Landlord Protect Ltd v St Anselm Development Company Ltd

When assessing a condition imposed on consent to assign a lease, the court must examine its true effect against the landlord’s rights under the lease. A landlord may protect those rights, but may not ordinarily require a guarantee continuing beyond the period in which the assignee remains liable by privity of estate. Where consent to a later assignment would itself protect the landlord from an insubstantial assignee, making release of the guarantor conditional on additional alternative security enhances the landlord’s rights and is unreasonable. Such a condition is not properly required under the lease, entitling the buyer to rescind the sale contract and recover its deposit.

Landlord Protect Ltd agreed at auction to purchase the respondent’s head leasehold interest. The lease required the head landlord’s consent to assignment, such consent not to be unreasonably withheld. The appellant was dormant and could not provide financial references. The head landlord required a personal guarantee from the appellant’s director, with release on a later assignment conditional on reasonable alternative security.

The appellant rescinded the sale contract when the licence was not obtained and sought return of its deposit. HH Judge Hodge QC held that the condition was reasonable and dismissed the claim. The central issue on appeal was whether the guarantee, and its proposed release provision, was properly required under the lease.

The appeal was allowed unanimously. The appellant was entitled to rescind the sale contract and recover its deposit.

1. Under section 1(6)(b) of the Landlord and Tenant Act 1988, the landlord bore the burden of showing that its refusal or condition was reasonable. Reasonableness was a mixed question of fact and law. Since the landlord’s entitlement to require a guarantee was not disputed, the principal issue was the legal construction and effect of the requirement.
2. The purpose of a covenant restricting assignment, while permitting consent not to be unreasonably withheld, is to protect the landlord’s rights under the lease. It is normally reasonable to impose a condition necessary to prevent prejudice to those rights. It is not normally reasonable to impose a condition designed to increase or enhance them.
3. Under the old lease, the original lessee remained liable by privity of contract throughout the term. An assignee was liable by privity of estate while the term remained vested in it. A landlord could not normally require an assignee’s guarantor to remain liable beyond that period.
4. Clause 6.6 required both consent to a subsequent assignment and provision of reasonable alternative security before the guarantor would be released. It could therefore continue the guarantee after a permitted assignment. The landlord was already protected by its ability to refuse consent to an insubstantial assignee. It was not entitled also to refuse the guarantor’s release after consenting to the assignment. The clause additionally exposed the guarantor to disputes about the adequacy of alternative security.
5. Stanley Burnton LJ considered, although it was unnecessary to the decision, that reasonable alternative security meant security additional to the assignee’s personal covenant. Wilson LJ expressly left that construction open. Waller LJ agreed with the earlier reasons.

• Court of Appeal (Civil Division): [2009] EWCA Civ 99 — allowed the appeal and held that the appellant was entitled to rescind and recover its deposit.
• Chancery Division: HH Judge Hodge QC dismissed the appellant’s claim, holding that the landlord’s condition was reasonable.