England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th November 2003

Mr Justice Lightman:

INTRODUCTION

1. There are two actions before me relating to a lease dated the 4^th November 1996 ("the Lease") of the roof space ("the Roof Space") at Albert Court, Prince Consort Road, London SW7 ("the Property") granted by the then freehold owner Britel Corporation NV ("Britel") to ACP Limited ("ACP"). ACP charged the Lease to First Penthouse Limited ("FP"), the claimant in the first action and second defendant in the second action. Britel subsequently transferred the freehold to a company now called Albert Court (Westminster) Freehold Company Limited ("Albert Court") and Albert Court granted an overriding lease in reversion on the Lease ("the Overriding Lease") to Channel Hotels and Properties (UK) Limited ("CHAPS"), the defendant in the first action and the claimant in the second action. The leasehold reversion on the Lease is accordingly vested in CHAPS. FP as chargee sold and vested the Lease in Mr Fahad Al Tamimi ("Mr Tamimi") the first defendant in the second action. The third to sixth defendants in the second action are underlessees of parts of the Roof Space whose underleases will be affected by any forfeiture of the Lease. The second to sixth defendants were ordered to be joined as defendants to the second action on the 6^th August 2003.
2. The first action, which was commenced on the 22^nd November 2002, arises from the entry by FP as mortgagee of the Lease into a contract for the assignment of the Lease to Mr Tamini. FP applied to CHAPS for a licence to assign the Lease to Mr Tamimi and, when CHAPS refused this request, FP commenced the first action for a declaration that consent had been unreasonably withheld. The issue raised is whether it is entitled to that declaration. FP thereafter completed the contract and assigned the Lease to Mr Tamimi on the basis that it was free to do so because consent had been unreasonably withheld.
3. In the second action, which was commenced on the 16^th July 2003, CHAPS seeks to establish and enforce its entitlement to forfeit the Lease. The three primary issues raised are: (1) whether (as maintained by CHAPS) at the date of commencement of the second action the Lease was liable for forfeiture for breach of covenant by reason of the assignment of the Lease to Mr Tamimi without the consent of CHAPS; (2) whether (again as maintained by CHAPS) at the same date the Lease was liable for forfeiture for breach of covenant by the lessees thereunder in failing to carry out and complete the development of the Roof Space expeditiously; and (3) in respect of the latter alleged breach of covenant whether (as maintained by FP and Mr Tamimi) any right to forfeit has been waived. On the 12^th September 2003, Hart J ordered that the issues raised in the first action and the two issues which I have specified raised in the second action should be the subject of this trial. If it is held that no right to forfeit arose or that any such right as arose has been waived, no further issues will arise in the second action: judgment must be entered for the defendants in that action. If it is held that there have been breaches of covenant which have not been waived, other issues arise which must be decided later and most particularly whether relief from forfeiture should be granted.

BACKGROUND

4. The background to this litigation lies in a plan to develop the Roof Space above the Property, which is a block of flats to the south of the Royal Albert Hall, by constructing a number of penthouses in the Roof Space and the scheme devised for dividing the profits of that development.
5. On the 7^th March 1996 three agreements were executed. The first of these three agreements was a "Preliminary Agreement for Penthouse Development on Albert Court" ("the Preliminary Agreement") made between Britel (then the freeholder owner of Albert Court and therein referred to as "the Freeholder") and ACP. The Preliminary Agreement was a combination of a development agreement and an agreement for the grant by Britel of a lease to enable the development ("the Project") to be carried out by ACP. The Preliminary Agreement granted to ACP the right to call upon Britel to grant a development lease in the form of the Lease at a nominal premium of £1 (which has been paid) and a nominal ground rent of £1 per annum. ACP was to construct five small penthouses or one large penthouse on the Roof Space and was permitted to grant occupational underleases for a period of not less than 150 years in respect of each penthouse. ACP was to pay Britel 22.5% of the net proceeds on sale of the penthouse or penthouses up to a maximum figure of £5.4 million secured by a charge on the Lease (clause 9). The Preliminary Agreement prohibited ACP charging the Lease other than to "a commercial lender" securing a sum not exceeding £1.5 million (clause 5.2) and likewise prohibited any assignment of the Lease until practical completion of the Project (clause 14). Time constraints were laid down for completion of the Project in clause 12, but subject to the proviso that the time frame was to be extended should there be delays for which ACP was not responsible.
6. Most significantly for the purposes of this action the Preliminary Agreement conferred on Britel (at its sole discretion) power to extend the time limit for completion of the Project and provided that, if at the expiration of that further period ACP was still in breach in respect of completion of the Project, Britel had the right ("the Option") to call for a sublease ("the Development Sublease") of any part of the Roof Space which had not been developed by ACP (clause 12.4.2). The Option required registration, but was not promptly registered. Clause 12.4.4 provided that service of the notice calling for the grant of the Development Sublease under clause 12.4.2 triggered a deemed disposal of any completed penthouses not disposed of within twelve months after the service of the notice and entitled Britel to the agreed proportion of their deemed disposal price (i.e. its value). Clause 12.4.5 provided that subject to the granting of the Development Sublease and the payment due under clause 12.4.4 and any interest due:

