International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd

A landlord’s refusal of consent to an assignment must concern interests relevant to the landlord and tenant relationship and the premises let. Reasonableness depends on all the circumstances. The landlord’s conclusions need only be ones a reasonable person could reach. Although a landlord may usually consider its own relevant interests, extreme detriment to the tenant, disproportionate to the landlord’s benefit, may make refusal unreasonable. A possible reduction in the market value of the reversion does not necessarily justify refusal where realisation is not expected and the landlord’s financial interests remain protected. Proposed use permitted by the lease may sometimes justify refusal. However, refusal is unreasonable where that use falls within the only permitted category, refusal leaves the premises vacant and the rent is fully secured.

International Drilling Fluids Ltd, the tenant, held a lease of an office building owned by Louisville Investments (Uxbridge) Ltd, the landlord. The lease permitted office use with ancillary showrooms. Assignment required the landlord’s written consent, which was not to be unreasonably withheld. Both the tenant and the original lessee, Bovis New Homes Southern Ltd, remained directly liable to the landlord for rent.

The tenant vacated the building and sought consent to assign the lease to Euro Business Services Ltd. Euro intended to provide serviced offices, a use accepted as complying with the lease. Its owners offered guarantees. The landlord refused consent principally because the proposed occupation might diminish the investment value of its reversion. It also relied on business viability and possible parking difficulties.

On 18 June 1985, Mr Edward Nugee QC, sitting as a deputy High Court judge in the Chancery Division, declared the refusal unreasonable. The landlord appealed. The principal questions concerned the significance of a possible reduction in the reversion’s market value, the tenant’s detriment and the restriction of permitted use to offices.

The appeal was dismissed unanimously. Balcombe LJ delivered the substantive judgment. Mustill and Fox LJJ each agreed.

1. Per Balcombe LJ, a qualified covenant against assignment protects the landlord against undesirable occupation or use. Refusal must concern the landlord and tenant relationship and the subject matter of the lease. Collateral interests are ineligible. The tenant bears the burden of proving unreasonable refusal. The landlord need not establish that its conclusions were correct, provided a reasonable person could have reached them in the circumstances.

2. Whether consent has been unreasonably withheld is a question of fact depending on all the circumstances. Reasonable professional opinion that the proposed occupation might reduce the reversion’s market value did not compel a finding that refusal was reasonable. The judge had found no expectation of sale or substantial mortgage borrowing, no significant risk to rent payments, no prejudice to future rent reviews and no adverse effect on the property’s value at the end of the term. He was entitled to find no reasonable apprehension of damage to the landlord’s interests. He had made no error of law or omission of a relevant consideration. The Court of Appeal should therefore leave his conclusion undisturbed.

3. As an independently sufficient further ground, Balcombe LJ held that a landlord may usually consider its own relevant interests, but extreme detriment to the tenant may be so disproportionate to the landlord’s benefit that refusal becomes unreasonable. The competing authorities were reconciled on that basis. Here, the tenant’s disproportionate harm outweighed the minimal disadvantage represented by a reduction in the reversion’s paper value.

4. Proposed use may justify refusal even when the lease permits it. However, cases involving broadly permissive user covenants differed materially from a lease allowing only one specified category of use. Where the proposed use fell within that category, refusal would leave the premises vacant and the landlord was fully secured for rent, refusal on grounds of that use was unreasonable. Balcombe LJ questioned the consistency of Premier Confectionery (London) Co. v. London Commercial Sale Rooms Ltd. with the prohibition on collateral grounds. He declined to follow any reading of it which made refusal reasonable in all circumstances merely because of proposed use, while allowing that its particular facts might justify its result.

5. The finding that a possible small increase in parking problems did not justify refusal was unassailable. An acknowledged defect in Euro’s draft licence did not establish that its business was unviable: there was no reason to suppose that the defect would remain uncorrected.

The appeal was dismissed with costs. Leave to appeal to the House of Lords was refused.

• Court of Appeal: On 20 November 1985, dismissed the landlord’s appeal unanimously and upheld the declaration that consent had been unreasonably withheld. Costs were awarded and leave to appeal to the House of Lords was refused. [1985] EWCA Civ 11 .
• High Court, Chancery Division: On 18 June 1985, Mr Edward Nugee QC, sitting as a deputy High Court judge, declared the landlord’s refusal of consent to the proposed assignment unreasonable.