Crestfort Ltd. & Ors v Tesco Stores Ltd & Anor

A lease provision requiring an underlease to contain like covenants and conditions may define the circumstances in which the tenant has any right to seek consent. “Like” means similar in substance, although not necessarily identical in form or wording. A substantial limitation of the underlessee’s repairing obligation fails that requirement. The landlord therefore has no duty to consider the application and the tenant remains absolutely prohibited from underletting.

A person who knowingly and intentionally accepts an underlease granted in breach of that prohibition may commit the tort of inducing breach of contract. Where the interference is deliberate and damages are inadequate, a mandatory order for surrender may be granted, together with damages assessed by reference to the price reasonably payable for relaxing the covenant.

The landlords owned the freehold reversion of premises leased to Tesco. The lease prohibited underletting without the landlords’ written consent and required any permitted underlease to contain like covenants and conditions.

Tesco granted an underlease to Magspeed without consent. The underlease limited Magspeed’s repairing obligation by reference to a schedule of condition. The landlords sought surrender of the underlease and damages. Tesco counterclaimed for declarations that consent had been unreasonably withheld and that it was entitled to underlet.

The principal issues were whether the underlease satisfied the lease condition requiring like covenants and conditions, whether Magspeed was liable for inducing Tesco’s breach, and what relief should be granted.

1. Construction of the alienation clause. The proviso to clause 4(28) defined the circumstances in which the absolute prohibition on underletting was qualified. It was not merely a provision identifying reasonable grounds for refusing consent. The mandatory conditions therefore had to be satisfied before Tesco had a right to request consent. This construction was supported by Bocardo v Hobbs [1980] 1 WLR 17 and Allied Dunbar Assurance v Homebase Ltd [2002] EWCA Civ 666.
2. “Like” covenants meant covenants similar in substance, not necessarily identical in form or wording. The underlease’s repairing covenant was materially different because it was limited by a schedule of condition. The absence of a corresponding landlord right of entry did not itself create the relevant disparity, since the clause required the underlease to protect Tesco in the same way as the lease protected the landlords.
3. Because the repairing covenant was not like the covenant in the lease, the condition precedent was unsatisfied. Tesco remained absolutely prohibited from underletting. The landlords were not obliged to consider the application, and section 1 of the Landlord and Tenant Act 1988 did not apply. Tesco’s counterclaim was dismissed.
4. If section 1 had applied, the landlords’ refusal would nevertheless have been reasonable insofar as it required the longstanding and extensive disrepair to be resolved. The insurance objections, particularly the demand for payment of the additional premium, would not by themselves have justified refusal. The applicable reasonableness principles were stated in Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180, NCR v Riverland [2004] EWCA Civ I312 and Orlando Investments Ltd v Grosvenor Estate Belgravia [1989] 2 EGLR 74.
5. Magspeed was not liable merely because the covenant might be characterised as restrictive. The covenant prohibited Magspeed from underletting, not from accepting an underlease. However, Magspeed did knowingly and intentionally induce Tesco’s breach. It knew consent was required, knew the underlease was completed without it, and proceeded in the expectation that the landlords would be unable to obtain an effective remedy. The landlords suffered the necessary damage, including loss of the opportunity to require a premium for consent.
6. The landlords were prima facie entitled to a mandatory order for surrender. The deliberate nature of the defendants’ conduct, the inadequacy of damages alone, and the absence of any pleaded equitable defence or oppression justified the order. The later deed of variation did not cure the original breach.
7. Damages could be awarded in addition to the injunction. They were to be assessed by reference to the sum which the landlords might reasonably have demanded at the date of breach for relaxing the covenant. The court directed an inquiry as to damages, applying the principles discussed in Jaggard v Sawyer [1995] 1 WLR 269, Experience Hendrix LLC v PPX Enterprises Inc [2003] FSR 46 and Amec Developments Ltd v Jury’s Hotel Management (UK) Ltd [2001] 1 EGLR 81.

Judgment was given for the landlords. The injunction sought was granted, an inquiry as to damages was directed, and Tesco’s counterclaim was dismissed.