Summary

Where a commercial lease was designed to ensure that the tenant had like rights and protection against an underlessee to those the landlord had against the tenant regarding repairs, the absence of such a repairing covenant in the underlease meant that the condition precedent to any obligation on the part of the landlord to consider the tenant's application for consent to the grant of the underlease was never satisfied.

Facts

The claimant landlords (L) sought an injunction ordering the surrender of an underlease by the second defendant underlessee (M) to the first defendant lessee (T) of commercial premises, and damages from both. T counterclaimed for declarations that L had unreasonably withheld consent to the underlease. L had granted a lease of the premises to T subject to a covenant restricting the grant of an underlease. T was required to insure in the joint names of L and itself. Although T insured against physical damage, it deliberately omitted to make it a joint policy and persistently delayed disclosure of that fact. For want of confirmation of the joint policy L kept its own insurance on risk and served a notice to repair on T as the premiums had increased following squatter damage. T applied to sub-let to M. L refused to grant the licence to sub-let until the insurance position had been settled, but T sub-let without complying. L submitted that (1) T had granted the underlease to M in breach of covenant because L did not consent to it, and that the underlease was on different terms to the lease; (2) by accepting the underlease, M had unlawfully interfered with the contractual relations between L and T.

Held

(1) The issue was whether T was entitled to require L to consider its application for consent to grant of the underlease and not unreasonably to withhold consent. At all times T remained subject to an absolute obligation not to underlet; L were under no obligation to consider an application to do so, and the Landlord and Tenant Act 1988 s.1 had no application. On a proper construction of the lease the circumstances were limited in which an absolute prohibition on underletting was qualified to give a tenant the right to request consent. There were mandatory conditions that had to be satisfied, which were common in commercial leases and were recognised as intended to control the terms of any underlease, Allied Dunbar Assurance plc v (1) Homebase Ltd (2) Lairdale Ltd (2002) EWCA Civ 666 , (2002) 22 EG 134 (CS) applied. The underlease was granted subject to covenants that were "like", i.e. the same in substance, if not in form, as those in the lease, and the dissimilarity of the repairing covenants in the underlease were of substance. The lease was designed to ensure that T had like rights and protection against an underlessee to those L had against T, and the absence of such a repairing covenant in the underlease meant that the condition precedent to any obligation on the part of L to consider T's application for consent to the grant of the underlease to M was never satisfied. Accordingly, T's counterclaim was dismissed. (2) M committed the tort against L of wrongful interference with contract by agreeing to the grant of the underlease, and was liable in damages. In principle L had the remedy of an order against T and M for surrender of the lease. On the evidence, M had had the necessary knowledge that T was committing a breach of contract, and M intended by accepting the underlease to procure such breach. (3) Compensatory damages could be awarded on the basis of the sum L could reasonably have demanded at the date of the breach for relaxing the covenant against underletting for the period that no injunction was in force, and could take into account any possible arrangement available to T and M that might affect the sum agreed, Amec Developments Ltd v Jury's Hotel Management (UK) Ltd (2001) 1 EGLR 81 applied. An enquiry as to damages would be directed, Venetia Mary Robinson v (1) Christopher John Bird (2) Roland Fernsby (3) Duncan Scott-Kilvert (2003) EWCA Civ 1820 , Times, January 20, 2004 applied.

Judgment for claimants.