Ashworth Frazer Limited v. Gloucester City Council

A landlord considering consent to an assignment must act on grounds connected with the landlord and tenant relationship and the subject matter of the lease. Reasonableness is a broad question of fact. The landlord must show that the decision was reasonable, not that it was correct.

A reasonable belief that the proposed assignee will probably breach a user covenant may justify refusal. Breach need not be inevitable, although refusal on this ground is not invariably reasonable. The contrary rule attributed to Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658 was overruled.

On the wording and structure of the lease in issue, a positive building covenant referring to planning use classes did not impose a continuing restriction on use.

A tenant under a 114-year development lease sought the landlord council's consent to assign part of the premises to a metal-recycling company. The council had granted planning permission for that use but refused consent to assignment because it considered the use contrary to a covenant in clause 2(iii)(a). The tenant sought declarations and damages under the Landlord and Tenant Act 1988.

A deputy judge held that clause 2(iii)(a) restricted use to three specified planning use classes. The Court of Appeal, in Ashworth Frazer Ltd v Gloucester City Council (2000) 80 P & CR 11, agreed on construction but held that a landlord could not refuse consent solely because an assignee might breach a user covenant.

The House considered whether the lease contained the alleged user restriction and whether a reasonable apprehension of a prospective breach could justify withholding consent.

1. Disposition. The council's appeal on unreasonable withholding of consent was allowed unanimously. The tenant's cross-appeal on construction was allowed by a majority of three to two. The existing declarations were set aside, a declaration was made that clause 2(iii)(a) did not restrict use to Use Classes III, IV and X, and the question whether the council's refusal was unreasonable was remitted to the Chancery Division.

2. Construction. Lord Hoffmann and Lord Scott gave the majority reasons, with which Lord Browne-Wilkinson agreed. Clause 2(iii)(a) was a positive covenant describing the development to be erected within five years. It did not impose an implied continuing restriction upon use. The conventional structure of the lease placed building obligations in clause 2(iii) and user restrictions elsewhere. An implied restriction was unnecessary for business efficacy and could not be justified merely because the clause referred to statutory use classes. Lord Bingham and Lord Rodger dissented on this issue. They considered that the reference to use classes would otherwise lack practical effect and therefore implied a restriction on use.

3. Reasonableness. Lord Bingham and Lord Rodger set out the controlling principles. Lord Scott expressly agreed with their reasoning, Lord Hoffmann adopted their reasons on the appeal, and the House was unanimous on the result. A ground for refusal must concern the landlord and tenant relationship in relation to the subject matter of the lease. Subject to that limit, reasonableness is a broad, common-sense question of fact depending on all the circumstances. The landlord must establish that the decision was one a reasonable landlord could make, rather than prove that its conclusion was correct.

4. A reasonable landlord may consider that a proposed assignee will probably breach a user covenant and may wish to avoid enforcement proceedings or an application to vary the covenant. The landlord need not establish that breach is inevitable. Nevertheless, probable breach will not invariably make refusal reasonable; the outcome remains fact-sensitive. The rigid contrary rule attributed to Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658 was overruled.

5. Statutory notice. Lord Rodger further explained that, once a landlord has notified a ground for refusal under section 1 of the Landlord and Tenant Act 1988, it cannot later rely on another ground. Section 1(6)(c) does not, however, confine the evidence or arguments by which the landlord may seek to prove that the stated ground was reasonable. Whether the council's genuine but mistaken construction of the lease made its refusal unreasonable, and whether damages followed, remained to be determined on remittal.

1. House of Lords — [2001] UKHL 59: allowed the council's appeal unanimously and allowed the tenant's cross-appeal by a majority of three to two. The prior declarations were set aside, a declaration was substituted on the construction of clause 2(iii)(a), and the remaining reasonableness and damages issues were remitted.
2. Court of Appeal — Ashworth Frazer Ltd v Gloucester City Council (2000) 80 P & CR 11: upheld the deputy judge's construction of clause 2(iii)(a), but allowed the tenant's appeal on consent and declared that refusal was unreasonable if based solely on the possibility of breach of the user covenant.
3. Chancery Division — the deputy judge held that clause 2(iii)(a) imposed the alleged user restriction and made declarations concerning the proposed assignment. No citation is stated in the judgment.