First Penthouse Ltd v Channel Hotels and Properties (UK) Ltd (2004)
The court was required to construe the terms of an agreement that was a combination of a development agreement and an agreement for a lease to enable the development to be carried out. The purpose of the construction was to determine whether consent to assign a lease had been unreasonably withheld and whether there had been waiver of breaches of two covenants.
The appellant (C), who had been granted the overriding reversion of a lease, appealed against the determination of preliminary issues, namely a declaration that it had unreasonably withheld consent to the chargee of the lease to assign it and the dismissal of its claim that the lease was liable to forfeiture for breaches of two covenants. The lease was in respect of roof space at Albert Court in London. The headlessee had charged the lease to the second respondent (F). The freehold of the property had also been transferred, the overriding reversion ultimately being granted to C. As the agreement between the parties was a combination of a development agreement and an agreement for a lease to enable the development to be carried out, numerous other agreements were executed with other parties, many of which impacted upon the prioritisation of various charges over the property. F had applied to C for consent to assign the lease and, believing consent to have been unreasonably withheld, had proceeded with the assignment to the first respondent (T). F had subsequently succeeded in his application for a declaration that consent had been unreasonably withheld. C had commenced a second action, claiming that the lease was liable to forfeiture for breaches of a covenant against assignment without consent and a covenant for the expeditious development of roof space. The court of first instance had found that the breach of covenant had not been a continuing breach and that C had irrevocably waived the breach and the right to forfeit for that breach. C submitted that (1) the breach of covenant to complete the development of the roof space was a continuing one, such that the lessee could, at different times, be in breach and then at other times comply with the obligation and that continuing breaches after the waiver meant that the lessee's conduct was continually repudiatory; (2) its refusal of consent to assignment had not been unreasonable in light of the fact that T had refused to agree to be bound by obligations assumed by the headlessee and the fact that there had been no intention that F could exercise its rights as chargee of the lease in disregard of its obligations as guarantor to the headlessee.
(1) On a proper construction of the language of the lease, the obligation to complete the works by a specific time was plainly a once-and-for-all obligation, since it was possible to point to a time by which the works should have been completed, Farimani v Gates (1984) 271 EG 887 applied. (2) The judge in the court of first instance had been correct to find that C had unreasonably withheld consent. A deed of priority had conferred on F as mortgagee the right to override the rights of C and it was therefore unreasonable for C, as landlord, to refuse consent to assignment on the ground that the assignment would have that overriding effect and to require as a condition of giving consent, that T confer equivalent rights on C. To find otherwise would have negated the aims of the deed of priority, Ashworth Frazer Ltd v Gloucester City Council (2001) UKHL 59, (2001) 46 EG 180 (CS) applied. That had been the finding in an associated action between the parties where the Appeal Court had been required to construe the priorities deed and it was a decision that the court could properly take into account when determining the instant issues. (3)(Obiter) It was close to an abuse of process for C to seek to challenge the effect of the priorities deed for a second time, having failed in its argument on the first occasion.