England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM WORCESTER COUNTY COURT
(His Honour Judge McKenna)

		Royal Courts of Justice Strand London WC2 Friday 30th April, 2001

1. LORD JUSTICE ALDOUS: The applicant, Mr Mahmood, seeks permission to appeal against the order of His Honour Judge McKenna of 30th October 2000 sitting in the Worcester County Court. In that order the judge held that the landlord of the premises at 26 The Cross, Worcester did not give its licence for the assignment of the lease by Mr Mahmood to a Mr Lola.
2. As the judge said in his judgment, the facts leading to the dispute are relatively straightforward and were not in issue.
3. On 26th March 1998 Mr Mahmood and Mr Lola entered into a contract under which Mr Mahmood agreed to assign the lease of 26 The Cross and to transfer the business that had been carried on at the premises to Mr Lola. The consideration for that assignment and the transfer of the business was to be paid partly immediately and partly by instalments by way of postdated cheques. That payment was to be held by Mr Mahmood's solicitors pending completion of the transfer. On 26th March Mr Lola moved into the premises with the licence of Mr Mahmood and began running a fast food business from it.
4. The special conditions attaching to the contract contained a number of conditions relating to the grant of consent to the transfer of the lease. Special condition 8 stated:

"The Special Conditions shall remain full force and effect until such time as a formal Licence is granted by the Landlord to assign the premises to the Purchaser.

...

10. All payments made by the Purchaser to the Vendor in accordance with the special conditions shall be held by the Vendor's solicitors as stakeholder until a Licence to Assign The Lease has been received by the Purchaser from the Landlord. ...

11. This Agreement is conditional upon the Purchaser receiving a Licence to Assign in accordance with Special Condition 10 within 42 days from the date hereof, failing which the Purchaser shall be entitled to rescind this Agreement whereupon the Vendor's solicitors shall forthwith account to the Purchaser for all monies received on behalf of the Vendor in accordance with the Special Conditions.

...

17. Upon receipt of the Licence from the Landlords under Condition 11 the Purchaser's solicitors shall release the sum of £16,500.00 to the Vendor."

5. Efforts were made to obtain the landlords' consent to the proposed assignment of the lease. These involved provision of references and accounts. It seems that by November 1998 the agents then acting for the landlords were content with the information that had been supplied and they wrote to Mr Mahmood's solicitors stating that they had now been instructed by their client's solicitors, Messrs Lee Crowder, to proceed with the documentation in respect of the assignment to Mr Lola. By a letter dated 22nd November Lee Crowder wrote to Mr Mahmood's solicitors enclosing on behalf of their clients a draft licence to assign for approval by Mr Mahmood. The letter noted that the licence incorporated an authorised guarantee agreement on behalf of Mr Lola.
6. The draft licence was between the landlords, the Governors of the School of King Edward VI in Birmingham, and Mr Lola the assignee and Mr Mahmood the tenant. The recitals recited the relevant lease and that the lease contained provisions prohibiting the tenant from assigning the lease without the licence of the landlord. Clause 4 contained a covenant on behalf of the tenant to comply with the authorised guarantee agreement set out in the schedule. Clause 4.2 required the tenant to pay the landlord on demand and indemnify the landlord against all costs, charges, fees, disbursements and expenses, including those of professional advisers and agents, and including in each case any VAT incurred by the landlord in connection with the licence.
7. The schedule set out the guarantee. I suspect that it is in standard form, but it required the tenant to indemnify the landlord against all losses properly incurred as a result of any failure of the assignee to comply with any of the lessees obligations. It made the tenant liable to the landlord as principal debtor. The tenant also agreed that in the event that the lease was disclaimed, on being required by the landlord, to accept from the landlord the grant of a new lease and to execute and deliver up and complete a counterpart of it.
8. The draft licence to assign was sent to Mr Lola's solicitors together with a letter dated 27th November 1998. That letter asked Mr Lola's solicitors to confirm that:

"... we may now release £16,500.00 to our client together with all postdated cheques due for payment under the terms of the Agreement."

9. By letter dated 1st December 1998 Mr Mahmood's solicitors wrote to Mr Lola's solicitors saying that they had released the balance of the money to their client pursuant to special condition 10 of the agreement. To that letter Mr Lola's solicitors replied confirming that the draft licence to assign was approved, save for an error in clause 5. They went on to point out that the contract remained conditional until special condition 11 of the contract had been satisfied. They stated:

"We will need to be in receipt of the executed Licence to Assign before any monies are released."

10. On 4th January 1999 Mr Mahmood purported to rescind the contract and on 7th January Mr Lola purported to rescind the contract and shortly thereafter moved out of the premises.
11. The question before the judge was whether there had been a licence to assign
12. The judge referred to Prudential Assurance Co Ltd v Mount Eden Land Ltd [1997] 1 EGLR 37. He then said this:

"However, the position in that case, is in my judgment materially different from the situation here. There is, in that case on its face, a letter from the Landlord consenting to the alterations (albeit subject to conditions), the very issue which is here, the issue for determination, by reference, in effect to conduct. In my judgment, what was clearly intended by all the parties to the transaction, the Landlord, the claimant, the defendant, and their respective solicitors, was that the Licence to Assign would take the form of a written document, indeed, a Deed to be executed under seal.

