Factual and Procedural Background
Company B leased 14.5 acres of industrial land to Company A’s predecessor in 1969 for a term of 114 years. The lease obliged the lessee to erect an industrial development within five years and contained a covenant (clause 2(viii)) prohibiting assignment without the landlord’s written consent, such consent not to be “unreasonably withheld.”
Company A later acquired a 0.45-hectare portion of the site (“the premises”). It wished to assign its interest to Company C, a metal-recycling business. Company C had already obtained planning permission for that use. When Company A applied for consent to assign, Company B refused, stating that the proposed use would breach clause 2(iii)(a) of the lease.
Company A commenced proceedings seeking declarations that (i) clause 2(iii)(a) imposed no continuing user restriction and (ii) Company B’s refusal of consent was unreasonable. A deputy judge upheld Company B’s construction of the lease and declared that refusing consent solely because an assignee intends a use thought to be in breach of covenant is not necessarily unreasonable. The Court of Appeal agreed on construction but, applying the decision in Killick, held the refusal unreasonable and issued a contrary declaration. Company B appealed; Company A cross-appealed. The House of Lords delivered the present judgment.
Legal Issues Presented
- Whether clause 2(iii)(a) of the lease merely requires the construction of buildings suitable for certain planning “Use Classes” or also imposes a continuing negative covenant restricting user to those classes.
- Whether a landlord acts “unreasonably” under clause 2(viii) of the lease (and section 1 of the Landlord and Tenant Act 1988) by withholding consent to an assignment solely because it believes the assignee will breach a user covenant.
- Whether the Court of Appeal decision in Killick v Second Covent Garden Property Co Ltd should remain authoritative on the reasonableness of such refusals.
Arguments of the Parties
Company A (Tenant / Cross-Appellant)
- Clause 2(iii)(a) is a positive building covenant; it does not create an implied negative covenant limiting user throughout the 114-year term.
- Even if a user restriction exists, it was unreasonable for Company B to refuse consent where breach was only possible, not inevitable, and statutory remedies (e.g., section 84 of the Law of Property Act 1925) were available.
- Killick correctly states that a landlord cannot withhold consent merely because the assignee may in future breach covenant; the landlord’s remedies after assignment are adequate protection.
Company B (Landlord / Appellant)
- The wording “for uses within Use Classes III, IV or X” in clause 2(iii)(a) restricts the lessee and assignees to those uses; it is an express or necessarily implied negative covenant.
- Withholding consent was reasonable because Company C proposed a use (metal recycling) outside those classes and thus in breach of covenant.
- Killick wrongly treats a landlord’s reasonable fear of breach as irrelevant; it should no longer be followed.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 |
Landlord must base refusal of consent on grounds relating to the landlord–tenant relationship. |
Re-affirmed as the primary test; refusal may relate to likely covenant breach. |
| Houlder Brothers & Co Ltd v Gibbs [1925] Ch 575 |
Reasons for refusal must concern the subject-matter of the lease. |
Cited as historical statement of the first principle governing consent. |
| Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547 |
Landlord need only show refusal was reasonable, not that it was correct. |
Quoted to illustrate the third overarching principle on reasonableness. |
| Bickel v Duke of Westminster [1977] QB 517 |
Reasonableness is fact-specific; cases supply guidance, not rigid rules. |
Forms part of the House’s preferred approach to “reasonableness.” |
| Bates v Donaldson [1896] 2 QB 241 |
Purpose of consent clause is to protect landlord from undesirable use or occupier. |
Cited to explain the rationale behind such clauses. |
| Viscount Tredegar v Harwood [1929] AC 72 |
“Reasonableness” should be given its general, common-sense meaning. |
Endorsed when discussing standard of reasonableness. |
| Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658 |
Landlord unreasonable to refuse consent where breach is not a “necessary consequence.” |
Expressly overruled; court found the test too rigid and overly favourable to tenants. |
| Packaging Centre Ltd v Poland Street Estate Ltd (1961) 178 EG 189 |
Refusal may be reasonable where assignment would necessarily breach covenant. |
Used illustratively to compare with situations of probable (not certain) breach. |
| Granada TV Network Ltd v Great Universal Stores Ltd (1963) 187 EG 391 |
Same principle as Packaging Centre. |
Discussed in evaluating landlord’s discretion. |
| West Layton Ltd v Ford [1979] QB 593 |
Courts should not craft rigid rules limiting landlord’s judgment. |
Relied on to support rejection of an inflexible rule. |
| LTSS Print and Supply Services Ltd v Hackney LBC [1976] QB 663 |
Cash-and-carry use fell outside specified Use Classes. |
Mentioned in argument concerning overlap between clauses. |
Court's Reasoning and Analysis
User covenant: A majority (Judge Browne-Wilkinson, Judge Hoffmann, Judge Scott) held that clause 2(iii)(a) is a building obligation only. The reference to Use Classes merely describes the type of development to be erected within five years; it does not impose a continuing negative user covenant. They emphasised:
- The clause sits within a section concerned solely with construction obligations, not long-term user.
- User restrictions appear elsewhere in the lease (clause 2(vi)); implying a further unstated restriction would be commercially unfair and unnecessary.
- The landlord, as planning authority, already had planning control; contractual duplication was unlikely.
- Defining user for 114 years by a 1963 statutory instrument would be commercially implausible.
The minority (Judge Bingham, Judge Rodger) viewed the wording as creating an implied negative covenant, reasoning that “fit for immediate occupation and use for uses within” naturally limits subsequent user.
Reasonableness of withholding consent: The House unanimously held that a landlord may reasonably refuse consent where it reasonably believes the assignee will probably breach a covenant. The prior Court of Appeal decision in Killick, which forbade refusal unless breach was a “necessary consequence,” was overruled on three grounds:
- It misclassified a fact-based assessment as a rule of law.
- It set too high a threshold; a reasonable landlord may act to avoid probable breach or litigation.
- It gave inadequate weight to the contractual force of user covenants.
Accordingly, the question of reasonableness remains fact-sensitive and must be reassessed without the rigid Killick constraint.
Holding and Implications
Holding: The House of Lords (1) ALLOWED Company B’s appeal, overruling Killick and confirming that a landlord may, in principle, refuse consent where it reasonably fears a covenant breach; and (2) ALLOWED Company A’s cross-appeal, declaring that clause 2(iii)(a) does not impose a continuing user restriction limited to Use Classes III, IV or X. The prior declarations were set aside and the matter remitted to determine, on the correct legal footing, whether Company B’s refusal was reasonable and whether damages are payable.
Implications: The decision eliminates the rigid “necessary consequence” test from Killick, restoring a flexible, fact-based approach to reasonableness under consent-to-assign clauses. Simultaneously, it warns landlords that withholding consent premised on an assumed user covenant must be justified; if no such covenant exists, refusal may ultimately be unreasonable. No new statutory obligations were created, but significant guidance was given on both lease construction and the boundaries of reasonableness in landlord consent decisions.