B e f o r e :
LORD JUSTICE AULD
LORD JUSTICE WARD
LORD JUSTICE ROBERT WALKER
| || AUBERGINE ENTERPRISES LIMITED||Appellant|
| ||- and -|
| ||LAKEWOOD INTERNATIONAL LIMITED||Respondent|
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
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Official Shorthand Writers to the Court)
Miss Elizabeth Weaver (instructed by Fladgate Fielder) for the Appellant
Mr Michael Pryor (instructed by Beveridge Milton) for the Respondent
HTML VERSION OF JUDGMENT
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Lord Justice Auld:
- This is an appeal by Aubergine Enterprises Limited [“the buyer”] against the order of Mr. David Vaughan, QC, sitting as a Deputy Judge of the Chancery Division: 1) dismissing its claim for a declaration that it had validly rescinded a contract to buy a leasehold interest from Lakewood International Limited [“the seller”] because of the seller’s failure to obtain the landlord’s licence to assign; and 2) and giving judgment for the seller on its counterclaim for forfeiture of half of the 10% deposit paid, £234,000 and for payment of the balance of the deposit plus interest, namely £266,316.03.
- The seller and the buyer were both registered in the British Virgin Islands. By a contract of 9th August 1999 the buyer agreed to buy the leasehold interest in Floors 1-7, 18 Berkeley Street, London, W1, including contents, from the seller for £4.68 million. The contractual completion date was 30th September 1999. The contract incorporated the Standard Conditions of Sale, 3rd edition, which provided that, if consent to assign was required, the seller was to apply for consent at its expense and to use all reasonable efforts to obtain it (standard conditions 8.3.1 and 8.3.2(a)) and the buyer was to provide all information and references reasonably required (standard condition 8.3.2(b)). Either party, unless in breach of its respective obligations in obtaining the consent, could rescind the contract by notice to the other if consent was not given three working days before “completion date” or the consent had been given subject to a condition to which the buyer reasonably objected (standard condition 8.3.4). In either event the deposit was to be repaid to the buyer with accrued interest (standard conditions 8.3.4 and 7.2(a)). Clause 5 of the contract gave the seller certain rights, including the right to charge interest and recover outgoings on the property in the event of delay in completion caused by the buyer’s delay in complying with its contractual obligations or compliance with certain conditions that the landlord might impose as to guarantee and documentation.
- Clause 4.18.3 of the lease required the landlord’s prior written consent to assign, such consent not to be unreasonably withheld; and clause 14.8.4(d) allowed the landlord to withhold consent unless the buyer covenanted, and any guarantors reasonably required by the landlord guaranteed, by deed, compliance with the lease.
- There are two main issues in the appeal. First, did the landlord give its consent to assign in time as required by special condition 8.3.4? Second, if not, was the buyer prevented from rescinding by its own breach of contract in failing to provide information and references under standard condition 8.3.2(b) or by reason of waiver of, or estoppel from exercising, any right to rescind it may have had?
- Before summarising the material facts, which, save in one respect, are largely undisputed, I should identify the main players in the story. They are not the landlord or the seller or the buyer, but their respective solicitors, the correspondence between whom tells much of the story. The seller’s solicitor was Mr. Ian Jefferson, a sole principal and an experienced conveyancer. The buyer’s solicitors were Fladgate Fielder, acting in the main through Mrs Antonia Brandes, one of their partners and also an experienced conveyancer. Both Mr. Jefferson and Mrs. Brandes gave evidence. The landlord’s solicitors were Stephenson Harwood, acting through a relatively inexperienced solicitor, Miss Emily Steele. Stephenson Harwood declined to cooperate in the case either by producing documentation or by allowing Miss Steele to give evidence. The other notable absentee from the witness box or by way of production of documents was any representative of the buyer. Of Miss Steele, the Deputy Judge said in his judgment:
“Although I have not heard evidence from Miss Steele, one matter upon which both solicitors [i.e. Mr. Jefferson and Mrs Brandes] were agreed, was that Miss Steele appeared to be very inexperienced and that many of the problems which arose in the present case were due to her inexperience. She appeared to both witnesses to lack the experience to deal with matters outside normal conveyancing practice, such as seeing that an undertaking as to costs would be wholly unnecessary where there was ample protection for her clients in the rent deposit, failing to give firm advice to her clients, and by raising many unnecessary issues or issues at much too late a stage. It also seems that they [sic] were guilty of considerable delay.”
- On 12th August 1999, three days after the exchange of contracts, the seller’s solicitor wrote to the landlord’s agents informing them of 30th September 1999 as the proposed date for completion and that the buyer would provide a rental deposit, and requested consent to the assignment. The landlord’s agents did not reply until 26th August 1999, when they sent a letter headed “SUBJECT TO CONTRACT” and “WITHOUT PREJUDICE”, stating that the landlord “would be prepared in principle to grant a licence for the assignment of the lease”. They asked for a rental deposit of £10,000 and their costs and fees in connection with the assignment and, as to the formalities of the licence, referred them to the landlord’s solicitors. The following day, 27th August, the seller’s solicitor wrote to the landlord’s solicitors proposing a form of assignment, inviting agreement of a draft deed of rent deposit and suggesting addition to it of direct covenants from the buyer. As for the licence itself, they added that, apart from a recital, it need be no more than a single line.
- About three weeks had now passed since the parties had exchanged contracts and the seller’s solicitor had first sought the landlord’s consent to assign. During those three weeks the seller’s and the buyer’s respective solicitors had proceeded in the ordinary way with their conveyancing tasks, and they would continue to do so over the remaining four weeks before 30th September. And, as the Deputy Judge observed, at this stage:
“nothing … would have suggested to these experienced conveyancers that there was going to be any problem with regard to the licence to assign. Experience suggested to both solicitors that the Landlord could have no possible grounds for objection provided that the necessary documentation was produced at their request.”
- However, on 1st September 1999 the landlord’s solicitors wrote to the seller’s solicitor marking the letter “SUBJECT TO LICENCE” and repeating that the landlord had “agreed in principle to grant a licence to assign the lease”. They stated that they would review the draft deed of rent deposit and requested an undertaking from the seller’s solicitor in respect of the landlord’s legal and agency costs in respect of the proposed licence, adding that, once the undertaking had been received, they would send a draft licence to assign. By letter of 3rd September the seller’s solicitor replied, declining to guarantee the landlord’s obligations, observing that the landlord already held over £20,000 by way of rental deposit from the seller and that there was very little work for the landlord’s solicitors to do, simply the preparation of a shortly expressed licence to assign and agreement of the draft rent deposit deed. The landlord’s solicitors did not respond until 10th September, and only then after receipt of a letter from the seller’s solicitor on that day, protesting about their delay and enclosing a simple form of licence to assign and an engrossment of the rent deposit deed. In their letter, the landlord’s solicitors stated that they were instructed to require the seller to provide an authorised guarantee agreement and would only send him, the seller’s solicitor, a draft licence once he had agreed to pay the landlord’s legal and agency fees.
- By letter of 13th September the seller’s solicitor wrote to the landlord’s solicitors protesting about their failure to carry out their client’s instructions in accordance with its agreement communicated in their letter of 1st September to grant the licence to assign, and indicating that he would deal with the landlord direct. On the same day, he sent to the landlord’s agents copies of the proposed rent deposit deed and the requested authorised guarantee agreement. The landlord’s solicitors, by letter to the seller’s solicitor of 14th September, reiterated the landlord’s agreement “in principle” to the proposed assignment, but persisted in refusing to proceed with the matter until the seller’s solicitor undertook to pay the landlord’s legal and surveyor’s fees in connection with the licence to assign and authorised guarantee agreement. This prompted the seller’s solicitor to reply on 15th September re-stating his refusal to do so, observing that the seller had an obligation under the lease in respect of any fees reasonably incurred by the landlord in the grant of the licence, for which the latter was already well covered by the seller’s rent deposit.
- About this time – mid-September –there is the first inkling of another possible impediment to completion taking place on the contractual date of 30th September. It was that the buyer might not be able financially to complete on that date. In a faxed letter from a Mr. Farmer, the buyer’s principal investor, to the seller’s solicitor of 17th September, it sought deferment of completion until mid-October to obtain the necessary funds. The seller’s solicitor replied by fax on the following day, urging completion on the agreed date and indicating that, if the buyer did not do so, the seller would issue a notice to complete and require payment of the balance of the 10% deposit, and that interest on the purchase price would thereupon begin to accrue. Two days later, on 20th September, Mr. Farmer wrote again to the seller’s solicitor stating that the buyer would “proceed as contracted”, indicating that suitable finance was available, expressing the hope that completion would not be delayed and adding that he understood the “interest consequences” should there be a delay of a few days.
- As the Deputy Judge observed, those two communications from Mr. Farmer were evidence that the buyer knew by then it probably would not be able to complete on 30th September, but that that day would remain the contractual completion date for the purpose of any notice from the seller to complete. Certainly, that is how the seller’s solicitor continued to treat the matter. On 21st September he sent a completion statement to the buyer’s solicitors, prepared on the basis that completion would take place on 30th September, and also documents relating to title.
- On the same day, 21st September, the landlord’s solicitors began to lower the barrier that they had erected and maintained over a period of some six weeks to the provision of the licence to assign. In a letter to the seller’s solicitor headed “SUBJECT TO LICENCE”, the landlord’s solicitors confirmed yet again the landlord’s “consent, in principle, to the proposed assignment”, blamed the delay in part on the seller’s solicitor’s refusal to undertake to pay the landlord’s costs, but stated that they “would proceed with producing the Licence to Assign on the basis that [their] clients’ legal and surveyor’s costs, plus VAT, [would] be deducted from the rent deposit … currently held in respect of the property”. This, of course, was exactly what the seller’s solicitor had proposed nearly three weeks before in his letter of 3rd September. The landlord’s solicitors’ letter continued by setting out four requests of an administrative nature, which, for convenience I number and entitle:
“[1. Engrossment’s of licence for execution by seller and buyer] I … enclose an engrossment of the Licence to Assign, in duplicate, for execution by your clients and by Aubergine Enterprises Limited. I will send a third engrossment of the Licence to my clients for execution and on completion of the Licence, will provide a certified copy of that part of the licence so that both your client and the assignee may hold a copy.”
[2. Amendments to rent deposit deed] I have checked through the form of Rent Deposit Deed and note that there are a few small typographical errors and also that Clause 8 requires a significant amendment to it. I therefore enclose a copy of the Rent Deposit Deed marked with my amendments. Please will you either confirm that the same amendment will be made to the other parts of the Rent Deposit Deed and initialled or send me a revised version.
