Summary

This was an appeal from the decision of David Donaldson QC sitting as a Deputy Judge of the Chancery Division between the appellant, and its landlord, Gloucester City Council .

Facts

appeal raised two questions: (i) Whether (a), as the council contended, the covenant in cl.2(iii)(a) "to complete the erection on the demised land fit for immediate occupation and use... a building development for uses within Use Classes III IV or X of the Town and Country (Use Classes) Order 1963" imposed on the lessee an obligation to use the demised land thereafter only for uses within the specified Use Classes; or whether (b), as the appellant contended, the words of the covenant were merely descriptive of the building development which had to be completed. The judge answered that question in favour of the council. (ii) Whether a landlord had the right to withhold consent to an assignment of the unexpired term of the lease in circumstances in which the proposed assignee intended to use the demised premises for a purpose which was not permitted by the lease. The appellant submitted that the judge was bound, by the Court of Appeal decision in Killick v Second Covent Garden Property Co Ltd (1973) 1 WLR 658, to hold that the fact that the landlord believed that the proposed use would be in breach of the user restriction was not a sufficient reason for refusing consent.

Held

(1) It was unlikely that the parties would have thought it either necessary or apt to describe the buildings which were to be erected by reference to Use Classes III, IV and X under the Order. However, this was an apt method of prescribing the use or uses to which those buildings might be put. (2) There was good reason to read into cl.2(iii)(a) words imposing a secondary obligation relating to use, following upon the discharge of the primary obligations to commence and complete erection. The scheme of the provisions in other subclauses was that the buildings which were to be erected pursuant to the covenant in subclause 2(iii)(a) were to be kept in repair, insured in joint names and, if destroyed by fire, were to be rebuilt and reinstated in accordance with the provisions of subclause 2(iii)(a). The clear intention was that the buildings from time to time on the demised land would be buildings for use within the Use Classes specified in subclause 2(iii)(a). (3) It also had to be borne in mind that this was a development lease, which was granted in order that the original lessee should carry out an approved development of an industrial estate and was to be seen in the overall context of the council's commercial developments in the area. (4) The judge was not wrong to reach the conclusion that he did in relation to cl.2(iii)(a). (5) Packaging Centre Ltd v Poland Street Estate Ltd (1961) 178 EG 189 and Granada TV Network v Great Universal Stores Ltd (1963) 187 EG 391 distinguished. In both cases the consent sought was to a sublease which, necessarily, involved a use of the demised premises in breach of a covenant in the head lease: it was impossible for the landlord to consent to the subletting and to reserve his right to enforce the user covenant. (6) The proposition to be derived from Killick (supra) was that unless the assignment necessarily involved a breach of covenant it was not reasonable to withhold consent, and that was so on the basis that once the assignment had been effected the landlord would be able to enforce the user covenant against the assignee. (7) The decision in Killick (supra) precluded the court from holding that the belief of the landlord, however reasonable, that the proposed assignee intended to use the demised premises for a purpose which would give rise to a breach of a user covenant was, of itself, a ground for withholding consent to assignment. Provided that, when giving consent to the assignment, the landlord did not disable himself from continuing to insist on due observance of the user covenant by the assignee, he was in no worse a position, following assignment, than he would have been if the assignor had himself proposed to use the demised premises for that purpose. (8) It was not inevitable that, following assignment, there would be a breach of the user restrictions. The assignee might succeed in contending that its proposed use was within Use Class IV of the 1963 Order or apply successfully to the Lands Tribunal for a discharge or modification of the restriction. The council was not entitled, by refusing consent, to compel the appellant to accept its interpretation of the user covenant or to refuse consent to assignment on the ground that the proposed assignee might wish to exercise the rights allowed by the law to a tenant under this lease. (9) The judge had answered a different question, namely, whether, if the council were otherwise entitled to refuse consent to the proposed assignment on the ground that it objected as landlord to the intended user, it was precluded from doing so by the fact that the intended user would or might be in breach of the user covenant. The court therefore added a third declaration to those made by the judge, namely that if the only objection to the use proposed by the assignee was that it would or might be in breach of the lease, it was unreasonable for the council to refuse consent to the assignment on that ground alone.

Further declaration added.

* The House of Lords granted an application by Gloucester City Council seeking leave to appeal in this case on 28 November 2000. The Appeal Committee had made a provisional unanimous decision to grant leave following a consideration of the applicant's petition and had invited objections from the respondent on 9 October 2000. The appeal was set down for hearing and referred to an Appellate Committee on 10 April 2001.

* The House of Lords granted an application by Ashworth Frazer Ltd seeking leave to cross-appeal in this case on 29 January 2001.