Outer House case relating to a lease of retail premises in Falkirk. The landlord was Grantchester and the tenant was Homebase.

Background
The tenant sought to assign the lease of the premises to a third party (CDS). In terms of the relevant clauses of the lease, the tenant was not entitled to assign the lease without the prior written consent of the landlord. That consent could not be unreasonably withheld by the landlord in the case of an assignee of “sound financial standing demonstrably capable of fulfilling the tenant’s obligations” under the lease. (Further, the lease provided that the tenant could not sublet the premises for a rent less than the open market rent and could not require the payment of a premium to the tenant or other ‘unreasonable’ incentive).

When considering the tenant’s request for consent to the assign, the landlord requested to see the terms of agreement between the tenant and the proposed assignee regulating premiums or deals relating to payments due under the lease. The tenant refused to provide that information arguing that it was irrelevant to the landlord’s decision and that, in terms of the lease, the landlord should only be concerned with the a proposed tenant’s identity, character and ability to comply with the tenant’s obligations under the lease.

Arguments
Before the court, the tenant contended that the only relevant considerations which could be taken into account by the landlord were whether the proposed assignee was of sound financial standing and demonstrably capable of fulfilling the tenant’s obligations in terms of the lease. In the view of the tenant, if the proposed assignee satisfied those requirements, it would be unreasonable for the landlord to withhold consent.

Decision
After considering the authorities[1], Lord Tyre rejected the tenant’s arguments and preferred the arguments made on behalf of the landlord to the effect that the lease provided a two stage test. The first stage was to determine whether the proposed assignee’s covenant was good, i.e. whether it was of sound financial standing and demonstrably capable of fulfilling the tenant’s obligations.  If and only if that test was satisfied, one passed to the second stage, which was to determine whether there were reasonable grounds for a refusal of consent by the landlord. In that regard there may be good reasons unconnected with the financial standing of the proposed tenant which would entitle the landlord to withhold consent[2].  In this case it had been reasonable for the landlord to request the information relating to any rent subsidy or reverse premium and to withhold consent unless and until it was supplied. In coming to that conclusion Lord Tyre noted previous authority[3] recognising that the payment of rents subsidies or reverse premiums could affect the rental value of the property and that was something that a landlord could reasonably take into account when deciding whether to withhold consent.

 The full judgement is available from Scottish Courts here

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] Including Burgerking Ltd v Castlebrook Holdings Ltd [2014] CSOH 36. (See summary here).

[2] Although a landlord would not be entitled to withhold consent if the reasons for doing so had nothing to do with the relationship of landlord and tenant in regard to the subjects leased.

[3] Norwich Union Life Insurance Society v Shopmoor Ltd [1999] 1 WLR 531 and Burgerking Ltd v Rachel Charitable Trust 2006 SLT 224.

Background
This is an Outer House case concerning a lease of premises at the Gyle Shopping Centre in Edinburgh under which Gyle was the landlord and Marks & Spencer, the tenant.

Gyle entered an agreement with Primark for the erection of a new store on land which included part of a car park. However, Marks & Spencer’s premises were let together with a one-third pro indiviso share of shared areas which included the car park. In two previous decisions Lord Tyre found (1) that M&S had not consented to the building of the Primark Store and that the building of the store without consent would be a breach of the lease[1] and (2) that M&S was not personally barred from preventing Gyle from erecting the store on the car park[2].

In this case Gyle sought declarator that any refusal of consent to the Primark development by M&S would be amount to an unreasonable withholding of consent. The relevant clause in the lease provided that works on the shared areas could be carried out with the consent of M&S (to the effect that they accepted that any works would not render the mall or shared areas materially less adequate, commodious or convenient to them) and that that consent could not be unreasonably withheld.

Arguments
After Lord Tyre rejected an argument by M&S that the relevant clause could not be construed so as to permit works which effected a permanent alteration to the extent of shared areas, the question for the court was whether it was unreasonable for M&S to withhold consent.

Gyle offered a number of arguments why it was unreasonable for M&S to refuse consent to the development including contentions that the proposed development would benefit public access to the shopping centre, that car parking would remain in excess of the requirements and that the alterations were sufficiently remote not to have a significant impact on the servicing and usage of the M&S store. As a result of the various arguments, Gyle expressed the opinion that it would be unreasonable to conclude that the development would render the Mall or the Shared Parts materially less adequate, commodious or convenient to M&S.