[3. Provision of final version of authorised guarantee agreement] As regards the Authorised Guarantee Agreement, I confirm that the copy which you prepared … follows the Agreement set out in the Schedule to the Lease save for a couple of small typing mistakes. If you provide me with an engrossment, I will forward it to my clients for execution.
”[4. Conformity of execution clause in deeds with BVI law and buyer’s constitution] I note that Aubergine Enterprises Limited is a British Virgin Islands registered company. Please will you confirm that the execution clause which you have provided for in the Deeds is sufficient under BVI law and the company’s constitution.”
- On 23rd September the seller’s solicitor copied that letter and its enclosures to his client and to the buyer’s solicitors, and replied to the landlord’s solicitors stating that he had done so. He dealt in the following way with the four matters in the landlord’s solicitors’ letter: as to 1, that he had passed on the engrossments for signature having deleted a provision that the landlord’s solicitors had inserted referring to payment by the seller of the landlord’s assignment costs, as the obligation was already set out in the lease; as to 2, that he had passed the landlord’s solicitors’ comments on the rent deposit to the buyer’s solicitors, as they were matters for them; as to 3, enclosing a further engrossment of the authorised guarantee agreement containing the requested small amendments; and as to 4, pointing out that, as he did not act for the buyer, he could not comment on the conformity of the execution clause with the law of its country of incorporation or its constitution.
- At about this time the landlord’s solicitors turned their attention to the buyer’s solicitors in pursuit of their determination to obtain a solicitor’s undertaking to back the seller’s obligation under the lease to cover the landlord’s legal costs in connection with the licence to assign. In a telephone conversation between Miss Steele of the landlord’s solicitors and Mrs. Brandes of the buyer’s solicitors, the latter undertook to pay those costs in the event of the seller failing to honour its obligation under the lease. There followed, on 27th September, a letter from the landlord’s solicitors to the buyer’s solicitors, referring to that conversation and stating:
“As agreed, we enclose an engrossment of the Licence to Assign for execution by your clients. We also enclose an engrossment of the Rent Deposit Deed, which … [the seller’s solicitor] has kindly prepared, which we have marked with a couple of amendments in manuscript. We suggest that we proceed on the basis that the engrossment is used in its current form, with the manuscript amendments being initialled by the parties.
Please will you confirm in writing your undertaking as regards ours costs as soon as possible.
Finally, we note that Aubergine Enterprises Limited is a BVI registered company. Please will you confirm that the execution clause which has been provided for in the Deed is sufficient under BVI law and is in accordance with the company’s constitution.”
It should be noted that this is the first time the landlord’s solicitors raised direct with the buyer’s solicitors the question of the validity of the buyer’s execution clause.
- Mrs. Brandes, by letter of 28th September, acknowledged receipt of that letter and the enclosed documents and stated that she had passed the latter to the buyer for execution and early return. She confirmed the undertaking given over the telephone to meet the landlord’s legal costs in relation to the assignment in the event of the seller failing to do so, and sought confirmation that once the landlord’s solicitors had received the buyer’s rent deposit of £10,000, their costs, the authorised guarantee agreement executed by the seller and the licence rental deposit deed executed by the buyer:
“My client and Lakewood may proceed as if the licence had actually been granted by your client notwithstanding that you might not actually have received the executed licence back from your client. The reason for this is that my client’s contract is conditional upon the Landlord’s licence having been granted by close of business of [sic] Thursday, 30 September.”
- On the same day, 28th September 1999, Mrs. Brandes wrote to the seller’s solicitor, reporting to him her telephonic and written exchanges with Miss Steele and saying that the latter had agreed to that request:
“Miss Steele has confirmed that if she holds the Authorised Guarantee Agreement executed by your client, the Licence and the Deed of Rental Deposit executed by my client and my client’s deposit of £10,000, she is prepared to allow us to proceed on the basis that her client’s part of the Licence will be granted although it will not be in her hands at that point.”
- The Judge rejected Mrs. Brandes’ evidence that her letter to Mr Jefferson of 28th September set out incorrectly her understanding of her telephone discussion with Miss Steele. Her evidence was that Miss Steele had said, and that she, Mrs. Brandes, had intended to convey by this letter to the seller’s solicitor, that Miss Steele was prepared to advise the landlord to proceed as Mrs. Brandes had requested in her letter of 28th September, but she needed to take instructions. As I have said, the Deputy Judge did not have the advantage of any evidence from Miss Steele on the matter. Mrs. Brandes said that Miss Steele had never confirmed to her that the seller was prepared to proceed on that basis, an assertion that appears to be confirmed by a letter from her to Miss Steele of 29th September and a letter from Miss Steele to her of 30th September 1999, to both which I refer below. The Deputy Judge’s conclusion, contrary to Mrs. Brandes’ uncontradicted evidence, was that, on 28th September 1999, the landlord’s solicitors:
“agreed that the parties could proceed on the basis that consent had been given and that the Landlord’s part of the Licence would be granted. ”
- His reasons for rejecting Mrs Brandes’ evidence in reaching that conclusion were that she had confirmed the terms of her letter to Miss Steele of 28th September in a later letter to the seller’s solicitor, written on 1st October 1999, in which she had stated “[t]he landlord’s solicitors have subsequently written indicating they were not able to give the assurance sought by us,” a clear reference, he said, to the letter to that effect from Miss Steele of 30th September 1999 to which I have just referred. The Deputy Judge said:
… On any ordinary interpretation of those documents, it would seem clear for [sic] Landlords had given their consent, and that they had agreed that completion could take place without the executed Licence. A further indication that that is the correct construction is shown by the fact that, if the Landlord’s solicitors had said as Mrs. Brandes now claims, and said that they would certainly not give that assurance, there would inevitably have been much conversation and communication about the licence in the period between 28th September up to the date for completion, yet there was none.”
- On 29th September Mrs. Brandes wrote to Miss Steele, with a copy to the seller’s solicitor, enclosing the executed licence to assign and deed of rental deposit and asking for her firm’s client account details to enable immediate transfer to it of the deposit monies. In the letter Mrs. Brandes also sought an answer to her request in her letter to Miss Steele of 28th September for the landlord’s confirmation that they could proceed as if the licence had been granted. On the same day the seller’s solicitor sent to Miss Steele the authorised guarantee agreement, observing that it completed the documentation for the release of the licence to assign.
- On 30th September in another letter to Mrs Brandes headed “SUBJECT TO LICENCE”, Miss Steele acknowledged receipt of Mrs. Brandes’ letters of 28th and 29th September, the executed licence to assign and rent deposit deed, and gave the account number for the rent deposit to be paid “in readiness for completion”. The letter concluded:
“… we do not have authority to grant consent to the assignment before we have the signed documentation back from our client. As you and Ian Jefferson already know, consent to the assignment has been granted by our clients in principle and subject to the completion of the Licence but we do not have instructions to give you any further assurance. We have been informed this evening by our client's agents that one of our client’s signatories has been away until today. However, we hope to receive the executed documents back from them in the next few days and will tell Ian Jefferson and you then.
We also look forward to hearing from you with confirmation that the Licence to Assign and Authorised Guarantee Agreement have been executed by your client … in the manner which accords with company’s constitution and with BVI law. This confirmation is required from you because your client is a BVI registered company.”
- Thus, by 30th September 1999, the contractual completion date, the landlord’s solicitors had held to the indication first given by the landlord’s agents on 26th August of consent “in principle” and “subject to licence”. And the buyer had complied with all the conditions imposed in the subsequent solicitor to solicitor correspondence save for the late request for confirmation as to the validity of the buyer’s form of execution. On the face of it, lack of consent was not a likely impediment to completion. The wrangling over the form of the consent documents and over Miss Steele’s insistence on one or other of the contracting parties’ solicitors guaranteeing her firm’s costs in the event of failure by the seller to meet them, was over. Completion by 30th September, which the seller’s and buyer’s solicitors had worked hard to achieve, could now proceed.
- However, there now appeared a wholly different impediment to completion. On completion day itself the buyers’ solicitors wrote to the seller’s solicitor informing him that they had just been told by their “client’s fund” that it required an opinion letter in respect of their client’s good standing and that, as a result funds would not be available to enable completion that day. They followed this by a further letter on the same day – one much more formal and final in tone. After referring briefly to the contract of 9th August 1999, it stated:
“… The date for completion has now passed. The Landlord’s consent has not been given, through no fault of our client. We, therefore, hereby give notice on behalf of the buyer that the buyer rescinds the Contract dated 9th August 1999 pursuant to Standard Condition 8.3.4. Please repay the deposit to us forthwith together with accrued interest pursuant to Standard Condition 7.2(a). …”
- On the following day, 1st October, the seller’s solicitor replied by fax, challenging the buyer’s entitlement to rescind and asserting that the problem was not due to any want of consent by the landlord but to the buyer’s inability financially to proceed. He added that the buyer was in default in failing to pay to the landlord the rent deposit of £10,000 or satisfy it as to buyer’s mode of execution of the documentation, two of the landlord’s conditions of the grant of the licence.
- As to consent, the seller’s solicitor stated:
“On 29th September you inform [sic] me, by telephone, that you had spoken at some length with Miss Steele of Stephenson Harwood and that she had informed you that the licence to assign was approved although, due to the absence of one of the trustees, it would not be available on 30th September. You informed me that you were satisfied with this position and it was sufficient for you to complete. This provision of the contract has therefore been fulfilled. You did also mention, that one concern of Miss Steele was that she needed the £10,000 rent security deposit. You informed me that you held that amount in your client account. I also informed you that I was content to leave my clients £20,000 rent deposit with the Landlords until after completion, so that they were covered at all times pending the clearance of your cheque. ”
- The buyer’s solicitors replied by faxed letter of the same date, asserting the immateriality of the buyer’s want of funds and maintaining its right to rescind because of lack of the landlord’s consent. The letter included the following passage:
“On 29 September 1999 we understood the position to be as set out in our letter to you of that date. The landlords solicitors have subsequently written indicating that they were not able to give the assurances sought by us.”
It is common ground that the reference in that passage to a letter of 29th September was a mistaken reference to Mrs. Brandes’ letter to Miss Steele of 28th September.