"the Freeholder shall have no further or other claim of whatever nature against ACP whether for damages, specific performance, misrepresentation, rescission, forfeiture of the development lease granted to ACP or otherwise arising out of any breach of ACP of its obligations in respect of the completion of the Project in accordance with the above provisions."

Clause 12.4.6 went on to provide that Britel should be under no obligation to make any payment in respect of works previously undertaken by ACP relating to the area or areas to be covered by the Development Sublease. Clause 14 provided that ACP should not prior to the issue of the Certificate of Practical Completion in respect of the Project sell, transfer or otherwise dispose of the Lease without the written consent of Britel, such consent not be unreasonably withheld. Clause 15 provided that each of the parties should keep the terms of the Preliminary Agreement confidential, save only that ACP was permitted to disclose the contents hereof to its shareholders and project funders.

7. The Preliminary Agreement was varied by a Deed of Priorities dated April 1999 (as confirmed by a Deed of Priorities dated May 2001) to which I subsequently refer.
8. The second of the three agreements was an Introduction Agreement ("the Introduction Agreement") dated the 7^th March 1996 and made between ACP and Meretz Investments NV ("Meretz"). By that agreement, in consideration of Meretz introducing ACP to Britel and procuring Britel to enter into the Preliminary Agreement with ACP, ACP agreed to pay to Meretz by way of commission a percentage of the net proceeds of sale exceeding £5.4 million of the penthouses constructed on the Roof Space. The Introduction Agreement expressly incorporated the terms of the Preliminary Agreement (other than those specifically identified in clause 5).
9. The Introduction Agreement was varied by the Heads of Terms dated the 5^th October 1999 hereinafter referred to.
10. The third of the three agreements was a Guarantee ("the Guarantee") made between FP and Britel under which FP guaranteed to Britel the performance by ACP of its obligations under the Preliminary Agreement.
11. By a Deed of Assignment dated the 17^th May 1996 ("the Britel Charge") Britel assigned to NUBBH Limited ("NUBBH") the benefit of the Preliminary Agreement by way of security for sums due from Britel to NUBBH.
12. Pursuant to clause 5 of the Preliminary Agreement on the 4^th November 1996 Britel granted the Lease to ACP for the term from the 25^th December 1995 until the 24^th December 3000 (see clause 1A). The Lease was registered at HM Land Registry under title NGL 74613.
13. The Lease contained covenants by the lessee not to assign without consent (clause 2(iii)(b)) and to observe and perform the obligations set out in the Third Schedule (clause 2(ix)) and a proviso for re-entry in the event of a material breach of covenant by the Lessee. The Third Schedule contained an obligation to carry out and to complete "the Project" as expeditiously as possible. For the purposes of these proceedings it is accepted by FP that as at the date of the section 146 notice dated the 16^th August 2002 ACP was in breach of that obligation and that accordingly (subject only to the question of waiver) CHAPS was entitled to forfeit the Lease on this ground.
14. By a charge dated 11th August 1997 and registered at HM Land Registry on 5th September 1997 ("the FP Charge"), ACP charged the Lease to FP to secure sums due from ACP to FP. It is common ground that FP was not a "commercial lender" within the meaning of clause 5.2 of the Preliminary Agreement, but that any breach of obligation was waived by the Deed of Priorities dated April 1999, ("the 1999 Deed of Priorities") hereinafter referred to. At the date of registration of the FP Charge, the Option remained unprotected by registration and was accordingly void as against FP.
15. By a charge dated the 19^th September 1997 ("the Meretz Charge") ACP charged the Lease to Meretz to secure all sums due to Meretz under the Introduction Agreement.
