Home Information Cases First Penthouse Ltd v Channel Hotels and Properties (UK) Ltd (2003)

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First Penthouse Ltd v Channel Hotels and Properties (UK) Ltd (2003)

Summary

The holder of the leasehold reversion on a lease had unreasonably refused consent to assignment of the lease by a mortgagee and had waived the right to forfeit the lease for breach of a covenant to carry out and complete the development project expeditiously

Facts

Two actions relating to a 1996 lease of the roof space of a block of flats in London for the purpose of constructing a number of penthouses. The lease was granted by the then freeholder ('B') to a company ('ACP'). The lease was granted pursuant to a preliminary agreement which conferred on B power to extend time for completion of the project and the option to call for a development sublease of any part of the roof space which was not developed in time. An introduction agreement provided for ACP to pay commission to the company ('M') which introduced ACP to B including a percentage of the net proceeds of sale of the penthouses. ACP charged the lease to the claimant in the first action ('FP'). B transferred the freehold to another company ('AC') which granted an overriding lease in reversion on the lease to the claimant in the second action ('C'). FP as mortgagee entered into a contract to assign the lease to the first defendant in the second action ('T'). FP applied to C for a licence to assign the lease to T. C refused and FP commenced the first action against C for a declaration that consent to assign had been unreasonably withheld. FP completed the transfer to T. In the second action, by C against FP, T and the underlessees of the penthouses, C sought to establish and enforce its entitlement to forfeit the lease for breach of covenant by reason of the assignment of the lease to T without C's consent, alternatively for breach of covenant by failing to carry out and complete the development of the roof space expeditiously. FP and T maintained that any right to forfeit in respect of the latter alleged breach had been waived

Held

(1) The breach of covenant to carry out and complete the project expeditiously was not a continuing breach but a once and for all breach. The obligation to carry out and complete was a once and for all obligation. The time for completion expired in 2001 and the right of re-entry arose on that date. That obligation had been breached before C in 2002 purported to exercise the option granted to B to call for a development sublease and in 2003 accepted rent. These acts by C were acts of a landlord, when it had the right to elect to forfeit or affirm the lease, unequivocally demonstrating the decision to affirm it. C had waived the right to forfeit for that breach. (2) C as landlord could have no reasonable ground for objecting to the assignment on the basis of the failure to carry out and complete the works. ACP and FP did not have the means to complete the project and T had both the funds and the will to do so. The assignment would secure performance of the obligation to complete. (3) The real ground for refusal of consent to assign was that the assignment to T would be effective to defeat or override the right to a development sublease under the preliminary agreement and of M to payment of commission under the introduction agreement. Those were not sufficient grounds for the refusal. (4) A 1999 deed of priorities to which B and M were parties conferred on FP as mortgagee the right to override those rights of C and M under the preliminary and introduction agreements and it therefore could not be reasonable for C as landlord to refuse consent to an assignment by FP to T on the ground that the assignment would have that effect and to require as a condition of giving consent that T confer equivalent rights on C and M. (5) There was no commercial connection between that ground of refusal and the relationship of landlord and tenant in regard to the subject matter of the lease. The considerations relied on by C were collateral to that relationship (Ashworth Frazer Ltd v Gloucester City Council (2001) 1 WLR 2180). (6) The covenants of ACP in the introduction agreement to pay commission to M and in the preliminary agreement to grant the development sublease were not annexed to the reversion to the lease by the effect of the Landlord and Tenant (Covenants) Act 1995. The covenant for payment of commission was not intended to be annexed to the lease. The obligation was personal and could not constitute a tenant's covenant under the 1995 Act. The option under the preliminary agreement was also personal to ACP and not a tenant covenant. (7) C unreasonably refused consent to assignment of the lease to T and FP was entitled to a declaration to that effect in the first action. (8) C waived the right to forfeit the lease for breach of the covenant to carry out and complete the project expeditiously and the second action brought by C was dismissed.

Judgment accordingly.

Chancery Division
Lightman J
Judgment date
14 November 2003
References

​[2003] EWHC 2713 (Ch)