The Deputy Judge’s Findings
- The Deputy Judge found that:
i) although the lease required written consent for an assignment, the contract, in standard condition 8.3, did not require the consent to be in writing;
ii) the landlord’s solicitors’ letters to the seller’s solicitor of 1st,, 14th and 21st September indicating the landlord’s consent to the proposed assignment “in principle” did not constitute consent because of those qualifying words;
iii) by 27th September the landlord had consented to the assignment within the terms of standard condition 8.3.4, having regard to all the circumstances of the case, in particular its solicitor’s letter of that day to the buyer’s solicitors enclosing an engrossment of the licence to assign for execution by the buyer;
iv) the completion date for the purpose of standard condition 8.3.4 was not the contractual completion date of 30th September 1999, but a date some days later, which, by then, the parties had accepted as likely; and, in consequence, consent given by 27th September satisfied the three working days before completion requirement of standard condition of 8.3.4;
v) alternatively, thereafter the landlord, through its solicitors, agreed on about 28th September to completion without written consent provided that the buyer completed the necessary documents;
vi) in any event, the buyer was not entitled to rescind because it was in breach of its obligation under standard condition 8.3.2(b) to provide all information and references reasonably required;
vii) if, contrary to his findings, there had been no sufficient consent by 27th September, and 30th September was the operative completion date for the purpose of standard condition 8.3.4, the buyer, by its conduct between 27th and 30th September had waived its right to rescind or had affirmed the contract; and
viii) although the landlord’s solicitors in a telephone conversation with the buyers’ solicitors on 29th September, and by their letter of 30th September, appeared to qualify the previously given consent, it did not and could not withdraw that consent, but was “simply an insistence that the proper mechanisms be carried out before the written consent could be executed and delivered”.
- Setting out the Deputy Judge’s findings in that structured way provides a framework for more precise identification and analysis of the issues on appeal than the two main questions relating to consent and right to rescind mentioned at the start of this judgment, namely:
i) whether, contrary to the Deputy Judge’s ruling, the contract required the consent to be in writing and accompanied by a duly executed deed of covenant from the buyer;
ii) whether, as the Deputy Judge found, the required consent was given before the buyer’s notice of rescission and, if so, when and in what form;
iii) Whether, as the Deputy Judge found, such consent as was given was in time to prevent the buyer’s rescission, that is “three working days before completion date” as specified in standard condition 8.3.4;
iv) whether, as the Deputy Judge found, the landlord, through its solicitors, had in any event agreed to completion without written consent provided that the buyer complied with its unobjectionable conditions;
v) if consent was not given in time, whether, as the Deputy Judge found, the buyer was in breach of contract in failing to provide information and references reasonably required, so as to deprive it of the right to rescind pursuant to standard conditions 8.3.4 and 8.3.2(b); and
vi) if the landlord did not consent, either in the form or within the period required by the contract, whether, as the Deputy Judge found, the buyer waived any right to rescission or was estopped from exercising it
- Before considering each of those issues, I set out for the purpose of convenient reference the material parts of contract and the lease:
Clause 4 of the contract
“The buyer shall enter into and shall procure that any guarantor reasonably required by the Seller’s lessor shall enter into an Authorised Guarantee Agreement and Deed of Covenant in the form set out or referred to in the Lease.”
Clause 5 of the contract
“If the sale of the Property is not completed on the Completion Date because the Seller has not received any relevant licence from its lessor and failure to obtain that licence is caused wholly or partly by any delay by the Buyer in:
a) complying with the Buyer’s obligations under the Standard Conditions or under this clause or
b) obtaining the approval by the lessor of any guarantor of the Buyer’s liabilities under such licence and Authorised Guarantee Agreement as the lessor shall reasonably require or
c) approving any draft of such licence or Authorised Guarantee Agreement or
d) executing the counterpart of any such licence or procuring such execution by a guarantor or
e) delivering the properly executed counterpart of any such licence and Authorised Guarantee Agreement to the Seller’s Solicitors or (if previously so requested in writing) to the lessor or to the lessor’s solicitors or agents
Then if the Seller does not rescind this Agreement the Buyer shall on Completion pay to the Seller interest at the prescribed rate on the balance of the Purchase Price and pay all outgoings due in respect of the Property from the later of the Completion Date and the date upon which the relevant licence would have been granted but for any such cause up to and including Completion.
Standard conditions 7.2 and 8.3 of the contract –
If either party rescinds the contract
(a) unless the rescission is as a result of the buyer’s breach of contract the deposit is to be repaid to the buyer with accrued interest ….
8.3 Landlord’s consent
8.3.1 The following provisions apply if a consent to assign or sub-let is required to complete the contract.
8.3.2 (a) The seller is to apply for the consent at his expense, and to use all reasonable efforts to obtain it.
(b) The buyer is to provide all information and references reasonably required.
8.3.4 Unless he is in breach of his obligations under 8.3.2, either party may rescind the contract by notice to the other party if three working days before completion date:
(a) the consent has not been given or
(b) the consent has been given subject to a condition to which the buyer reasonably objects.
In that case neither party is to be treated as in breach of contract and condition 7.2 applies.”
Clause 4.18 of the lease – lessee’s covenants
“4.18.3 Not without the prior written consent of the Landlord such consent not to be unreasonably withheld, to assign the demised premises as a whole.
4.18.4 Notwithstanding anything contained in these presents the Landlord shall be entitled in its absolute discretion to withhold consent to any proposed assignment of the demised premises in any one of or more of the following circumstances:- …
c) an Authorised Guarantee Agreement duly executed and completed by the Tenant and any guarantor or guarantors for the time being of the Tenant has not been delivered to the Landlord or
d) a deed duly executed has not been delivered unconditionally to the Landlord containing (inter alia) a covenant with the Landlord:-
i) by the proposed assignee to observe and perform the covenants and conditions on the part of the Tenant contained in these presents from the date of such assignment and
ii) by any guarantors which the Landlord may reasonably require to act as guarantor for such assignee and to covenant with the Landlord as a primary obligation …”
(i) Consent – whether required to be written
- The buyer’s contention before the Deputy Judge was that the consent required by standard condition 8.3 was the prior written consent referred to in clause 4.18.3 of the lease and that the landlord had not given it. The seller’s contention was that the consent required was consent in substance and that, on the true construction of standard condition 8.3, the consent was simply that “required to complete the contract” between seller and buyer, regardless of the requirement of the lease. The Deputy Judge preferred the latter construction and he ruled on it briefly:
“It is certainly true that under the Lease written consent was required to an assignment, but Standard Condition 8.3.4 does not require the consent which had to be given three days before completion to be in writing.”
- Miss Elizabeth Weaver, for the buyer, submitted that a written consent was required both as matter of construction of the standard conditions of the contract and having regard to the importance of consent to certainty as to title under the lease. Her argument was as follows. Standard condition 8.3 applies “if a consent to assign … is required to complete the contract”. In this case the consent required was that under the lease, namely written consent. Its absence would be a breach of covenant rendering the lease liable to forfeiture, constituting a defect of title entitling the buyer to refuse to complete. The requirement under standard condition 8.3.2(a) for the seller to apply for “the consent” and to the right in standard condition 8.3.4(a) to rescind in the absence of “the consent” are references back to such written consent. Miss. Weaver also submitted that the Deputy Judge’s construction failed to give any weight to the context, namely the purchase of a valuable lease and the buyer’s need for certainty as to title in the event, say, of any future dispute with a prospective buyer or mortgagee as to the validity of the consent under the lease.
- Mr. Michael Pryor, on behalf of the seller, supported the Deputy Judge’s construction. He submitted that the consent “required to complete the contract” under standard condition 8.3 was the landlord’s consent in substance. He challenged Miss. Weaver’s tying of the words “a consent” in standard condition 8.3.1 and “the consent” in standard condition 8.3.4(a) and (b) to the words “prior written consent” in clause 4.18.3 of the lease, by reference to the importance to the buyer of certainty as to title before proceeding to completion in such transactions. Whilst he disagreed with such precise cross-referencing between the two documents, he argued that the word consent should be construed in the statutory context of the lease now provided by section 1(3) of the Landlord and Tenant Act 1988. That provision is intended to secure ready and prompt consents by landlords to assignments where they have no reasonable grounds for refusal, and without unreasonable conditions. This is a consideration to which I return below when considering the central thrust of Mr. Pryor’s argument on consent.
- Mr. Pryor also sought to draw support for his argument from standard condition 8.3.4(b). The premise of that provision, he submitted, was that the landlord could give unconditional or conditional consent. If the latter, it might consent subject to conditions to which the buyer could reasonably object, entitling it to rescind, without loss of its deposit or it could consent subject to conditions to which the buyer could not reasonably object, disentitling it from rescinding without such loss. Any reasonable conditional consent would always precede the execution by the landlord of a formal written licence, which would await satisfaction of the landlord’s conditions. Standard condition 8.3.4(b), therefore, contemplated – indeed provided – that consent preventing either party from rescinding might be conditional and, if so, would necessarily precede the execution by the landlord of a formal written licence.
- In my view, the effect of standard condition 8.3.1, in its use of the words “if a consent to assign … is required to complete the contract” is, as a matter of construction, a plain reference to what is required by the clause 4.18.3 of the lease, namely “prior written consent”. Cf. Bickel v. Courtenay Investments (Nominees) Limited  1 All ER 657, per Warner J.. It is not, however, a reference confining the prior written consent to an unconditional consent or to consent by deed or other formal document, or to consent accompanied by documentation duly executed by the buyer which the landlord has required under clause 4.18.4 of the lease. Nor is it a reference, in the case of conditional consent, to fulfilment of the conditions by completion date. I deal briefly with each of those possibilities:
i) Unconditional consent - As the history of the matter that I have outlined shows, the landlord’s consent – putting aside for the moment the need for it to be in writing – was conditional, as was plainly within the contemplation of standard conditions 8.3.2(b) and 8.3.4(b).
ii) Formal licence by deed - Although the landlord and the seller and buyer envisaged the completion and exchange by completion date of a formal licence by deed, the lease did not require it and, therefore, nor did the contract.
iii) Provision to the landlord of an authorised guarantee agreement and deeds of covenant and guarantee – As I have indicated, clause 4.18.4 of the lease entitled the landlord to “withhold consent” in the event of non provision of such documentation. The landlord reasonably required such documentation and clauses 4 and 5 of the contract required the buyer to provide it, giving the seller, if it did not rescind the contract, the right to recover interest and outgoings in respect of any late completion resulting from the buyer’s delay in doing so. Whether this is regarded as a “withholding of consent” or conditional consent, the seller in this case has not exercised its general right to rescind under standard condition 7.2. And the buyer, if it had been in default under these provisions, could only have done so by sacrificing its deposit. But the buyer is not in such default and clauses 4 and 5 of the agreement give it no right to rescind; it is left to such entitlement as standard condition 8.3.4 provides. It appears to be suggested by paragraph 5 of the grounds of appeal that consent in that condition means both written consent and the provision of such documents by the buyer. But it would be an absurd construction to permit the buyer to deprive a landlord’s written consent of the characteristic of “consent” for the purpose of standard condition 8.3.4 on the strength of its own failure to provide the documentation, so as to entitle it to rescind without loss of its deposit. In my view any rescission by the buyer on such a basis could not satisfy the terms of standard condition 8.3.4
iv) Non-fulfilment of conditions -For similar reasons, prior written consent subject to any other conditions imposed by the landlord (for example, as here, the requirement of a rent deposit deed and confirmation of the conformity of the seller’s and buyer’s respective execution clauses with the law of their country of incorporation), the reasonableness of which is not in dispute, may be consent within standard condition 8.3 even though all or some of the conditions have not been formally fulfilled by the contractual completion date. It is important to remember that the landlord is a third party, albeit a highly interested one, to the transaction. What is in issue for the purpose of standard condition 8.3.4 is whether it has given consent, which may be unconditional or conditional. Failure by the buyer to comply with a reasonably imposed condition as to consent does not negative the conditional consent so as to entitle it to seek rescission under standard condition 8.3.4(a) for want of it. In any event, the issue is academic in this appeal since the buyer complied by 30th September with all the landlord’s conditions or requirements save as to its solicitors’ late request for confirmation of the legality of the buyer’s form of execution of the deeds.
