UK: What Is Reasonable?

The recent case of ANSA Logistics Ltd v Towerberg Ltd [2012] EWHC 3651 (Ch) considered a common tenant’s covenant: “Not to assign, underlet or part with possession of the demised premises or any part thereof without the previous consent of the landlord, which consent shall not be reasonably withheld.”

The facts

The property which the dispute related to was a site developed in the 1960s for the storage and transportation of vehicles, with the original tenant holding a contract from Ford to perform those operations on Ford’s behalf. The lease and the contract were later assigned to ANSA Logistics. In 2007, Ford gave notice to ANSA that it was terminating the contract and would be taking over operations on the site. Ford and ANSA agreed that to allow for an orderly transition, Ford would be allowed to occupy the site under a licence with the right to call for an underlease. Although Ford began to undertake improvements and to exercise an increasing degree of control of the site, ANSA continued to have access to the site and be involved in activities there.

When ANSA approached the landlord in November 2011 to ask for consent to underlet, the landlord refused. The landlord also served a notice on ANSA forfeiting the lease for breach of the alienation covenant. ANSA applied to the High Court for a declaration, and the Court considered two questions:

Had ANSA parted with possession?

The Court decided that ANSA had not parted with possession and so had not breached the covenant. The test for possession, as contrasted with occupation, lay in the right of the person in occupation to exclude others from the premises. Whilst Ford had increasingly occupied the premises, ANSA had not been excluded from the site and, at the date of the landlord’s forfeiture notice, ANSA had continuing responsibilities at the site. The landlord was not therefore entitled to forfeit ANSA’s lease.

Was it reasonable for the landlord to withhold consent?

The landlord gave two main reasons for withholding consent. The first reason was that ANSA had parted with possession, which the Court found to be incorrect. The second reason concerned Ford’s financial standing. The Court found this to be unreasonable as the financial deficiency on which the landlord relied related to a longterm provision for pension liabilities, when in reality only 11% of companies had a lower risk of failure at that time. Further, pursuant to an underlease, if Ford were not financially sound the landlord would be able to look to collect the rent from ANSA. The Court therefore found that it was not reasonable for the landlord to withhold its consent to the underletting.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.