This is on the basis that the matter does not become unduly complicated or delayed. Should this be the case, I reserve the right to vary this figure. My client requires the Apartment to be inspected by a surveyor. Arrangements are being made in this respect but I will require your firm's undertaking to pay the proposed fees, such undertaking to apply whether or not the matter proceeds to completion, before the appointment can be finalised.”
In addition, a requirement of a bank reference was imposed for the first time:
“My client also requires a current UK bank reference for the prospective assignee, confirming that the prospective assignee is good for the minimum sum of £5,250.00 [or, for apartment 27.09, £6,250.00] per annum.”
ETAL replied on 19 May agreeing to an inspection in principle, but not to payment of a fee for it. ETAL's solicitors wrote a more formal response on 22 May. They pointed out that whereas in previous cases the application fee was £1,250 the fee now sought was £1,600 which they inferred included £350 for the inspection. They protested about the request for a bank reference. They concluded the substantive part of their letter:
“We therefore require you to confirm:
a. That the fees payable for the application for the licence to assign will be £1,250 plus VAT for each apartment, and not £1,600 plus VAT
b. That you will consider the applications for licences to assign on receipt of undertakings for the reduced sum, without requiring that inspections have taken place or that the fees of the inspections are paid by our client beforehand, and
c. That you will not require a current UK bank reference for the assignee.
If you fail to provide confirmation on all three points in writing before Friday 29 May 2016, we are instructed to issue proceedings in which we will seek (i) a declaration that imposing those conditions is unlawful and would amount to unreasonable withholding of consent and (ii) costs.”
On 26 May 2015 West India Quay wrote refusing to grant consent for the assignments. The letter gave three reasons:
“My client is not prepared to proceed with the Licences for the following reasons:
1. Costs
Clause 3.10.4 of the underlease clearly entitles my client to recover my client's costs. The amount requested is not unreasonable and it includes the additional fee which you state for the inspection. My client is not prepared to proceed until I receive the undertaking requested…
2. Inspection
My client is entitled to check that there have not been any breaches of the terms of the Underleases. Please therefore provide the undertaking required so that we can progress the matter.
3. Reference
As your client is well aware a Section 21 Notice of Intention has been served on the Lessees and the Residents' Association regarding the utility meters. The costs in this respect are currently estimated at over £1 million. My client is entitled to assess and consider the covenant strength of the prospective assignee. Please therefore let me have the reference requested so that we can progress the matter.”
On 19 June ETAL's solicitors wrote to the solicitors whom, by that time, West India Quay had instructed. They reiterated their position that the requirement of a bank reference was unreasonable. On the question of fees they said:
“Our client has not accepted that the sum of £1,250 plus VAT is reasonable…. Our client will pay a reasonable sum relating to the application for consent, but neither £1,250 plus VAT nor £1,600 plus VAT is accepted as reasonable, and your client's attempt to impose a condition requiring payments of the fees for an inspection is absolutely refused.”
West India Quay's solicitors replied on 22 June that their client's position was as set out in earlier correspondence.
Faced with this impasse, ETAL began proceedings, as foreshadowed, for a declaration that West India Quay had unreasonably refused consent to the assignment; or, in the alternative, a declaration that the conditions were unreasonable. The claim form also sought an award of damages. HHJ Walden-Smith declared that all three conditions were unreasonable. As regards the first condition, it was not unreasonable in principle for West India Quay to require its costs to be paid; but it had not established that those costs were any greater than £350. She also declared that West India Quay was in breach of statutory duty under section 3 of the Landlord and Tenant Act 1988. In the interim ETAL had paid the disputed fee and had completed the assignments with West India Quay's consent. HHJ Walden-Smith therefore ordered the disputed fees to be repaid to ETAL.
On appeal from that decision, Henderson J approached the question on the following factual basis:
“[4] In respect of apartments 27.02 and 27.09, West India Quay had refused consent to assign for three reasons set out in its letter of 26 May 2015 to ETAL's solicitors, Penningtons Manches LLP. First, ETAL...
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