In short, clearly indicated consent by correspondence subject to conditions agreed but not necessarily fulfilled by completion date can amount to “consent” under standard condition 8.3.
(ii) Consent – whether, how and when given
- The buyer’s case is that there was no document constituting clear and unequivocal consent, only letters from the landlord’s solicitors indicating “consent in principle” or “subject to licence” or enclosing documents for execution. The seller’s case is that such letters in the circumstances amounted to consent despite those formulaic qualifications. The Deputy Judge appears to have regarded letters from the landlord’s solicitors’ so qualified as not constituting consent, including their letter of 21st September. On the other hand, he seems to have accepted that the landlord’s solicitors’ letter of 27th September - which not so qualified - enclosing documents for execution, along with the history of the matter up to then, as sufficient to indicate consent. In a passage immediately following his ruling that the contract did not require consent to be in writing, he said:
“It is clear to me that by 27th September Stephenson Harwood, on behalf of the Landlord, had indeed consented within the terms of Standard Condition 8.3.4 in all the circumstances of this case, in particular, by sending out the Licence to Assign to Aubergine for their signature and then sending that Licence to the Landlords for signature.”
- The seller supports the Deputy Judge’s decision and, in a respondent’s notice, advances as an additional ground for doing so, that the landlord’s solicitors’ letter of 21st September, indicating consent “in principle” and subject to the four unobjectionable conditions that I have highlighted in it, constituted the requisite consent. Given the generality or ambiguity of the Deputy Judge’s finding, the seller also contends that the landlord’s solicitors’ letter of 27th September enclosing documents for execution, in its context, also amounted to written consent.
- Putting aside for the moment the period within which the contract required the landlord to give its written consent to assign so as to deprive either party of the right to rescission, any consent drawn from the correspondence should, when construed in the light of the surrounding circumstances:
i) record consent as required by the contract;
ii) be unconditional or subject only to reasonable conditions; and.
iii) be unequivocal.
The first and second of those criteria should cause no difficulty if I am right in my view that the contract, in standard condition 8.3, incorporates the lease’s requirement that the consent should be in writing and that it may be conditional. It is the third criterion, as to the unequivocal nature of the consent, that requires attention.
- Miss. Weaver submitted that there are no documents containing unequivocal consent. In particular, she submitted that the letters from the landlord’s solicitors of 1st and. 21st September, each headed “SUBJECT TO LICENCE” and referring to consent “in principle”, and their letter of 27th September enclosing documents for execution did not constitute a written consent.
- Whilst Mr. Pryor wrongly challenged, for the reasons I have indicated, precise cross-referencing of the contract and the lease for the purpose of determining whether the contract required the consent to be in writing, he agreed that the contractual obligations should be construed in the context of the lease. As I have mentioned, he submitted that that necessarily included section 1(3) of the Landlord and Tenant Act 1988. That provision imposes a primary duty on a landlord to consent to an assignment within a reasonable time after request unless it is reasonable not to consent, and only subject to such conditions as are reasonable, and a secondary duty to identify any conditions or reasons for withholding consent. It is for the landlord to prove that it has acted reasonably in any of those respects. The effect of those provisions, he rightly submitted, is that the primary duty of the landlord is to consent and to do so within a reasonable time. More ambitiously, he suggested that if the landlord has not, within a reasonable time provided a valid reason for refusal or suggested conditions to which the purchaser is not reasonably entitled to object, it is to be treated for all purposes, including as between seller and buyer, as having consented to an assignment. He referred to the following passages in the judgment of Sir Richard Scott V-C in Norwich Union Life Insurance Society v. Shopmoor Limited  1 WLR 531 at 544 and 545:
“The Act creates a statutory duty requiring landlords to attend promptly to applications for consent to assignments, or underletting or parting with possession of premises comprised in a tenancy where there is a covenant not to do those things without consent.
…. It has done so by necessary implication, although not explicitly. The landlord has a statutory duty to the tenant within a reasonable time to give consent, except in a case where it is reasonable not to give consent. In judging whether it is reasonable not to give consent, the position must, in my view, be tested by reference to the state of affairs at the expiry of the reasonable time. If, at that time, the landlord has raised no point and there is no point outstanding which could constitute a reasonable ground for refusal of consent, then it seems to me to me that the landlord’s duty is positively, as expressed by section 1(3), to give consent. The question whether the case is one “Where it is reasonable not to give consent” ought, in my judgment, to be tested by reference to the point at which the reasonable time for dealing with the application has expired. If at that time it cannot be shown that it is reasonable for the landlord not to give consent, then the statutory duty of the landlord is to give consent, the court can so declare and the tenant can, in my judgment proceed on the footing that the assignment in question would not constitute breach of a covenant not to assign without consent”
He added, in a reference to a passage in a judgment of Judge Paul Baker, QC in 1984 in City Hotels Group Ltd.. v. Total Property Investments Ltd.  1 EGLR 253, at 257, almost anticipatory of section 1(3) of the 1988 Act:
“… a similar statement now made would, in my judgment, be a correct statement of the law. … It would enable there to be fair and sensible dealing between landlords and tenants. It would enable a state of certainty to be achieved at the earliest possible moment. There seems to me to be no reason of convenience why the ability of the landlord to still keep in doubt the entitlement of the tenant to assign should survive any longer than the reasonable time which landlord may need for considering the tenant’s application for consent.”
See also Footwear Corporation Limited v.Amplight Properties Limited  1 WLR 551, per Neuberger J.
- Mr. Pryor submitted that the result of the 1988 Act is that there is no need for this landlord to have given consent, written or otherwise. He maintained that its failure to comply with its statutory duties within a reasonable time, and the burden of proof resting on it, negated the need for consent. There was no prospect, he said, of the landlord successfully forfeiting the lease in the circumstances here. The landlord had made clear in the correspondence that it consented subject only to unobjectionable conditions and had agreed to the wording of all the necessary documents. There was no proper basis on which it could object, certainly at any stage after its letter of 21st September, to the assignment taking place.
- Miss. Weaver maintained, however, that the 1988 Act is an irrelevant consideration as between seller and buyer, citing the judgment of Warner J. in Bickel v. Courtney Investments (Nominees) Ltd., at 660h-661b. She said that all the 1988 Act does is impose a duty on the landlord vis-a-vis the seller/tenant, breach of which sounds in damages but does not affect the contract of assignment. Whilst that authority pre-dated the 1988 Act, related to a different contractual provision and did not concern the issue of what constituted consent, its central reasoning seems to me to be equally applicable today and in the context of the standard conditions governing this contract. Section 1(3) imposes duties on landlords to, among others, tenants seeking to assign tenancies; it does not impose duties on landlords to proposed assignees and it does not introduce, expressly or impliedly, any terms in the contracts of assignment so as to remove the requirement of consent as between them in the circumstances defined, any more than did the suggested interpretation to like effect of the contract in Bickel. Parties to an assignment of a lease require certainty as between themselves as to the legal consequences of concluding their transaction, in particular as to the quality of title. It is true that that may be achievable in the end by recourse to litigation against an unreasonably recalcitrant landlord or against each other. But the purpose of a well-drawn contract of assignment is to achieve as near certainty as possible in the act of completion and without resort to the burden of uncommerical and time-consuming litigation whether as between assignor and assignee or by one or both of them against a third party, the landlord.
- Mr Pryor’s submission that the effect of section 1(3) of the 1988 Act may in the circumstances specified negate the need for consent comes close to suggesting that, on that account, it may disentitle either party from rescinding a contract of assignment under and subject to the consequences provided by a provision such as standard condition 8.3.4. To so regard it would, in my view, overstate its effect. And where, as here, the contract itself provides that either party may, in a certain circumstance, rescind for want of consent or the imposition of unreasonable conditions, the Act would, in any event, add little to their respective contractual entitlement to rescind. But negation of the contractual requirement of consent is not the issue in this appeal. The seller’s contentions are not that, in the circumstances, consent became unnecessary. Its case is that the landlord granted consent or that it and the parties agreed that the matter could proceed to completion before tying up all the formalities.
- However, as Mr. Pryor submitted, it would be artificial to consider questions of what consent was necessary and what and when it was given outside the context of the statutory code governing a landlord’s duty to consent and the reality of the position as all three parties must have understood it.
- In my view, the landlord’s solicitors’ heading of a number of their letters “Subject to Licence”, coupled with a statement of conditions, did not qualify the plain indication of consent in the body of the letters so as to make it equivocal or uncertain. This follows from the reasoning of the Court of Appeal in Mount Eden Land Limited v. Prudential Assurance Company Limited (1997) 74 P&CR 377, CA, albeit in a different context. In that case the issue was whether a letter so headed, coupled with a condition that a landlord should give a “formal licence” to a tenant to make structural alterations, was unequivocal or complete, so as to amount to written consent as required under the leases between them Morritt LJ, with whom Sir John Balcombe and Beldam LJ agreed, held that the words “subject to licence” between landlord and tenant were not to be equated with the words “subject to contract” between contracting parties or “subject to details” in a maritime context. He said, at 382:
“I do not accept that it is legitimate to extend the principle … from the field of bilateral negotiations to that of a unilateral act. … In cases requiring a unilateral act the only question is whether that act occurred.
