International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd

A landlord may refuse consent to an assignment only for reasons connected with the landlord–tenant relationship and the subject matter of the lease. The tenant bears the burden of proving that consent was unreasonably withheld. The landlord need show only that the refusal was one which a reasonable person might reach in the circumstances. The proposed use and assignee may be considered even where the use is permitted by the lease. Ordinarily, the landlord need consider only relevant interests of its own, but refusal may be unreasonable where the benefit to the landlord is substantially disproportionate to the tenant’s detriment. Where the lease permits only one specific use, and refusal would leave the premises vacant while rent is secure, objection based on that permitted use is unreasonable.

The tenant held a long lease of an office building and sought a licence to assign it to Euro, a company proposing to operate serviced offices. The landlord refused consent, principally because it considered that the assignment would reduce the value of its reversion. It also relied on the viability of the proposed business and possible pressure on estate car parking.

Mr Edward Nugee Q.C., sitting as a deputy High Court judge, declared on 18 June 1985 that consent had been unreasonably withheld. The landlord appealed. The central issues were whether the landlord’s grounds were relevant, whether the tenant’s detriment could be considered, and whether objection could reasonably be based on a use permitted by the lease.

Appeal dismissed. Lord Justice Balcombe delivered the judgment, with Lord Justice Mustill and Lord Justice Fox agreeing.

1. The purpose of a covenant against assignment without consent, where consent is not to be unreasonably withheld, is to protect the landlord from an undesirable use of the premises or an undesirable tenant or assignee. The landlord cannot rely on grounds wholly unrelated to the landlord–tenant relationship concerning the subject matter of the lease. Collateral purposes are irrelevant.
2. The tenant bears the burden of proving unreasonable withholding. The landlord need not establish that its conclusions were objectively correct. It is sufficient that the conclusions were ones which a reasonable person might reach in the circumstances. Whether consent was unreasonably withheld remains a question of fact.
3. The authorities concerning the landlord’s own interests were reconciled by recognising that the landlord will usually consider only its relevant interests. Nevertheless, where the benefit of refusal to the landlord is markedly disproportionate to the detriment suffered by the tenant, refusal may be unreasonable. The tenant’s detriment can therefore be relevant in an appropriate case.
4. It may sometimes be reasonable to object to the proposed use even though it is not prohibited by the lease. That principle did not justify refusal here. The lease permitted only one specific category of use. The proposed serviced-office use fell within it, the premises would otherwise remain vacant, and the landlord was fully secured for the rent. Refusal on the basis of that permitted use was unreasonable. The broader proposition attributed to Premier Confectionery (London) Co v London Commercial Sale Rooms Ltd (1933) Ch. 904 was not followed.
5. The deputy judge was entitled to find that there was no realistic prospect of the landlord realising the reversion, that rent and future reviews were secure, and that the parking and business-viability objections were insufficient. He made no error of law, took account of relevant matters, and omitted none. The Court of Appeal therefore declined to interfere. The appeal was dismissed with costs, and leave to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): Appeal dismissed with costs; leave to appeal to the House of Lords refused, [1985] EWCA Civ 11.
• High Court, Chancery Division: Mr Edward Nugee Q.C., sitting as deputy judge, declared on 18 June 1985 that the landlord had unreasonably withheld consent to the proposed assignment.