Norfolk Capital Group Ltd v Kitway Ltd

(without calling upon Counsel for the Respondent)

This is an appeal from the judgment and order of Judge Leslie in the Bloomsbury and Marylebone County Court delivered on 7th November, 1975. The judgment was given in an application made by Norfolk Capital Group Ltd., the applicants, whom I shall call "the tenants". The respondents to that application (to whom I shall refer as "the landlords") were Kitway Ltd. The question at issue arose out of a lease dated 3rd April, 1951, the original parties to which were neither the landlords nor the tenants in the sense in which I am using those words in this judgment. The lease had been granted by Prudential Insurance Company to Eccleston Hotel Co. Ltd. for a period of 60 years from 24th June, 1950: so that, by the date with which we are concerned, in 1975, some 25 years of that lease had expired and some 35 years were still to run. The lease was of property in Princes Square, in the W.2 district of London. It comprised a number of buildings, numbered consecutively 8 to 16 Princes Square facing to the north on to Princes Square, and at the back of them, facing on to Princes News, were other properties, numbered 6 to 14 in consecutive order, which consisted of garages below, and above each garage a residential flat or maisonette. The rent for the whole of that property was £2,300 a year.

Under the lease there was a covenant, clause 2 (15), which put a limitation upon the use of the premises. The other relevant clause is clause 2 (19), which reads as follows: "Not to assign the demised premises or any part thereof without the previous consent in writing of the Landlords such consent not to be unreasonably withheld in the case of a person shown at the expense of the Lessees and to the satisfaction of the landlordsas being respectable and responsible and suitable for carrying on the business or user of the demised premises permitted by clause (15) hereof".

The front part of the property facing on to Princes Square had been used, and was being used, as a private hotel. The properties at the back facing upon Princes flews were, as I say, garages with flats over them, all of them being individual flats, with the garages belonging to them below each of them.

In 1973 the tenants, Norfolk Capital Group Ltd., took an assignment of the whole of the leased property. That leasehold title was registered in November, 1973. In 1975 the tenants were minded to assign the leasehold interest in No. 9 Princes Mews - that is, the garage with the flat or maisonette above it - to a Mr. C. R. Freeman. The tenants made application to the landlords for their consent under clause 2 (19) of the lease. The landlords refused to give their consent. The ground, and the only ground, which the landlords gave, and the only ground with which we are concerned, is that if Mr. freeman became the assignee of No. 9 Princes Mews he would, if he resided there himself continuously for five years, become entitled to acquire the freehold of that property, No. 9 Princes Mews, under the provisions of the Leasehold Reform Act, 1967. The landlords' interest in the reversion to the lease of the whole of the property would, they said, be reduced in value by reason of that assignment: they would cease to be the freehold owners of No. 9; and they said also that it would materially affect the value of the property as a whole and possibly also neighbouring property owned by them.

There is no suggestion that Mr. Freeman is anything other than a respectable and responsible person. There is no suggestion that consent to the assignment could be withheld on anybasis affecting Mr. Freeman's character or financial stability. However, the objection was that Mr. Freeman was an individual person and that because he was an individual person he was a potential beneficiary under the Leasehold Reform Act, 1967, if he became the assignee of the lease of No. 9 Princes Mews. On the other hand, if the tenants remained the tenants of No. 9 Princes Mews and were not permitted to assign, they, being a limited liability company, would not in any circumstances be entitled to the benefit of the Leasehold Reform Act, 1967.

It is unnecessary to go into the qualifying conditions which have been spelled out to us for the acquiring of a right under the leasehold Reform Act, 1967. It is sufficiently clear that if Mr. Freeman became the assignee, subject only to his remaining there in effect as a resident for five years he would acquire that right.

The matter was heard by the learned judge in the Bloomsbury and Marylebone County Court. Evidence was given on behalf of the tenants and of the landlords, and careful submissions on law were made by counsel on behalf of each of the parties. The learned judge came to the conclusion that the tenants had failed to show that the landlords' refusal of consent was unreasonable, and accordingly he dismissed the application. It is from that decision that the tenants appeal to this Court.

We have had in this Court careful and detailed argument, citing many authorities, put forward by Mr. Barnes, who appeared below and appears in this Court on behalf of the tenants. Before I outline the nature of that argument, I think it is right to say this. If one were asked, without having been taken into any legal authorities relating to the matter, whether or not, in the circumstances which I have outlined, it was unreasonable for the landlords to refuse their consent when the consequences of givingthat consent and of the assignment being made were likely to be that they would be deprived of their freehold interest in the property in five years' time, I find it very difficult to think that anyone would find it possible to say that the landlords' refusal was unreasonable. However, we have got to look at it in the lighi of the authorities that have been cited to us, because it is contended, with careful and energetic argument, that that indeed is the correct and only proper conclusion in law.

The way in which that argument is presented is this. We have been taken through a line of authorities dealing with the question whether or not a landlord is unreasonable in refusing his consent to an assignment of a lease in cases in which the effect of the assignment, if it were to be made, would be that the assignee would obtain thereafter, or be likely to obtain thereafter, the protection given by the Rent Acts to a "protected", or a "statutory", tenant. Those cases, it is said, have produced a principle which I shall seek to state in a moment. That is the first stage of the argument.

The second stage of the argument is that that principle, which has been so evolved by the courts in relation to the question of Rent let protected tenancies, is of general application, and is thus applicable where the effect of an assignment requested would be to enable the assignee thereafter to have the benefits of the leasehold Reform Act, whereas the assignor, had he not been permitted to make the assignment, would not have had those benefits.

The Rent Act cases, if I may so describe them, to which we have been referred are: Lee v. Carter (1949) 1 King's Bench 85, a decision of this Court; Swanson v. Forton (1949) 1 Chancery 143, another decision of this Court; Dollar v. Winston (1950) 1 Chancery 236, a decision of Mr. Justice Roxburgh at firstinstance: and finally Thomas Bookman Ltd. v. Nathan (1955) 1 Weekly Law Reports 815, a decision of this Court.

The principle which it is claimed is to be derived from an analysis of those decisions and the developments resulting from one decision to another, is this: that where the effect of the desired assignment of the lease is likely to be that the proposed assignee will thereafter gain the protection of the Rent Acts, whereas the assignor either could not or would have been unlikely to have had those benefits in the absence of ttn assignment, the landlord is not entitled to refuse such an assignment if that assignment is to be regarded as a "normal" assignment: he would be acting unreasonably if he so refuses: he will not be acting unreasonably, however, if such an assignment is an "abnormal" assignment.

Now, the definition of "abnormal" which Mr. Barnes submits is to be derived from the cases to which I have referred is, for this purpose, that such an assignment is abnormal where the sole intention (I think on the part of the intended assignor and the intended assignee) is to give to the intended assignee statutory protection under the Rent Acts which would not be available to the assignor. It is a question of the intention. If, however, the effect of the proposed assignment would be to give such a protection, it is nevertheless unreasonable, as a matter of principle,...