… In truth the heading “subject to licence” added little to the condition expressed in the body of the letter and could not qualify the unambiguous expression of consent it contained. If it be necessary to attribute some meaning to the heading then it might serve to emphasise the degree of formality required so that the express condition for a formal licence should not be satisfied in correspondence or by some less formal method than a licence strictly so-called. But no such document was required by the terms of the leases. …”
- I consider that the same reasoning applies to the qualification “in principle” added by the landlord’s solicitors in their letters of 26th August, 1st,, 21st and 30th September and the addition in the last of those letters of the words “and subject to the completion of the Licence”. Such qualification or reservation in the context of the correspondence moving towards completion of this transaction did not mean that the landlord was advancing any reasonable ground for refusing consent. Nor could it legitimately have had effect to make to consent subject to grant by the execution of a deed, since the lease did not require that. This is a very different qualification from that considered by Harman J in Venetian Glass Gallery Ltd. v. Next Properties Ltd.  2 EGLR 42, which appears to have led the Deputy Judge to disregard the landlord’s solicitors’ letter of 21st September and earlier letters as written consent. It can only relate to the four conditions imposed by the landlord, all of which are agreed to have been unobjectionable, three of which were satisfied by the buyer and the fourth was capable of being satisfied. As Mr. Pryor put it, the landlord by now already knew all that he needed to know about the buyer.
- Looked at in that way, the landlord’s solicitors’ letter of 21st September constituted clear consent in writing, and one that was well outside the three working days before completion date, whether it was the contractual completion date of 30th September specified in special condition 8.3.4 or some later date. All that remained to be done was compliance by the buyer with the non-objectionable conditions and formal execution of the consent and accompanying documents.
(iii) The completion date
- This issue is only of importance if I am wrong in finding that the landlord’s solicitors’ letter of 21st September constituted written consent. If it did not do so, Mr. Pryor invited the Court to find that their letter to the buyer’s solicitors of 27th September did. As I have indicated, it enclosed an engrossment of the licence to assign for the buyers to execute referred to some of the unobjectionable conditions and did not include any qualifying expressions such as “subject to licence” or consent “in principle”. By this stage, as Mr. Pryor submitted, the landlord would probably have been in breach of section 1(3) of the 1988 Act if it had sought to impose any further conditions. There can be no doubt that a reasonable time had expired since the seller’s solicitor’s first application for consent by his letter of 12th August drawing attention to the contractual completion date of 30th September. However, if that is the date, three working days before which consent had to be given to deprive the buyer of his right to rescind without loss of his deposit under standard condition 8.3.4, the letter of 27th September, standing on its own, came too late to assist the seller. 30th September was a Thursday, so, on the face of it, the right to rescind arose when consent had not been given by close of business on the previous Friday, 24th September.
- On the Deputy Judge’s ruling, for which Mr. Pryor contends, a correct construction of standard condition 8.3.4, gave either party a right to rescind after the inception of the three working days before the contractual completion date and onwards until actual completion, so long as consent had not been given, but that if consent was given at any time during the period before actual completion without prior rescission, the right to rescission was lost. The Deputy Judge’s ruling, which went with his finding that the landlord had given his consent by 27 or 28th September, was as follows:
“… I do not consider that it would be correct that the 30th September be treated as the date for completion for the purpose of Standard Condition 8.3.4. At least by the 27th September … the parties had agreed that the actual date for completion was almost certainly going to be at the later stage, probably several days after that, and I do not consider that Standard Condition 8.3.4 should be interpreted so that it means only the contractual date for completion, and not the date for completion as all parties agreed would be the case (i.e. some several days thereafter). It will be wholly unrealistic if Special Condition 8.3.4 was to apply to a date which all parties by then were accepting would not be achieved. I do not consider the fact that 30th September should still remain the completion date for purposes of interest and notices to complete would alter this position.”
- Miss. Weaver submitted that the completion date mentioned in standard condition 8.3.4 was the contractual completion date of 30th September, not some extension of it to which, as that date drew near, the parties may have accepted as inevitable. She contended that the condition entitled either party to rescind if the landlord’s consent had not been given three working days before that contractual completion date. She submitted that, by 24th September, there had been no written consent as required by the contract, that nothing happened thereafter to affect the buyer’s right to rescind and that its reason for doing so was immaterial.
- Miss. Weaver suggested that the Deputy Judge confused an agreement to vary the contract to substitute a new completion date, of which there was no evidence, with the common situation where parties envisage that completion may not take place on the contractual completion date, thereby exposing the buyer, if guilty of delay, to interest charges and payment of property outgoings under clause 5 and standard condition 6.8 of the contract. She added that any such variation would have had to be in writing because of section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 and that the Deputy Judge’s approach would introduce uncertainty and unfairness since it would oblige the buyer to pay the purchase price or risk a notice to complete and the imposition of interest charges and property obligations at a time when it could not be sure that it would receive good title. The purpose of standard condition 8.3.4, she submitted was to avoid delay and litigation.
- Mr. Pryor did not contend that there had been a variation of the contract to vary the completion date. However, he maintained that the Deputy Judge’s findings as a whole on this aspect are consistent with the evidence that there came a time when the parties understood that completion would take place after 30th September. His submission was that the period for possible consent, in the absence of prior rescission, was capable of extending into and beyond the three day period before the contractual completion date. Similarly, he maintained that the buyer’s obligation to provide information and references under standard condition 8.3.2(b) did not cease three days before that date, but continued until completion or until such time as the contract was rescinded. He maintained that the effect of standard condition 8.3.4 could not be that where a landlord consents after the start of the three day period either party may subsequently rescind on the basis that the landlord, although he has by then consented, has not done so in time. He said that the purpose of the condition is to protect either party from becoming bound into a contract to which the landlord has not consented, not to erect an arbitrary time limit within which he must consent and after which one of the parties may stay its hand to the last minute and then rescind despite the existence of consent. In short, he submitted that all standard condition 8.3.4 does is provide a brief pre-completion period in which the right to rescind can be exercised provided that the consent has not previously been given.
- I have found this a difficult issue, but in the end have concluded that Miss. Weaver’s construction of the timing imposed by standard condition 8.3.4 is correct. The purpose of the provision is to provide a contractual and readily identifiable time limit within which the seller must, with the co-operation of the buyer, procure the landlord’s consent in order to enable each to comply with its obligation to complete on the contractual completion date. Both parties know exactly where they stand if, as they approach that date, consent has yet to be given and if, for one reason or another, either party no longer considers it in its commercial or other interest to proceed with the matter. It is in the interest of both parties that they should have an incentive to facilitate the grant of consent in good time within the contractual timetable and, failing it, to notify the other promptly if it intends to rescind. Accordingly, in my view, such written consent as may be gleaned from the landlord’s solicitors of 27th September would have been too late to deprive the buyer of the return of its deposit on the exercise on 30th September of its right to rescission.
(iv) Agreement to proceed without consent
- The issue as to whether the parties agreed to completion without written consent on the understanding that the landlord had also so agreed, only arises if contrary to my view, neither of the landlord’s solicitors letters of 21st and 27th September amounted to written consent.
- As I have indicated, this issue turned on the correspondence passing between all three parties’ solicitors between 28th September and 1st October and the content of telephone conversations at about that time between Miss Steele and Mrs. Brandes and between Mrs. Brandes and Mr. Jefferson. It will be remembered that the Deputy Judge rejected the evidence of Mrs. Brandes that her letter to Mr. Jefferson of 28th September gave an incorrect impression of her understanding of a telephone discussion with Miss Steele.
- Miss. Weaver challenged his finding that Mrs Brandes and Miss Steele had agreed that the matter could proceed without consent but on the basis that it had been given. She suggested that in substance it rested only on the terms of Mrs. Brandes’ letter to Mr. Jefferson of 28th September. First, such agreement could only have been given in a telephone conversation between Mrs. Brandes and Miss Steele, and there was no evidence of such a conversation. Second, if there had been such an agreement, there would have been no need for Mrs Brandes to chase Miss Steele for a response, as she did in her letter of 29th September. Third, if consent or the confirmation sought by Mrs Brandes had been given, Mrs Brandes, who on her own evidence was pushing for completion, could have been expected to record it in a letter to the seller’s solicitor, but there was no such letter. Fourth, if consent had been given, there is no sensible explanation for the landlord’s solicitors’ letter of 30th September 1999, which makes no reference to any earlier agreement or consent or any earlier telephone conversation. And, fifth, the Deputy Judge had misunderstood some of Mrs Brandes’ evidence.
- Mr. Pryor defended the Deputy Judge’s finding, principally on the grounds that he had had the benefit seeing and hearing Miss Brandes give her evidence, which, he said, was inconsistent with her contemporaneous letter of 28th September 1999 to Mr Jefferson. As to Miss. Weaver’s first point, that there was no evidence of a conversation between Miss Brandes and Miss Steele on this point, he suggested that, at best, Mrs. Brandes’ evidence was confused, but was in any event contrary to her letter to Miss Steele of 28th September. He maintained that Miss Brandes’ letter to Mr Jefferson of 28th September and her letters to Miss Steele of 29th September and to Mr Jefferson of 1st October were consistent with her having sought written confirmation of Miss Steele’s telephoned confirmation. As to Miss Steele’s letter to Mrs. Brandes of 30th September headed “SUBJECT TO LICENCE”, he maintained, as the Deputy Judge held, that it was not inconsistent with Miss Steele having previously orally confirmed the landlord’s consent, but rather an over cautious insistence by a relatively inexperienced solicitor on observance of the proper mechanisms before grant of the formal licence. As to the Deputy Judge’s possible misunderstanding of Mrs. Brandes’ evidence, he maintained that it was insufficient to overturn his overall finding on this point.
- In my view, there is force in Miss. Weaver’s argument that there was no proper evidential basis on which the Deputy Judge could reject Mrs. Brandes’ uncontradicted evidence that her conversation with Miss Steele amounted to an expression of willingness to advise, and take instructions from, her client, rather than a firm assurance that the matter could proceed without tying up all the formalities of consent. Mrs. Brandes’ evidence seems to me more consistent with the related correspondence to which I have referred than the view taken by the Deputy Judge. I am conscious that he saw and heard her give evidence and that this Court should be cautious before differing from him on a matter of fact such as this. Nevertheless, taking the correspondence on the matter as a whole, and having read the transcript of her evidence, I believe that he has made too much of the apparent difference between her letter to Mr Jefferson of 28th September and her account of what Miss Steele said she was prepared to do, for which she would necessarily have to take instructions, and what her clients instructed her to do, a matter on which, as Miss Steele made plain in her letter to Mrs. Brandes of 30th September, she could give no reassurance.
