TCG Pubs Ltd & Anor v The Art Or Mystery of the Girdlers of London

A lease clause requiring a tenant to grant the landlord an option to buy back the residue of the term requires a formal option, rather than a simple notice, where that is the natural meaning of the words used. Following statutory changes, the tenant must proffer the formal option and invite the landlord to execute it. If the landlord declines, the tenant has fulfilled its obligation for the purpose of seeking consent to assign.

A proposed assignee’s application for consent does not start the statutory response period unless it appears to be made with the tenant’s authority. Confirmation may validate the application prospectively, but not retrospectively. A contractual requirement to procure a guarantor may operate as a valid gateway to assignment and is not itself tested for reasonableness.

The claim concerned the proposed assignment of a pub lease by a tenant in administration to Stonegate Pub Company Ltd. The lease required the tenant, before seeking consent to assign, to grant the landlord an option to buy back the residue of the term at market value.

The tenant sent a letter offering the property for £1.7 million. The proposed assignee separately applied for consent to assign. The landlord declined the buy-back opportunity and gave conditional consent, requiring a rent deposit or, later, a contractual surety. The issues were whether the option had been validly granted, whether the application was made on behalf of the tenant, whether the buy-back right had been waived, and whether consent had been unreasonably withheld.

1. Formal option. The wording of the lease, including the repeated references to granting and exercising an option, required a formal option rather than a notice. The drafting defects elsewhere in the lease did not justify departing from that natural meaning.
2. Effect of statutory change. Section 2(3) of the Law of Property (Miscellaneous Provisions) Act 1989 meant that the option could no longer be granted unilaterally. Applying Shebelle Enterprises Ltd v Hampstead Garden Suburb Trust Ltd [2014] 2 P & CR 114, the tenant had to proffer the same formal option and invite the landlord to execute it. If the landlord declined, the tenant had done all it could and could proceed to seek consent. No duty on the landlord to co-operate was implied.
3. Option letter. The tenant’s letter did not proffer a formal option and therefore did not satisfy the contractual precondition. Alternatively, applying the objective approach in Mannai v Eagle Star Ltd [1997] AC 749, the letter would have been a valid notice because its references to the lease, market value and the 60-day period made its purpose clear.
4. Application for consent. The assignee’s letter appeared on its face to be written for the assignee, not the tenant. Although the Business Purchase Agreement authorised the assignee to apply on the tenant’s behalf, that authority was not apparent to the landlord. Subsequent confirmation made the application effective from 18 November 2015, but not retrospectively.
5. Waiver. Waiver by election required an unequivocal representation, communication to the other party, awareness of the relevant facts, and actual knowledge of the right being elected upon. The landlord’s letter was not unequivocal. Further, the tenant’s description of the £1.7 million apportionment as an offer representing market value was materially misleading and could not support a waiver.
6. Surety and rent deposit. Applying Vaux Group Ltd v Lilley [1991] EGLR 60 and Crestfort Ltd v Tesco Stores Ltd [2005] 3 EGLR 25, the surety provision was a valid contractual gateway governing when the tenant could properly seek consent. It was not a condition imposed on consent whose reasonableness had to be assessed. The proposed rent deposit, however, was unreasonable because the assignee’s circumstances did not justify it.
7. Conclusion. The option clause had not been validly triggered. The buy-back right had not been waived. The landlord was entitled to insist on a surety, but not on the rent deposit as proposed.