Norwich Union Life & Pensions v Linpac Mouldings Ltd

A landlord may reasonably withhold consent to an assignment where there is a genuine and reasonable fear that the assignment will enable the proposed assignee to exercise a break right and cause substantial loss of rent. The landlord need not establish that its legal view is correct or that the feared outcome is certain. It is sufficient that the view is reasonably held and that the feared consequence, including litigation, may probably occur.

A personal tenant’s break clause is ordinarily exercisable only by the tenant in possession. Once that tenant assigns the lease, the right is irretrievably lost unless the instrument uses the clearest language to provide otherwise. Re-acquisition of the lease does not revive the right.

Norwich Union owned an industrial estate and had granted Linpac leases containing personal break clauses. Linpac later assigned the leases to an associated company, which subsequently entered administration. Linpac sought consent to take assignments of the leases back and purported to serve notices exercising the break clauses.

Norwich Union refused consent on the ground that the re-assignment might enable Linpac to operate the break clauses and deprive it of substantial rental income. The issues were whether consent had been unreasonably withheld and whether Linpac could exercise the break clauses while not tenant in possession or after re-acquiring the leases.

1. Refusal of consent. Norwich Union’s refusal was reasonable. The relevant question was whether its appreciation of the legal position was reasonable, not whether it was ultimately correct. A reasonable landlord may act on a reasonable fear of an undesirable outcome and may take account of the prospect of unwelcome litigation. The landlord’s reasoning was genuine: Linpac could not confidently exercise the breaks while the leases were vested in another company, but there was a legal basis for arguing that the rights might revive on re-assignment. Loss of substantial rental income was a realistic consequence.
2. The fact that the licence contemplated assignment did not make refusal unreasonable. The proposed argument depended on an implied term or qualification preventing the landlord from refusing consent merely to prevent exercise of the break. That argument had been rejected in Olympia and York Canary Wharf Ltd v Oil Property Investments Ltd, and was rejected here.
3. Construction of the break clauses. A tenant’s break right is ordinarily incident to the lease and is exercisable by the person in whom the legal estate is vested. The expressions “the assignee” and, in the later lease, “the Tenant” as original tenant, identified Linpac by its continuing status as tenant or assignee, not merely by its identity as a contracting party. The requirement of vacant possession and compliance with the conditions also pointed to exercise by the tenant in possession.
4. It would make no commercial sense for a former tenant to terminate the lease while the current tenant remained willing to pay rent. Clear language would be required to create the exceptional right for a person who no longer had an interest in the lease. The break rights were therefore incapable of exercise while Linpac was not tenant in possession.
5. Re-acquisition. The rights did not revive when Linpac re-acquired the leases. The commercially coherent construction was that Linpac had to choose between retaining the lease and its personal break right, or assigning the lease and losing that right. The court followed the reasoning in Max Factor Ltd v Wesleyan Assurance Society and Equinox Industrial (GP2) Ltd v Sketchley Ltd. Linpac’s rights to break were irretrievably lost on assignment.

The claim succeeded to the extent necessary to establish that consent was reasonably withheld and that Linpac could not exercise the break clauses.

First instance decision. The judgment records an interim injunction granted by Norris J on 9 April 2009 restraining further notices to determine the leases; that relief was continued until trial.