Summary

The defendant landlord's consent to the grant of underleases of commercial land by the claimant tenant to the third-party motor company had been unreasonably withheld.

Facts

The claimant tenant (X) sought a declaration that the refusal of the defendant landlord (T) to consent to the sub-letting of a 42-acre area of land was unreasonable.

The land was used for the storage and marshalling of motor vehicles. X was the lessee of the land under two long leases. The leases included a covenant in the following terms: "Not to assign, underlet or part with the possession of the demised premises or any part thereof without the previous consent in writing of the [landlord] which consent shall not unreasonably be withheld". The site had been developed in the 1960s for use by the third-party motor company (F) for the storage and transportation of vehicles. The original tenant held the contract for the transportation and storage of vehicles from F. X took over that contract in 1999 and the leases were assigned to it in 2000. The site continued to be used in connection with the contract with F. In 2007, F gave notice to X that it would be terminating the contract and taking over operations on the site. Heads of terms were agreed which allowed F to remain on the site, while allowing for "an orderly transition" of X's business to F; X was to allow F to occupy the site "under the licence agreements to be agreed" and F was given the right to call for an underlease. In April 2011, details of a planning application by T became available: it proposed to redevelop part of the site for a leisure park. Planning advisers instructed by F wrote to the local authority to object, saying that F had an interest in the site, "from which they [operated] logistics, storage and distribution facilities". In November 2011, X and F agreed on the grant of underleases, subject to T's consent. However, when approached, T refused to give consent. It stated that it had good reason to believe that X was in breach of the leases by parting with possession of the site to F. It also expressed concerns at F's financial standing and indicated that its application for planning permission would be prejudiced if F were to become the tenant. It also served a notice on X forfeiting the leases, based on parting with possession to F. The issues were (i) whether X had parted with possession of the land to F; (ii) if it had, whether T had waived the breach; (iii) if X had parted with possession and T had not waived the breach, whether X was entitled to relief against forfeiture; (iv) if applicable, whether T had shown that its consent to the proposed underletting had been reasonably withheld.

Held

(1) For the purposes of a covenant such as that in the instant case, the parting with possession had to be complete. The acid test for possession, as contrasted with mere occupation, lay in the right of the person in occupation to exclude others, including the tenant, from the premises. While F had exercised an increasing degree of control over the site in the period from the signing of the 2007 heads of terms to November 2011, X had not been excluded from the site. At the date of T's forfeiture notice, X continued to have responsibilities on the site and had not wholly ousted itself from possession. Both it and F continued to recognise that their relationship had not changed from the 2007 heads of terms as far as X's possession of the site was concerned. There was accordingly no breach of the covenant against parting with possession (see paras 41, 47-48 of judgment). (2) If there had been a breach, it would not have been waived by T's continued acceptance of rent. X and F had argued that, by accepting rent in September 2011, having good reason to believe that X had parted with possession, T had waived the breach. However, objectively viewed, T did not have good reason to believe that X had parted with possession to F (paras 49, 52-53). (3) If there had been a breach, it would have been one in respect of which it would have been appropriate to grant relief from forfeiture. Among other things, if there had been a parting with possession, it was to a well-established company which had been associated with the site since its inception and which was carrying on the same business as was permitted under the leases; there was no evidence that what had been done on the site had harmed T or its interests in any way. Further, any breach had occurred by a gradual relinquishment of control by X; that was a paradigm case of inadvertent breach (paras 56, 58, 64). (4) T's consent to the underleases to F had been unreasonably withheld. First, T did not have good reason for believing that X had parted with possession. Second, F had operated in the United Kingdom for over 100 years and had always received an unqualified audit report as a going concern. In 2011, only 11 per cent of companies had a lower risk of failure. T's remaining reasons related to F's potential ability to object to its planning application. Those reasons suffered from a number of formidable difficulties, not least the fact that F had the ability to object to the planning application whether or not consent to an underlease was given (paras 66, 68-69, 71).

Judgment for claimant