Homebase Ltd & Anr v Allied Dunbar Assurance Plc

A tenant cannot circumvent a landlord’s contractual controls on underletting by placing inconsistent rent or repairing obligations in a collateral deed expressed to be personal to the original parties. The underlease and collateral deed must be read together where they are interdependent. The requirements of the headlease are assessed by construing the original parties’ intention in context. A provision which effectively fixes the rent below the full market rent, or reimburses the undertenant for repairing obligations, fails requirements that the underlease contain effective rent-review provisions and repairing covenants in the same form as the headlease. Where those requirements are unmet, the statutory duty to consider whether consent was reasonably withheld does not arise.

Allied Dunbar was landlord under a commercial headlease held by Homebase. Homebase proposed to underlet the premises to Lairdale. The draft underlease appeared to comply with the headlease’s requirements concerning rent and repairs, but a collateral deed required Homebase to subsidise the rent and reimburse specified repair costs. The deed stated that those obligations were personal to Homebase and Lairdale.

Allied Dunbar refused consent. The deputy judge held that the rent-review requirement in paragraph (d) of the alienation proviso was not met and dismissed Homebase’s counterclaim. He held that the repairing requirement in paragraph (c) was met and that, alternatively, the refusal would have been unreasonable. The Court of Appeal considered whether the personal nature of the collateral obligations avoided the proviso’s requirements.

1. Appeal dismissed. The proposed underlease did not satisfy paragraphs (c) and (d) of the alienation proviso. Allied Dunbar therefore came under no statutory duty to consider whether consent was reasonably withheld.
2. The collateral deed and underlease were interdependent and had to be read together, applying the approach in A G Securities v Vaughan, Antoniades v Villiers [1990] 1 AC 417. Their combined effect was equivalent to including the collateral provisions in the underlease.
3. A rent provision which purported to reserve rent subject to review, but required repayment of any amount above an agreed ceiling, could not satisfy the requirement that the reviewed rent should be not less than the full market rent, absent cogent evidence that the market rent could not exceed that ceiling.
4. A repairing covenant requiring the undertenant to repair at its expense was not in the same form as a covenant under which the landlord reimbursed the undertenant for specified repair costs or for improving the premises beyond an agreed condition.
5. The fact that the collateral obligations were personal did not alter the construction. The head landlord had a commercial interest in rent and repair obligations during the headlease, as well as in the possible consequences of the Landlord and Tenant Act 1954. The original parties to the headlease were to be taken to have intended effective control over those matters.
6. The Court did not need to determine whether the refusal would independently have been reasonable. No duty arose under section 1(3)(a) of the Landlord and Tenant Act 1988. The appeal was dismissed with costs, and permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): allowed Allied Dunbar’s position on the construction of the alienation proviso and dismissed Homebase’s appeal with costs.
• Chancery Division, deputy High Court judge: dismissed Homebase’s counterclaim, holding that paragraph (d) of the proviso was not satisfied and that the landlord’s refusal would alternatively have been unreasonable.