Licence to assign

Citation

Waterson, G. and Lee, R. (2000), "Licence to assign", Property Management, Vol. 18 No. 5. https://doi.org/10.1108/pm.2000.11318eab.009

Licence to assign

Licence to assign

Ashworth Frazer Ltd v. Gloucester C.C. (2000) 12 EG 149

Still on the general topic of covenants, though in a slightly different context, the question which came before the Court of Appeal in this case was whether the fact that it appeared possible (to put it no higher) that the intended assignee of a long leasehold industrial property might, by its apparently intended future use of the property, breach certain covenants contained in the lease, was sufficient reason in itself to entitle the landlord to refuse consent to the proposed assignment.

The covenants in question had originally required the tenant to construct a building on the land "for uses within classes III, IV or X of the Town and Country Planning (Use Classes) Order 1963" (i.e. light industrial, general industrial or warehousing, each as defined in the Order). The proposed assignee apparently intended now to use the property for the purpose of the "sorting, storage, packaging and distribution of reclaimed predominantly non-ferrous metals".

There were basically two matters at issue: first, did the original covenant relate not only to the original construction of the building but also to its subsequent use? A question to which the Court of Appeal answered, as had the judge below, that it did; second, did the fact that the proposed use was perceived by the landlord as falling outside the scope of the permitted uses entitle the landlord to refuse consent to the proposed assignment? No, said the Court, it did not. To quote Chadwick LJ, with whom Waller LJ concurred:

In my view the decision in [Killick v. Second Covent Garden Property Co. Ltd [1973] 1 WLR 658] precludes this court from holding that the belief of the landlord, however reasonable, that the proposed assignee intends to use the demised premises for a purpose that would give rise to a breach of the user covenant is, of itself, a ground for withholding consent to assignment. Providing that, when giving consent the landlord does not disable himself, necessarily and inevitably … from continuing to insist on due observance of the user covenant by the assignee, he is in no worse a position than he would have been in if the assignor had himself proposed to use the demised premises for that purpose. This is not a case in which the giving of consent (coupled if the [landlords] think fit with notice to [the proposed assignee] that they intend to enforce the restrictions as to user contained in … the … lease) will disable the [landlords] from continuing to insist on due observance of those restrictions. [The proposed assignee] may succeed in its present contention that the use proposed … is within Class IV of the 1963 Order. [The proposed assignee] may apply, successfully, to the Lands Tribunal for a discharge or modification of the restriction … The [landlords] are not entitled, by refusing consent, to compel the applicant to accept their interpretation of the user covenant. Nor are they entitled, as it seems to me, to refuse consent to assignment on the grounds that the proposed assignee may wish to exercise the rights that the law allows to a tenant under this lease.

However, and no doubt for the avoidance of doubt, his Lordship continued:

I should add that the position would be otherwise if the landlords had some [other] reason for refusing consent upon which they could rely, so that they did not base their refusal upon the restriction contained in the lease. That a landlord may refuse consent on the ground that the purpose for which the proposed assignee intends to use the premises is objectionable to him, for some reason connected with his estate as landlord, is not in dispute: see the decisions of this court in Bates v. Donaldson [1896] 2QB 241 at p244 and International Drilling Fluids Ltd v. Louisville Investments (Uxbridge) Ltd [1986] 1Ch.513; [1986]1 EGLR 39; (1985) 277 EG 62. There is nothing in the Killick case that suggests that a landlord is unable to rely on an objection to a proposed use that – [even without] a covenant in the lease prohibiting that use – would be available to him merely because there happens to be a covenant in the lease that does prohibit that use. But … this appeal has been argued on the basis that there is no reason for refusal other than that (as the [landlords] believe) the proposed use by the [proposed assignee] will be in breach of covenant ...

Geoffrey WatersonRosalind Lee

The law is stated as it is understood to be up to 1 August 2000.