Commercial First Business Ltd v Atkins

A mortgage condition prohibiting letting without the mortgagee’s consent is subject to an implied limitation that consent will not be unreasonably withheld. An unreasonable refusal leaves the mortgagor free to let, but does not generally create a damages claim. Reasonableness is assessed by reference to the mortgagee’s security and the proposed letting. The mortgagor bears the burden of proof. Relevant matters may include rent, tenant, use, lease terms, arrears and debt serviceability. The mortgagee may apply objectively justifiable criteria, even if undisclosed when the mortgage was granted. Its discretion is also constrained by honesty, good faith, genuineness and the absence of arbitrariness, capriciousness, perversity and irrationality. Exceptional disproportion between benefit to the mortgagee and detriment to the mortgagor may make refusal unreasonable.

The claimant sought possession of two commercial investment properties and payment of sums due under mortgage loans. The defendant counterclaimed damages and other relief, alleging that the claimant had unreasonably delayed or refused consent to proposed lettings, breached an equitable duty, imposed an unlawful restraint of trade, and created an unfair debtor-creditor relationship under the Consumer Credit Act 1974.

The proposed lettings were to Axis Intermodal PLC and Direct Sales Agency Limited. The court considered the construction of the mortgage consent condition, the scope of any equitable duty, the restraint of trade doctrine, and the unfair-relationship provisions.

1. Implied limitation. Condition 11.4 was subject to an implied qualification that consent to letting would not be unreasonably withheld. The court rejected the implication of an independent covenant giving rise to damages. An unreasonable refusal would instead leave the mortgagor free to let without consent.
2. Reasonableness. The purpose of the condition was to protect the mortgagee’s security and prevent it being burdened with an unsatisfactory lease. The mortgagor bore the burden of proving unreasonable withholding. The mortgagee could rely on rent, the proposed use, the tenant’s standing, arrears and debt serviceability. It could apply objectively justifiable criteria not contained in the mortgage documents and not disclosed at inception. In exceptional circumstances, a marked disproportion between the mortgagee’s benefit and the mortgagor’s detriment could make refusal unreasonable.
3. Equitable duty. The mortgagee’s discretion was limited by honesty, good faith, genuineness, and the absence of arbitrariness, capriciousness, perversity and irrationality. No wider duty to bring about a letting on market terms was established.
4. Other claims. The consent condition merely regulated the ordinary mortgagor-mortgagee relationship and was not subject to the restraint of trade doctrine. Even if unenforceable as a restraint, it would not generate damages. Under sections 140A and 140B of the Consumer Credit Act 1974, applying established lending criteria and considering arrears and continuing serviceability did not make the relationship unfair.
5. Application. The claimant had not finally determined either relevant consent application, and any delay was principally attributable to the defendant’s failure to deal with arrears, incomplete works and outstanding lease matters. The claimant had not acted in bad faith or irrationally. The counterclaim failed. The claimant was entitled to possession of Units 8 and 9 and a money judgment for sums due.