M&S did not challenge those arguments or Gyle’s opinion. However it argued that (1) that the proposed “works” were too unspecific; (2) that loss of ownership rights in relation to the shared areas was sufficient of itself to render them less adequate; and (3) that as the case was ongoing at the time when the Gyle sought M&S’s consent, it could not be said that M&S acted unreasonably in withholding consent.

Decision
Those arguments were rejected by Lord Tyre who found: (1) that the proposed works were detailed in plans provided to M&S prior to its refusal of consent (and in respect of which planning permission had been granted); (2) the loss of M&S’s interest in the shared areas as tenant under the lease did not of itself render the shared areas materially less adequate (the criteria of adequacy, commodiousness and convenience being concerned with practical consequences rather than the technicalities of characterisation of M&S’s right under the lease); and (3) M&S’s entitlement to withhold consent in terms of the relevant clause had to relate to the three specified criteria. (Thus the fact that there was subsisting litigation was not a relevant matter at the time when consent was refused.)

The full judgement is available from Scottish Courts here.

(NB: see appeal to Inner House here.)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] Gyle Shopping Centre General Partners Ltd as Trustee for and General Partner of Gyle Shopping Centre Limited Partnership v. Marks and Spencer Plc, 25 March 2014. See summary here.

[2] Gyle Shopping Centre General Partners Ltd as Trustee for and General Partner of Gyle Shopping Centre Limited Partnership v. Marks and Spencer Plc, 6 August 2014. See summary here.

Outer House case concerning the lease of a fast food restaurant and car parking spaces at Queens Drive Leisure Park, Kilmarnock.

Background
The lease contained a prohibition on subletting but stated that the landlord could not unreasonably withhold or delay consent to a subletting to a subtenant who was “respectable and responsible”. Burger King were the tenants under the lease and wished to sublet the premises to Caspian Food Retailers Limited. Burger King’s solicitors wrote to Castlebrook requesting consent for the subletting and providing some information on Caspian. Castlebrook’s agents replied seeking further information (including 3 years audited accounts and references from at least two previous landlords). Burger said that they had no accounts or references for Caspian as it was a new company.

Arguments
Castlebrook argued that, as Caspian had no track record, they had no idea whether the company was “respectable and responsible” but indicated that, if the main company in the group were to grant a guarantee or take the sublease itself, consent would be granted.  Burger King argued that, when taken with the fact that Castlebrook could continue to rely on Burger King’s covenant as tenant, there were no reasonable grounds to refuse the subletting. Castlebrook acknowledged the excellent track record of other companies in the group but contrasted that with Caspian itself which had no track record and refused to grant consent. Burger King sought declarator from the court that Castlebrook had refused consent unreasonably and a decree ordaining Castlebrook to issue the consent.

Decision
Lord Tyre found merit in Castlebrook’s argument to the effect that the landlord should first consider whether the proposed subtenant was respectable and responsible and then, if it found that it was not, the landlord was entitled to refuse consent without justifying that refusal by reference to any reason other than the non-respectability and/or non-responsibility of the sub-tenant. Lord Tyre referred to support for this approach in Bates v Donaldson:

“It will be seen that it is only when a respectable and responsible person is proposed as assignee or undertenant that this clause (as to the permission not being unreasonably withheld) comes into play. If the person proposed be not a respectable and responsible person, the lessor has an absolute right to refuse permission; if, however, the person proposed be respectable and responsible, then the lessor cannot unreasonably withhold his permission.”[1]

With regard to the meaning of “respectable and responsible”, Lord Tyre noted that “respectability” had been held to refer to the manner in which the company in question conducted its business and to its reputation and that “responsibility” had been held to refer to financial capacity. In each case he found that supporting evidence should relate to the proposed subtenant itself and not to other group companies or other entities that could provide assistance to the proposed subtenant:

“In my opinion a landlord who stipulates that a proposed sub-tenant must be responsible is reserving to himself the right to be satisfied as to the financial soundness of the sub-tenant itself and not as to the soundness of individuals or entities who might or might not provide assistance in the event of financial difficulty. So far as respectability is concerned, it may be that little should be required to satisfy the landlord, but once again I consider that evidence of respectability should relate to the proposed sub-tenant itself. A company does not acquire respectability automatically along with its certificate of incorporation, although it may not be long before its mode of carrying on business affords sufficient indication that it could not reasonably be regarded as anything other than respectable. That is not, in my view, the same as an assessment of the respectability of the company’s owners or of other companies in common ownership.”

Lord Tyre dismissed Burger King’s action but noted that if Burger King had provided material demonstrating even a successful first few months’ initial trading by Caspian, including landlords’ references, it might have been difficult for Castlebrook to justify a refusal of consent.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.