- Accordingly, if I am incorrect in finding that the landlord gave written consent, I could not uphold the Deputy Judge’s finding that the landlord agreed that the parties could proceed without it. In reaching that conclusion, I have followed the submissions of counsel in concentrating on what Miss Steele did or didn’t say on behalf of the landlord. However, what matters, as between buyer and seller, is their understanding of the position as they worked towards completion in the last few days of September.
- On this appeal the seller relies on Mrs. Brandes’ letter to Mr Jefferson of 28th September as an unqualified representation to the effect that the buyer was satisfied that the landlord had consented to assign, that it would proceed on the basis indicated and did not object to the conditions and that the buyer would not argue that the landlord’s consent had not been obtained and/or attempt to rescind on that basis. However, Mr Jefferson was clearly put on notice as to the uncertainty of the position by a copy of Mrs. Brandes’ letter to Miss Steele of 29th September seeking reassurance. Events were moving so fast by then and the completion date so close that, in my view, there is insufficient evidence upon which any court could conclude that the parties had agreed, in the knowledge of the landlord’s true position, to proceed without written consent as required by the contract between them.
(v) Buyer’s breach of contract
- This issue only arises if, contrary to my view, written consent was not given in time so as to deprive the buyer, unless in default, of the right to rescind without loss of its deposit. That is because the only candidate for breach of contract on the part of the buyer is that under standard condition 8.3.2(b) for its non-provision to the landlord’s solicitors of confirmation of the conformity of the buyer’s execution clause with the law of its incorporation. The landlord’s solicitors first requested this information from the buyer’s solicitor by their letter of 27th September. The Deputy Judge said that:
“[a] further obstacle to the exercise of the right to rescind under Standard Condition 8.3.4 is that Aubergine was not entitled to exercise their rights if it were in breach of its obligations under Condition 8.3.2(b) that is to say had not provided all information and references reasonably required. On 27th September Stephenson Harwood had asked Mrs. Brandes to confirm ‘that the execution clause which has been provided in the Deed is sufficient under BVI law and is in accordance with the Company’s Constitution’. I have no doubt that this was information which the Landlord reasonably required. That information was not forthcoming and indeed has never been given. …”
- Miss. Weaver’s stance on this conclusion was simply that there was no basis for it if, as she contended and as I have now ruled, back calculation to last available date for rescission under standard condition 8.3.4 ran from the contractual completion date of 30th September, not some later date then expected by the parties. On her approach and my ruling, any right of the buyer to rescind without losing its deposit could only have arisen after close of business on 24th September, at which time it could not have been in breach on this aspect under standard condition 8.3.2(b), since the landlord’s solicitors’ had yet to request the information. She submitted that on any showing the request was too late to put the buyer in breach and that, in any event, there was no causal link between the buyer’s failure to provide the information and any refusal of consent.
- Mr. Pryor argued, albeit softly, that, at the completion date, the buyer, having failed to comply to comply with the landlord’s reasonable request for this information, was, for that reason, not entitled to rescind the contract. Quite apart from Miss. Weaver’s main point as to timing, which, on my ruling on that issue, is fatal to this argument of the seller, I do not see how the buyer’s inability to supply this information requested of it for the first time on 27th September could conceivably amount a breach of standard condition 8.3.2 in the two or three days before the buyer’s rescission on 30th September. But, on my view that consent had already given by the date of the request, it was too late anyway.
- (vi) Waiver/estoppel
- This issue only arises if there was no consent by 27th/28th September and if 30th September was not the relevant date for back-calculation of the three days notice of rescission under standard condition 8.3.4. The Deputy Judge said that in those events he would have held that the conduct of both the seller and the buyer, but in particular the buyer, in the last two or three days of September amounted to a waiver of the right to rescind and/or an affirmation of the contract.
“28(3) … Mrs. Brandes never … suggested, until she sent her letter dated 30th September (and faxed the next day) purporting to rescind the contract, that there had been no consent in that the absence of any executed licence would be any obstacle to completion. Both parties proceeded on the basis that actual completion would take place probably a few days after 30th September, and on the basis that the Landlord had no possible reason for refusing to consent to the assignment and was not going to do so, and he’d indeed consented.
33. … between 27th September and 30th September, both parties did everything possible to show that they intended to complete the contract in accordance with the terms either on 30th September (which was by then highly unlikely) or a few days thereafter. I do not consider that Aubergine is entitled to act, both with regard to the Landlord and with regard to Lakewood, as if the conveyance would take place, albeit a few days subsequent to 30th September, and to seek extensions of time and to do everything to complete the documentation, but then, if it suited it, to turn round and purport to rescind the contract when in fact it was not in a position to complete the conveyance as it did not have the necessary finance. If there had been a right to rescind, such right would have to be exercised very promptly and without affirming the contract.
34. …. It was perfectly clear that … no positive reason had ever been raised such as would justify withdrawing consent (other than matters within Aubergine’s control) and I have no doubt that if Aubergine had insisted on an executed document and had done all that it had to do, such a document would have been forthcoming on 30th September … or in any event before the then anticipated date when Aubergine would have been in a position to complete. Any withdrawal of consent at that time would have been wholly unjustifiable, as all well knew, and would simply expose the Landlords to an action by Lakewood for declarations and damages under Section 1 of the Law of Property Act 1988, to which they would have no possible defence. …”
He added, as I have already indicated, that the landlords’ solicitors’ subsequent apparent qualification of their client’s consent went to matters of documentation and machinery of completion, not the withdrawal of consent. He also said that the landlord’s solicitors’ heading of their letter to the buyer’s solicitors of 30th September “SUBJECT TO LICENCE” could not undo the consent already given.
- Miss. Weaver submitted that the Deputy Judge’s ruling that the buyer had waived its right to rescind or had affirmed the contract was wrong in law and was not supported by the evidence taken as a whole. She claimed that he was clearly influenced by the fact that the buyer’s motive for exercising its right to rescind was that it did not have the money to complete and his perception that the right operated harshly against the seller in such circumstance. She said that he was wrong to be so influenced since the purpose of special condition 8.3.4 was for the mutual benefit of the parties in providing certainty. They could have modified it to provide that neither party could rescind while consent was likely to be forthcoming, but they did not do so. In the event, each remained entitled to exercise its contractual rights to suit its own commercial interests. The fact that the bargain turned out badly for the seller because it could not obtain the landlord’s consent in time (partly as a result of the time lost over Miss Steele’s initial delays and her dogged pursuit of a solicitor’s undertaking to cover her costs) was not a reason to deprive the buyer of its contractual right to rescind.
- Miss. Weaver submitted that, in any event, the Deputy Judge had mistakenly referred to affirmation as if it were an alternative when the only case put at trial, and on this appeal, was on the basis of estoppel. She submitted that, for the seller to succeed, it had to show two things: first, that the buyer had unequivocally represented that it would not rescind the contract under standard condition 8.3.4 because of the absence of a formal licence to assign; and, second, that the seller had relied on that representation in such a way as to make it inequitable for the buyer then to rescind, at least without giving prior notice to the seller.
- As to the existence of any such representation, Mrs Weaver submitted that there was no evidence of it. The facts that the buyer’s solicitors were working towards completion of the contract and were not asserting that the absence of a formal licence to assign was an obstacle could not, on their own, amount to a representation that the buyer would not change its mind and rescind regardless of any change of mind by the landlord. At the highest they were an indication of the buyer’s then intention to complete. As to reliance, she submitted that the evidence overall showed that the seller did not rely, or act to its detriment in reliance, on any representation by the buyer. In particular, she criticised the Deputy Judge’s reasoning that, if the buyer’s solicitor had expressed concern about the lack of a formal licence before completion, the seller would no doubt have taken steps to expedite it. Her argument was that the buyer had no duty to warn the seller that it might rescind so as to give the seller an opportunity to “get its tackle in order”. And, as to detriment, she submitted there was none – for example, no evidence that the landlord would have produced an executed licence by 30th September even if pressed to do so by the seller’s solicitor. As she put it, the right to rescind having arisen, there was nothing more that the seller or its solicitor could do; they were dependent on the landlord agreeing that completion could proceed on the basis proposed by the buyer’s solicitors.
- As to affirmation, Miss. Weaver submitted that, on the evidence, there was no affirmation by either party in the sense of an abandonment of one of two alternative rights or remedies. She maintained that the right to rescind arose when the landlord’s consent had not been given by the due date, which in accordance with her main submission, she said was 24th September. She said that though neither party exercised the right immediately and both continued to make arrangements for completion, such conduct could not reasonably be construed as an abandonment by either of its right to rescind.
- It is common ground that waiver/estoppel is available where variation of contract in accordance with section 2(1) of the 1989 Act cannot be established See Yaxley v. Gotts  3 WLR 1217. To establish an estoppel: 1) the buyer would have to have made an unambiguous promise or assurance intended to affect its contractual relationship with the seller; 2) the seller would have had to act on that assurance by altering its position before the assurance was withdrawn; and 3) the buyer should not be permitted to act inconsistently with its assurance.
- Mr. Pryor submitted that all three requirements were met. He said that the key to the seller’s case in this respect was Mrs. Brandes’ letter to Mr Jefferson of 28th September as an unqualified representation to the effect that the buyer was satisfied that the landlord had agreed to their proceeding without its formal consent, that it would proceed on the basis indicated and that it would not argue that the landlord’s consent had not been obtained and/or attempt to rescind on that basis. He added that such an approach was consistent with, and an adjunct to, the Deputy Judge’s finding that the parties, by this stage, envisaged that completion was likely to take place later than 30th September, and urged this Court to uphold that finding.
- Mr Pryor accepted that the buyer’s solicitors’ conduct did not give rise to a finally binding estoppel, since they could have withdrawn their representation by giving notice that they were no longer satisfied that consent had been obtained. But they did not do that. Instead, they continued the representation by conveying the impression to the seller’s solicitor that they expected to comply with the conditions as to consent - in particular by Mrs. Brandes’ letter to Miss Steele of 29th September, copied to Mr Jefferson, and her first letter him of 30th September. In the meantime, the landlord’s solicitors, by Miss Steele’s letter of 30th September to Mrs Brandes, continued to insist on compliance with the landlord's unobjectionable conditions to which the buyer had previously agreed.
- Mr. Pryor argued that, given the buyer’s solicitors’ continuance, in that way, of their representation that they were content as to the mechanics of consent, the buyer owed a duty to the seller to notify it of its withdrawal of that representation before exercising its right to rescind. He maintained too that the Deputy Judge correctly found on the evidence of Mr. Jefferson that he, as the seller’s solicitor, relied upon that representation and that, if alerted to the possibility of the buyer seeking to rescind, could have taken urgent steps to expedite the mechanics of the landlord’s execution of the formal documents. Insofar as such mechanics lay ultimately within the control of the landlord, not the seller’s solicitor, the Deputy Judge’s finding on this issue appears to be that if the buyer’s solicitors had given some reasonable notice of their change of tack, the seller’s solicitor would and could have done something about bringing the formalities of the grant of consent to a speedy conclusion.
