First Penthouse Ltd. v Channel Hotels and Properties (UK) Ltd.

A landlord may refuse consent to an assignment only for reasons connected with the landlord-and-tenant relationship concerning the subject matter of the lease. A refusal cannot be used to preserve or create collateral contractual rights belonging to the landlord or its beneficiaries. Where a covenant requires a project to be carried out and completed by a specified time, it is a once-and-for-all obligation. Once the right to forfeit arises, acceptance of rent or other unequivocal conduct affirming the lease may waive forfeiture, even before service or expiry of a notice under Law of Property Act 1925, section 146. Covenants to pay commission or grant a development sublease may be personal rather than tenant covenants under the Landlord and Tenant (Covenants) Act 1995.

Two related actions concerned a long lease of roof space granted for a penthouse development. First Penthouse Ltd., as mortgagee, contracted to assign the lease to Mr Tamimi after the reversioner, Channel Hotels and Properties (UK) Ltd. (CHAPS), refused consent unless Mr Tamimi assumed obligations under collateral development and commission agreements.

CHAPS brought the second action seeking forfeiture for unauthorised assignment and failure to complete the development expeditiously. The issues tried were whether consent had been unreasonably withheld, whether the development covenant entitled CHAPS to forfeit, and whether any right to forfeit had been waived.

1. Forfeiture. The obligation to carry out and complete the project as expeditiously as possible was a once-and-for-all obligation. The time for completion expired in 2001, when the right to re-enter arose. It was not a continuing breach. CHAPS’s exercise of the contractual option to require a development sublease, and its acceptance of £7 for rent, were acts unequivocally affirming the lease. The right to forfeit was therefore irrevocably waived. Service or expiry of a notice under Law of Property Act 1925, section 146 was unnecessary; the right to forfeit merely had to have arisen.
2. Reasonableness of refusal. Under Landlord and Tenant Act 1988, CHAPS was confined to the reasons stated in its refusal notice. The principles identified in Ashworth Frazer Ltd v Gloucester City Council were applied. A landlord need not prove that its conclusions were correct, but the conclusions must be ones which a reasonable person might reach, and reasonableness is assessed on all the circumstances.
3. CHAPS could not reasonably refuse consent because the assignment would defeat rights under the Preliminary Agreement and Introduction Agreement. The 1999 Deed of Priorities had expressly conferred on the mortgagee a power of sale overriding those rights. CHAPS’s refusal sought to preserve or recreate collateral rights, rather than protect the reversion or the landlord-and-tenant relationship.
4. The Landlord and Tenant (Covenants) Act 1995 did not alter that conclusion. The commission covenant was personal to ACP because it arose under a separate agreement made before the lease and was never part of a landlord-and-tenant relationship. The development-sublease option was likewise personal to ACP: it formed part of the machinery for payment of the premium for the lease and operated as a default provision tied to ACP’s performance.
5. The claim for a declaration that consent had been unreasonably withheld succeeded. The forfeiture action was dismissed. The court’s further observations concerning entitlement to the fruits of enforcement under an overriding lease were provisional and unnecessary to the decision.