I am not persuaded that the submission of a draft Deed by the Landlord's solicitors, to the claimant's solicitors on 26th November, constituted the granting of a licence to assign. Still less, that the faxing of that letter and draft document, to the defendant's solicitors, amounted to receipt by the defendant of a Licence to Assign the lease within the meaning of clause 10. The submission of a draft Licence to Assign to the claimant's solicitors, fell well short of what is required to establish that the Landlord's consent had indeed been granted at that time. Indeed, the letter itself, makes it clear, that at least one issue was still outstanding, namely the rent deposit. It is also not clear on the evidence, whether, as at that date, the proposed tenant, the defendant in this action, was prepared to agree to the authorised guarantee agreement which was a schedule to the draft licence.

In those circumstances, in answering the preliminary issue before me, I conclude that the Landlord of the premises of 26 The Cross, Worcester, did not give its Licence to Assign, for the assignment of the lease by Mr Mahmood to Mr Lola."

13. Mr Crosfill, who appeared on behalf of the applicant, submitted that an appeal would stand a real chance of success. He criticised the passage in the judgment in which the judge contemplated that the licence to assign would take the form of a deed. He submitted that a licence to assign was no more and no less than the landlords' permission to an assignment which might otherwise amount to a breach of covenant by the tenant wishing to assign his lease. Such licence, he said in his written submissions, was a unilateral act by a landlord. Thus a licence to assign need not be in any particular form unless the lease expressly provided for the form. In the present case the lease contained no express requirements for consent. He submitted that the contract between the parties did not provide any specific requirement as to the terms of the licence. In those circumstances the judge had erred in attempting to ascertain the intention of the parties.
14. There is some force in the submission that he makes. However, I do not believe that it concludes the matter, nor meets the heart of the judge's judgment. The landlord was not a party to the contract and the sole question was whether he had in fact given consent.
15. Mr Crosfill submitted that it was plain from the draft licence to assign that the landlord had in fact given his consent to the assignment. He submitted that this case was similar, if not identical, to the case that was considered by this court in Prudential Assurance Co Ltd v Mount Eden Land Ltd [1997] 1 EGLR 37. In that case the tenant needed consent to certain works that they wished to take place. The letter written by the landlord was in this form:

"I refer to your request to consent to alter the external appearance of the above building during the course of maintenance to the defective cladding.

I can confirm that the Freeholder ... gives consent for the works subject to the following conditions:

1. A formal licence is entered into by your client, The Prudential Assurance Company Ltd.

2. The Prudential will pay my client's costs in this matter, including any additional insurance premium levied as a result of the works.

3. The Prudential are to obtain necessary consents and statutory approvals.

If you can confirm acceptance of the above terms, I will arrange for my client's solicitor to prepare the necessary licence. When replying, I should be grateful if you would confirm the name of the solicitor who will be representing your client and the appropriate drawing numbers to be incorporated in the licence."

16. On 7th September 1993 Prudential wrote confirming their agreement to the conditions set out in the letter of 18th May 1993 as follows:

"Reference your letter dated 18th May. I confirm my client's agreement to items 1-3 inclusive.

I have forwarded drawings and details of the licence to my client's solicitors:- ...

I should be grateful if you would inform your client's solicitors of the position."

17. This court held that the only question before it was whether the letter of 18th May was a consent as required by the lease. That they said was a question of the construction of the letter in the light of all the surrounding circumstances. So regarded, Morritt LJ (giving the leading judgment) concluded that he had no doubt that the letter did express the consent required by the lease in the clearest terms. The consent was qualified by the stipulation for a formal licence as stated in the body of the letter. That was a bare formality. Mr Crosfill says that that is the same position in this case. The only thing that had to be done was the formality of signing the document.
18. In my view that submission does not stand up on the facts. In the present case the landlord was prepared to give consent upon the basis that a third party – that is Mr Lola – would sign a licence. Thus the letter to Mr Mahmood's solicitors was an indication that consent would be provided, provided that a document in writing was signed by the new lessee. The new lessee's solicitors accepted the form of the document, but of course it did not become binding between the parties unless it was signed or a position had been reached when the landlord could require the lessee to sign it. In my view that position had not been reached. There was no contractual relationship between the landlord and Mr Lola. In those circumstances, the licence containing the guarantee agreement, that was required by the landlord to be signed, had not come into effect. In those circumstances the conditions which were set by the landlord had not been complied with. There was no contract between the landlord and Mr Lola.
19. Special condition 10 required that the payments made by the purchaser should be held by the vendor's solicitors as stakeholder until a licence to assign the lease had been received by the purchaser. As of the date of the rescission of the contract, the only document that had been provided was a draft licence which could not be binding between Mr Lola and the landlords. In those circumstances, it was not a formal consent as required by the conditions of sale.
20. The judge's conclusion that he was not persuaded that the submission of a draft deed by the landlords' solicitors to the claimant's solicitors constituted the granting of a licence is, in my view, one which could not be properly challenged in this court. The landlords' consent was conditional upon there being a binding agreement between them and Mr Lola. No such binding agreement was ever entered into and in those circumstances the conditions of the consent were not complied with.
21. That is in complete contrast to the Prudential case. In that case there were three conditions set out in the letter, all of them were accepted and therefore there was, in the Court of Appeal's view, a binding contract between them. The letters were passing between two parties. There was an offer and acceptance. In this case there were no letters passing between Mr Lola and the landlords; certainly not an agreement which would have been binding between the two.
22. In those circumstances, I have come to the conclusion that this is a case in which there is no real prospect of success. The judgment of the judge was correct and permission is therefore refused.
ORDER: Applications for permission to appeal refused. (Order not part of approved judgment)
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