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Warborough Investments Ltd v Lunar Office SARL (2018)


The grant of an underlease of commercial premises by a tenant had constituted a breach of covenant. A judge's construction of the relevant covenant had involved an unwarranted re-writing of it.


A landlord appealed against a decision that the grant of an underlease of commercial premises by the respondent tenant's predecessor had not constituted a breach of covenant.

Clause 4(21) of the head lease contained various covenants by the tenant not to assign or underlet the premises except upon certain terms and conditions. Clause 4(21)(b) prohibited the tenant from underletting "the whole or any part of the demised premises other than by written underlease which shall not be in respect of less than complete floors or shop units for terms of not less than 10 years and at such rent or rents and upon such terms generally ... as shall accord with the principles of good estate management and with the duty ... of managing the demised premises to the best commercial advantage". Clause 4(21)(c) prohibited the tenant from granting an underlease of "any part of the demised premises except at ... the best rent reasonably obtainable for the premises concerned as between a willing lessor and a willing lessee", unless the landlord consented, with such consent not to be unreasonably withheld. It was common ground that the premises demised by the underlease granted by the tenant's predecessor did not comprise a complete floor of the premises, nor was the underlease granted for a term of not less than 10 years, so that at least two of the conditions in cl.4(21)(b) had not been complied with. It was the tenant's case that the sub-clauses were separate in the sense that they were self-contained, alternative routes to the grant of a lawful sub-tenancy, so that a tenant who granted an underlease of less than a complete floor or for a term shorter than 10 years was not subject to and therefore in breach of the covenant in cl.4(21)(b); the underlease would have been lawfully granted if consent was obtained in accordance with cl.4(21)(c) and granted at the best rent reasonably obtainable. The judge agreed, holding that it was commercially highly unlikely that the parties would have sought to impose on the tenant such a heavily circumscribed and inflexible set of conditions on underletting that the accumulation of the sub-clauses produced. He held that the words "any part of the demised premises" in cl.4(21)(b) meant "any part of the demised premises" which was "not less than a complete floor or shop unit", whereas in cl.4(21)(c) the same expression could mean more or less than a complete floor or shop unit, so the two provisions contained the same negative covenant against underletting, but each provided different sets of exceptions to that covenant depending on the nature of the part proposed to be underlet and the terms of the proposed underletting.


Construction of cl.4(21) - The starting point had to be the words used in the head lease. It was normally safe to assume that the parties intended to give the words they chose their natural meaning. In particular, there was a danger in approaching the construction of the document with preconceived ideas about what the parties, acting commercially, were likely to have intended and to allow those ideas to subvert the clear language of the document, Arnold v Britton [2015] UKSC 36 applied. The judge had allowed his own views of what would have been a sensible commercial regime to control subletting to prevail over what the parties had actually said and agreed. The tenant's case depended upon reading cl.4(21)(c) as qualifying cl.4(21)(b), even though there was no express link between them, whether by way of proviso or otherwise. The absence of such a link pointed away from the tenant's construction rather than in favour of it. If the sub-clauses were to be read as separate independent covenants by the tenant, then each had to be complied with in relation to any subletting by the tenant to which they applied. The tenant's construction proceeded from a wrong approach to cl.4(21), which was to treat each of the sub-clauses as if they were some kind of conditional permission for the grant of an underlease so that the tenant was free to choose between them as to which condition he was prepared to comply with. The proper approach was to recognise that the sub-clauses were a series of negative covenants by the tenant which required to be complied with according to their terms. The judge's approach of treating the meaning of "any part of the demised premises" as dependent upon the terms of the conditions which followed was an unwarranted re-writing of cl.4(21)(b) (see paras 19-24 of judgment).

Consequences flowing from landlord's construction of cl.4(21) - The court considered the commercial consequences for the tenant which flowed from the landlord's construction of cl.4(21). However, there was nothing in those wider considerations which could justify a departure from what was the plain language of cl.4(21) (paras 26-31).

Appeal allowed

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13 Mar 2018

Court of Appeal (Civ Div)
Patten LJ, David Richards LJ, Moylan LJ

[2018] EWCA Civ 427


Practice areas
Real Estate