LANDLORD AND TENANT — Lease — Assignment — Parties entering contract for sale of head lease — Lessor giving consent to assignment on condition that lessee’s guarantee be released only if “reasonable alternative security” provided by future assignee — Lessee rescinding contract for sale and seeking return of deposit — Whether condition imposed to withdraw consent reasonable — Landlord and Tenant Act 1988, s 1(6)(b)

Landlord Protect Ltd v St Anselm Development Co Ltd; [2009] WLR (D) 72

CA: Waller, Wilson and Stanley Burnton LJJ: EWCA Civ 99: 20 February 2009.

Where the landlord’s consent was required to an assignment of a lease, the landlord could not reasonably impose a condition which was designed to increase the rights he enjoyed under the headlease.
The Court of Appeal so stated when allowing the appeal of Landlord Protect Ltd against a decision of Judge Hodge QC sitting in the Chancery Division on 8 July 2008 [2008] EWHC 1582(Ch). Landlord claimed for return of its deposit under a contract entered into with St Anselm Development Co to buy its head leasehold interest in a block of residential flats because a condition imposed in relation to the proposed assignment was unreasonable. The judge held that a requirement that the guarantee provided by Landlord’s sole director should be released on any future assignment of the head lease only if “reasonable alternative security” was provided by the future assignee was reasonable and dismissed the claim.

STANLEY BURNTON LJ said that by s 1(6)(b) of the Landlord and Tenant Act 1988, it was for the landlord to show that his refusal of consent to an assignment was reasonable. It was a mixed question of fact and law. The applicable principles were found in International Drilling Ltd v Louisville Investments [1986] 1 Ch 513, 519 and in Mount Eden Land Ltd v Straudley Investments Ltd (1996) 74 P&CR 306. It was possible to formulate two further propositions: It would normally be reasonable for a landlord to refuse consent or impose a condition if that was necessary to prevent his contractual rights under the headlease from being prejudiced by the proposed assignment or sublease. It would not normally be reasonable for a landlord to seek to impose a condition which was designed to increase or enhance the rights that he enjoyed under the headlease. It followed that a lessor could not normally reasonably require a guarantor of the liabilities of an assignee to undertake a liability extending beyond the period during which the term was vested in the assignee. Such a requirement increased or enhanced the rights the lessor enjoyed under the lease.

WILSON LJ and WALLER LJ agreed.

Appearances: John Furber QC (McGrigors LLP) for Landlord; Martin Rodger QC (Guy Clapham & Co) for St Anselm.

Reported by: Alison Sylvester, barrister.