- In my view, assuming for the purpose that the landlord had not given its written consent to the assignment before the buyer’s rescission on 30th September, there is no firm basis to justify the Deputy Judge’s finding of waiver or estoppel. It is true that, in certain circumstances, passivity may constitute a sufficiently clear representation for the purpose, but that cannot be said here. The fact that both the buyer’s and seller’s solicitors were, at the end of September 1999, working towards completion under a contract which entitled either to rescind before completion subject to certain consequences does not amount to a representation on the part of the buyer that it would not have recourse to that entitlement if, for one reason or another, it suited its commercial interests to do so. The reality, of course, was that their working towards completion was more consistent with their belief that they had effective consent than a representation by the buyer that it had waived its right to rescind in the absence of formally executed consent. In my view, there was not the beginning of an evidential case to support the seller’s reliance on waiver/estoppel or, a fortiori, affirmation.
- However, for the reasons I have given I would dismiss the appeal on the basis that the buyer was not entitled to rescind without loss of its deposit when it did. That is because the seller obtained the written consent of the landlord to assignment of the lease in the form of its solicitors’ letter of 21st September, namely well before the start of the three day period before completion specified in standard condition 8.3.4.
Lord Justice Ward :
- I have had the advantage of reading in draft the judgments of Auld and Robert Walker L.JJ. They conclude that the appeal must be dismissed because the letter of 21st September was sufficient written consent to the assignment to disentitle the buyer rescinding the agreement as it claimed to be entitled to do. I apprehend that but for that conclusion, my Lords would have allowed the appeal.
- I agree with my Lords that “the consent” which “has not been given” and which is the trigger to the right to rescind given in condition 8.3.4(a) of the Standard Conditions of Sale is the landlord’s consent to assign “required to complete the contract”. The consent upon which completion depends is such consent as is required under the lease for the assignment and for good title to be given to the buyer. One looks, therefore, to the terms of the lease to ascertain whether or not consent has been given.
- Among the lessee’s covenants the following are material:-
“4.18.3 Not without the prior written consent of the Landlord such consent not to be unreasonably withheld to assign the demised premises as a whole.
4.18.4 Notwithstanding anything contained in these presents the Landlord shall be entitled in its absolute discretion to withhold consent to any proposed assignment of the demised premises in any one or more of the following circumstances:-
(c) an Authorised Guarantee Agreement duly executed and completed by the Tenant ... has not been delivered to the Landlord or
(d) a deed duly executed has not been delivered unconditionally to the Landlord containing (inter alia) a covenant with the Landlord:-
(i) by the proposed Assignee to observe and perform the covenants and conditions on the part of the Tenant contained in these presents from the date of such assignment ...”
- Those clauses establish the need for written consent but also the landlord’s absolute entitlement to withhold consent in certain events. It is clear that when entering into this contract of sale the parties were well aware of the landlord’s absolute discretion and so they provided in clause 4 of the contract of sale that:-
“The buyer shall enter into ... an Authorised Guarantee Agreement and Deed of Covenant in the form set out or referred to in the lease.”
- Those are references back to clause 4.18.4(c) and (d) of the lease. That term was imposed upon the buyer precisely to ensure that it was contractually bound to enter into, execute and deliver up to the landlord the necessary authorised guarantee agreement and deed of covenant accepting the obligations of the lease in the event that the landlord insisted upon it as a pre-condition to giving consent to the assignment.
- It seems to me, therefore, that the consent required to complete the contract is not merely a written consent required by clause 4.18.3 but also such conditional consent as the landlord would be entitled to impose in the exercise of the rights conferred by clause 4.18.4. Conditions in line with those expressly mentioned in clause 4.18.4 operate as conditions precedent in the sense that the consent would only become effective when, and was to be treated as withheld until, the stipulated execution and delivery of the Authorised Guarantee Agreement and Deed of Covenant occurred.
- The Standard Conditions also clearly contemplated a conditional consent being proffered. The buyer was given the right to rescind under condition 8.3.4(b) if “the consent has been given subject to a condition to which the buyer reasonably objects”. Conversely by necessary implication (or as a matter of construction) the buyer is not entitled to rescind if the landlord imposes conditions to which no reasonable objection can be made. In its different context the Landlord and Tenant Act 1988, operating as between landlord and tenant, also caters for conditional consent. Under section 1(3) the landlord’s duty if he is giving consent subject to conditions is to serve written notice specifying those conditions. Under section 1(4) the landlord does not fulfil his statutory duty to give consent if he gives it subject to any condition which is not a reasonable condition, and under section 1(6) it is for the landlord to show that the condition was a reasonable one.
- It seems to me to be necessary in this case to consider:-
i) Was the consent of 21st September conditional or unconditional;
ii) If conditional, what was the effect of those conditions;
iii) Have reasonable conditions been fulfilled in time;
iv) If not, was the conditional consent effective consent?
- I did not understand Mr Pryor, on the seller’s behalf, to dispute that four conditions were prescribed in the letter of 21st September. His submission was that the consent was effective notwithstanding that. The four conditions were:-
i) At least the execution if not also the delivery of the Licence to assign;
ii) A Rent Deposit Deed signed by the buyer and sent to the landlord;
iii) The Authorised Guarantee Agreement to be signed by the seller;
iv) Confirmation that the execution clause in the deeds was sufficient under British Virgin Island law and the buyer’s constitution.
- This letter was expressly headed “SUBJECT TO LICENCE” and the consent was given “in principle”.
- In deciding what effect those conditions had, one must first decide the significance of the reservation that the letter was sent “subject to licence” and that consent was only being given “in principle”. A similar question confronted Harman J. in Venetian Glass Gallery Ltd. v Next Properties Ltd.  2 E.G.L.R. 42. He referred to three cases and said at p.44:-
“All three go to show that there is a distinction recognised by the law between the relationships, such as those between landlord and tenant, where there is an existing set of legal obligations between the parties and there is sought within those obligations a consent, and relations between strangers in law, as between prospective purchaser and prospective vendor, where there is no present tie and the parties are in their negotiations.
I accept that there is such a distinction and I agree that one does not regard the need for a formal licence, probably under seal, as being the essential step without which there can be no effective licence, whereas of course in the case of a contract for the sale of land, apart from the difficulties created by section 40 of the Law of Property Act 1925, if there is no written note or memorandum of the contract, it is plainly the normal expectation of the law that until a normal contract has been signed, either by both parties or in two parts, and exchanged between the parties, there will be no legal relationship.
Nonetheless, accepting that principle, it is still a question, in my view, of construction of the various letters and reading the correspondence as a whole.”
- He concluded that in the context of that case and against the background of all the correspondence, the solicitors’ letter that their clients were prepared “in principle” and “subject to licence” plainly did not amount to a true consent and could not be relied upon as the giving of consent to assign of the residue of the term of the lease of commercial property at a premium.
- I agree with his approach. Here the context is not only the exchange of letters, including the letter from the agents and Stephenson Harwood’s earlier (but equally explicit) letter of 1st September, but also the terms of the lease, especially clause 4.18.4 giving the landlord absolute discretion to withhold consent and the contractual duty of the buyer in clause 4 of the contract of sale to enter into the authorised Guarantee Agreement and the necessary Deed of Covenant. The question is whether or not the letter of 21st September has to be construed as effective consent with the duly executed and delivered document merely being formal records or whether the letter should be construed as a withholding of consent unless and until the formalities had been completed. The context may include the operation of the Landlord and Tenant Act 1988 but for my part I cannot see what difference it makes. To give consent subject to a Deed of Licence containing covenants on the assignee’s part to observe the obligations of the lease is tantamount to withholding consent until the executed lease is delivered. Section 1(5) of the Act provides:-
“For the purposes of this Act it is reasonable for a person not to give consent to a proposed transaction only in a case where, if he withheld consent and the tenant completed the transaction, the tenant would be in breach of a covenant.”
- With this lease drawn as it is, the landlord is entitled to insist upon an executed and delivered Deed of Covenant and Authorised Guarantee Agreement. The imposition of such a condition is entirely reasonable. The tenant would be in breach of his covenant to assign without consent if he assigned without complying with that condition.
- Equal if not more important is the commercial context and background against which this transaction was being conducted. Consent is necessary to complete the contract by giving good title to the assignee. Without being able to show good title, the assignee in a huge commercial transaction of this kind would be unable to raise the necessary finance from a lender as was clearly within the contemplation of the parties to be likely. Thus third party interests are engaged. As between landlord and assignee, the assignee will become beholden to observe and perform the covenants and conditions on the part of the tenant contained in the lease from the date of the assignment. The process involves not just bilateral negotiations but rather trilateral negotiations and it seems to me that it is a far cry from the unilateral act with which this court was concerned in Mount Eden Land Ltd. v Prudential Assurance Co. Ltd. (1977) 74 P. & C.R. 377. The question there was whether the landlord had consented to the alteration of the external appearance of the building. Morritt L.J. held:-
“The purpose of the suspensory condition “subject to contract” in the context of negotiations is to avoid the other side seeking prematurely to conclude a contract by the acceptance of an offer so as to give rise to unintended legal consequences. In cases requiring a unilateral act the only question is whether that act has occurred. So in this case the only question is whether the letter of May 18th, 1993 was a consent as required by the lease. That is a question of the construction of the letter in the light of all of the surrounding circumstances.
So regarded I have no doubt that the letter does express the consent required by the leases. It will be remembered that such consent may be temporary or revocable or qualified. This letter expresses consent in the clearest terms. The consent was qualified by the stipulation for a formal licence as stated in the body of the letter. For that document it would be necessary to have the drawing numbers referred to in the concluding passage. In truth the heading “Subject to Licence” added little to the condition expressed in the body of the letter and could not qualify the unambiguous expression of consent it contained. If it be necessary to attribute some meaning to the heading then it might serve to emphasise the degree of formality required so that the express condition for a formal licence should not be satisfied in correspondence or by some less formal method than licence strictly so called. But no such document was required by the terms of the leases.”
- Whilst it is true that clause 4.18.3 did not require the consent to be given by a formal licence, clause 4.18.4 made it clear that “notwithstanding anything contained in these presents”, the landlord was entitled to withhold consent until duly executed Guarantees and Deeds of Covenant had been delivered. Thus the landlord was entitled to insist on the “suspensory condition “subject to contract”” in order to avoid the assignment taking place prematurely and before its rights had been fully protected.
