Landlord Protect Ltd. v St Anselm Development Company Ltd.

A licence-to-assign condition requiring release of an outgoing guarantor upon a future assignment only when reasonable alternative security is provided is not necessarily an unlawful enhancement of the landlord’s rights. The alternative security may consist of the incoming assignee’s own covenant, assessed objectively. Properly construed, the condition may operate automatically on the landlord’s consent to an assignment to an assignee whose covenant supplies reasonable security. A requirement for a replacement guarantor, by contrast, could amount to an impermissible collateral advantage where the lease gives the landlord no continuing entitlement to a guarantor.

The claimant contracted to purchase the defendant’s head leasehold interest and paid a deposit. The head landlords would consent to the assignment only if the claimant’s director guaranteed the lease obligations, with release on a future assignment provided that reasonable alternative security was supplied by the assignee.

The claimant contended that this requirement was unreasonable and rescinded the contract. The defendant treated the claimant’s refusal as a breach and forfeited the deposit. The issue was whether the requirement was a proper condition of consent under the contractual arrangements and the Landlord & Tenant Act 1988.

1. Claim dismissed. The claimant’s refusal to comply with the proposed condition was a breach of the sale contract. The defendant was entitled to retain the deposit. No order was made on the counterclaim.
2. The phrase reasonable alternative security did not require security equivalent in strength to the outgoing guarantee. The word “alternative” meant security reasonably acceptable as a substitute, and the security could be provided by the incoming assignee’s own covenant.
3. The condition was to be assessed objectively. It did not create a two-stage process in which the landlords first consented to the assignment and then separately assessed the security. Once the landlords consented to an assignment to a person whose covenant provided reasonable alternative security, the outgoing guarantee fell away automatically.
4. On that construction, the condition gave the head landlords no rights additional to those arising under the covenant against assignment without consent. The construction was consistent with the provisions and scheme of section 1 of the Landlord & Tenant Act 1988. Any ambiguity would also be resolved against the landlords as the parties who drafted the licence.
5. The court accepted the principle in Mount Eden Land Ltd v Straudley Investments Ltd (1996) 74 P & CR 306 that a landlord will not normally act reasonably by imposing a condition designed to enhance rights under the lease. Had the condition required a replacement guarantor, it would have been an impermissible collateral advantage. The final wording, however, required only reasonable alternative security and was valid.
6. The reasoning concerning the meaning of the phrase was supported by the approach in Kened Ltd & Den Norske Bank Plc v Connie Investments Ltd (1995) 70 P & CR 370.

The judgment records earlier Central London County Court proceedings in which the claimant’s challenge to the landlords’ refusal of consent was dismissed by His Honour Judge Cowell on 13 October 2006. The present claim was a separate High Court trial concerning rescission of the sale contract and recovery of the deposit.