- For my part I saw the force of Miss Weaver’s submission that there is a difference between giving consent and offering to give consent. She submits that it would be odd in a commercial transaction of this kind if the letter of 21st September (or why not the letter of 1st September?) was to deprive the buyer of a right of rescission yet allow the landlord to forfeit for breach. She invites the court to test the matter in this way: if the letter was good enough consent then the seller could serve notice to complete and the buyer would have to do so. The very next day the landlord would be entitled to complain that it had not received the executed Deed of Covenant (say because the seller had refused to execute it) or because the seller had not provided the Authorised Guarantee Agreement or simply because the landlord had changed its mind. It would be odd, submits Miss Weaver, if the buyer was then required to take on the burden of seeking a declaration that consent was unreasonably withheld. I agree that would be an odd result, and in the circumstances, the wrong result. As a matter of construction I am satisfied that the reservation “subject to licence” and the reference to the consent being “in principle” do have the effect that until the conditions are fulfilled, the consent is held in suspense.
- The third question I posed was whether the conditions had been fulfilled in time. The timetable is important. Completion was fixed for 30th September. Three working days before completion date took one back not to 27th September but to the close of business on Friday 24th September. The landlord’s solicitors did not deliver the licence to assign for execution or the Rent Deposit Deed for signing by the assignees until after the cut off point of 24th September, namely not until Monday 27th. Those documents were delivered by hand on 29th September. The buyer was doing what it contracted to do in paragraph 4 of the contract of sale. It would seem that the seller sent the Authorised Guarantee Agreement later the same day to complete the documentation “for the release of the licence to assign”. The first three conditions imposed by the landlord were not satisfied until after the right to rescind had arisen. The confirmation of the buyer’s legal position as a matter of the law of the British Virgin Islands was never given but I agree with Auld L.J. that the failure to provide that confirmation was not a breach by the buyer under condition 8.3.2 of the Special Conditions so as to deprive the buyer of the right to rescind.
- It follows that as the landlord’s reasonable conditions were not met and as the licence was never executed and delivered in time, there was no effective consent to this assignment given by the letter of 21st September. I would, therefore, allow the appeal. I do so with a measure of diffidence because I am not – thankfully – a conveyancer. I now run the risk of rushing in where angels fear to tread but nevertheless I venture to think that the conclusion at which my Lords have arrived will introduce an undesirable measure of uncertainty in the field of commercial property conveyancing. Commercial lending institutions will not advance the millions of pounds which change hands in transactions of this kind without confidence that the borrower will acquire good title. Solicitors for buyers are advising their clients not to hand over the bankers’ draft in payment of the purchase price without at the same time receiving another piece of paper, the licence, in their other hand. Solicitors would regard themselves as negligent if they did not do so. Duly executed licence deeds constitute a formal and easily recognisable certain record of the giving of consent by the landlord to the tenant and the promise by the assignee to observe and perform the covenants and conditions on the part of the tenant contained in the lease. I cannot but worry that chaos will reign if a letter, perhaps even the agent’s letter, written “subject to licence” giving consent “in principle” but on conditions agreed to be reasonable nonetheless operates as effective consent to assign even before the formalities are concluded and the conditions are unquestionably fulfilled. Mr Jefferson and Ms Brandes are acknowledged to be expert property lawyers. It did not cross the mind of either of them that they could act on the letter of 21st September, or of 1st September for that matter. Quite the contrary. As experienced practitioners of these arcane black skills of commercial property conveyancing they knew it was not safe to complete without a duly executed and delivered licence to assign or at least without the kind of undertaking Ms Brandes tried to wring from Ms Steele. That, I venture to think, would be the standard practice of the whole body of professional opinion. It is not for cowardly avoidance of the risk of their opprobrium that I am loath to say that they have all got it wrong. I think they are right. They, I fear, are more likely to say that we, the Court of Appeal, have got it wildly wrong. Consequently, opportunistic as the buyer may have been in exploiting an adventitious exit from a transaction which may have become burdensome, nevertheless I would allow its appeal.
Lord Justice Robert Walker:
- I agree that this appeal should be dismissed for the reasons set out in the judgment of Auld LJ. But because of the general interest of the appeal I add some observations of my own on the first and second of the six issues identified in paragraph 27 of Auld LJ’s judgment.
- This appeal illustrates the unexpected difficulties which can arise in applying even a simple, standard form condition to a reasonably straightforward conveyancing transaction. It also illustrates the importance of construing the condition in its commercial context. I accept Mr Pryor’s submission that the Landlord and Tenant Act 1988 (“the 1988 Act”) forms a significant part of that context.
- “The consent” referred to in condition 8.3.2(a) and 8.3.4(a) and (b) must in my view refer to the landlord’s written consent, because that is the consent which was required under clause 4.18.3 of the lease dated 29 December 1997. The lease was for a term of 125 years, granted for a premium of £600,000 in extension of an existing lease. It was to be sold for £4.68m. It was a substantial transaction in which the buyer’s solicitors were concerned to ensure that their client obtained a good title. That depended (among other things) on proper documentary proof of the landlord’s consent to the assignment (although as the seller’s solicitor, Mr Jefferson, wrote to the landlord’s solicitors on 27 August 1999, there was no need, apart from recitals, for it to be more than one line long).
- The landlord’s written consent was therefore a simple but indispensable part of the title which was to be passed to the buyer on completion. For that reason the consent is normally embodied in a formal deed which the landlord’s solicitors provide to the seller’s solicitors, and the seller’s solicitors pass to the buyer’s solicitors on completion. The court was told that a licence deed is not normally produced to the Land Registry or noted on the register, but the assignee must keep it for use on any future investigation of title.
- That is part of the commercial context. Another part is that the 1988 Act has provided tenants with overdue relief from the delays and uncertainties which could result from landlords who failed to deal promptly and reasonably with applications for permission to assign. The background to, and the effect of the 1988 Act have been considered by Sir Richard Scott V-C and Neuberger J in cases decided in 1997 and 1998 but reported side by side, Norwich Union Life Insurance Society v Shopmoor Ltd  1 WLR 531 and Footwear Corporation Ltd v Amplight Ltd  1 WLR 551.
- These cases clearly demonstrate that a landlord who is asked to give permission for an assignment is, under section 1(3) of the 1988 Act, under a statutory duty to deal with the application, and to accede to it unless he has good reason not to, and states that reason within whatever period is a reasonable time for considering the application. Auld LJ has set out in paragraph 38 of his judgment the relevant passage (at p.545) from the Vice-Chancellor’s judgment.
- With these contextual points in mind I turn back to condition 8.3.4. When and how is consent ‘given’ for the purposes of that condition? It cannot sensibly be when a formal licence deed is handed over on completion, for reasons fully analysed in paragraph 33 of Auld LJ’s judgment. At any rate since the coming into force of the 1988 Act consent is given, in my view, when the landlord’s decision in principle is communicated to the tenant by the landlord himself, or by the landlord’s solicitors or other agents (no one has suggested that the landlord’s solicitors did not have actual authority to communicate the decision in principle).
- A decision in principle can be a sufficient decision for the purposes of s.1(3) of the 1988 Act, and in my judgment it clearly was in this case. Auld LJ has traced the course of events during August and September 1999, but I shall repeat some salient dates and spell out the background to the landlord’s solicitors’ letter of 21 September. Application was first made (to the landlord’s estate agents) on 12 August. By 1 September the landlord’s solicitors had confirmed their client’s agreement in principle but were seeking to impose a condition which Mr Jefferson regarded (rightly, in my view) as unreasonable. After a week’s delay the solicitors repeated their demand for the condition in a letter dated 10 September.
- That prompted Mr Jefferson’s letter of 13 September. Auld LJ mentions it in paragraph 9 of his judgment but it is perhaps worth setting out its text in full:
“In your letter of the 1st September you say that you have received instructions to act in this matter and [that] your client has agreed to grant the licence to assign. By writing the letter it is implicit that you have accepted those instructions. By your letter of 10 September, it is clear that you are now refusing to carry out your client instructions.
I must put you on notice that, in the event that my clients transaction fails, by reason that the purchaser becomes entitled to withdraw, in the absence of the licence to assign (your client having indicated that there was no reason not to grant of licence), then your client will be liable to mine, in damages which will be, approximately
1 on 1st October 1999 £150,000 in respect of agents and legal fees, which are due;
2 from 1st October, loss of revenues, at the rate, gross, of £40,000 a month;
3 damages for loss of bargain which, at the moment, are not quantifiable.
As you refuse to act for your client, we will deal with them direct. In fact, there is nothing for your firm to do, as the form of all the documents is governed by the terms of the lease.
We should also point out that by reason of your failure to act, there can be no fees due to your firm, which are not more than offset by the additional work which has been done, by necessity, by ourselves and which are also recoverable by virtue of the Landlord and Tenant Act 1988.”
- That robust letter, with its express reference to the 1988 Act, can have left the landlord’s solicitors in no doubt at all about the seller’s position. Replies dated 14 September (from a partner) and 21 September (from the assistant solicitor who had been handling the correspondence) repeated the mantra ‘in principle’ but they could only be understood as giving their client’s consent, subject to conditions (which included the execution of a formal licence deed evidencing the consent). So I agree with Auld LJ’s conclusion that consent was given, for the purposes of condition 8.3.4, by the letter of 21 September 1999.
- That conclusion is in line with the decision of this court in Mount Eden Land Ltd v Prudential Assurance Company Ltd (1996) 74 P&CR 377. In that case the landlord’s agents had confirmed the landlord’s agreement to certain structural works by the tenant in a letter headed ‘subject to licence’. The letter was in plain terms (“I can confirm that the freeholder ... gives consent ...”) except for the ‘subject to licence’ heading and except for three conditions (one being the requirement of a formal licence).
- Morritt LJ (with whom Beldam LJ and Sir John Balcombe agreed) declined to extend the ‘subject to contract’ formula (p.382)
“from the field of bilateral negotiations to that of a unilateral act.”
Consent to the assignment of a lease (as opposed to the carrying out of works by a sitting tenant) has rather more of a multilateral character since the landlord knows that there is a contract (or at least negotiations for one) between the tenant and the proposed assignee, and that if the assignment goes ahead he (the landlord) will have a new tenant. The use of the phrase ‘subject to licence’ is not wholly inapposite since it marks the need for the assignee to have a formal licence as part of his documents of title. But neither ‘subject to licence’ nor ‘in principle’ could, in the circumstances of this case, give the buyer justification for the notice of rescission which its solicitors sought to give on 30 September 1999. I would therefore dismiss this appeal.
Order: As per minute of order.
(Order does not form part of approved judgment).