16. By a charge dated the 23rd December 1997 and made between ACP and NUBBH, ACP covenanted to pay to NUBBH all sums due to Britel under the Preliminary Agreement (the benefit of which had already been assigned by Britel to NUBBH) and charged the Lease by way of second mortgage to secure payment of those sums.
17. The 1999 Deed of Priorities was made between (1) FP; (2) NUBBH; (3) ACP; (4) Meretz; (5) Britel; (6) Varlet International Ltd ("Varlet"); (7) Highdorn Co Ltd and Mr Freshwater. Varlet was the proposed purchaser of a penthouse in course of construction and, in order to provide the necessary monies to finance the completion of construction, had agreed to pay the purchase price ahead of completion on the security of a charge on the Lease ("the Varlet Charge") provided that the charge ranked as a first charge over the Lease in priority over all other charges. By the 1999 Deed of Priorities the parties agreed to confer such priority on the Varlet Charge on the terms therein set out. The 1999 Deed of Priorities provided (in clause 1) that, so long as any sum remained owing to Varlet under the Varlet Charge, the Varlet Charge should be regarded as substituted for and replacing the FP Charge and rank as a first charge with priority over all other charges over the Lease; and (in clause 2) that on discharge of the Varlet Charge (an event which happened) the FP Charge "shall … come into full force and take effect and shall automatically be reinstated as the First Charge …". Clause 13.2 confirmed that ACP had applied for extensions of time pursuant to the provisions of paragraphs 12.2.3 to 12.2.5 inclusive of the Preliminary Agreement, and Britel agreed that the deadline for completion of the Project in that agreement and in the Lease (if applicable) was to be extended to 7th September 2002. By clause 19.2 the parties both acknowledged the priority (and enforceability) of the FP Charge and agreed that the security provided by the FP Charge should be reduced in value to £1.5m upon the sale of the third penthouse flat, and should be released upon the sale of the fourth penthouse flat.
18. By the Heads of Terms and Side Letters dated 5th October 1999 made between ACP, FP, Britel and Meretz, the amount of commission payable to Meretz under the Introduction Agreement was varied, and Meretz and Britel agreed that a further apartment which was to be constructed in the Airspace called "The Loft" should be excluded from the profit share arrangements in the Preliminary and Introduction Agreements.
19. On the 29^th October 1999 Britel agreed to sell the freehold title of the Property for £400,000 to Albert Court and in pursuance of that contract by a transfer dated the 17th May 2000 Britel transferred its freehold title to the Property to Albert Court. On the same day Albert Court granted an overriding lease ("the Overriding Lease") to CHAPS for a term exceeding that of the Lease by 1 day at an annual rent of £1. By a Deed of Acknowledgement dated 19th September 2002 CHAPS acknowledged that it held (and it continues to hold) the Overriding Lease on trust for CHAPS, NUBBH, Britel and Meretz.
20. On the 17^th May 2001 the parties to the 1999 Deed of Priorities with the exception of Varlet (whose charge had been discharged) but with the addition of National Westminster Bank ("the Bank") executed a further Deed of Priorities ("the 2001 Deed of Priorities"). The purpose and effect of the 2001 Deed of Priorities were to enable ACP to grant a charge in favour of the Bank ("the Bank Charge") which would rank ahead of all other charges of the Lease during its intended short life. The 2001 Deed of Priorities provided (in clause 1.2) that the FP charge should come into full force and effect once the Bank Charge had been discharged and (in clause 2) that the provisions of the April 1999 Deed, to the extent that the same have yet to be performed and/or observed, should remain in full force and effect; and (in clause 9) Britel confirmed that ACP had applied for extension of time pursuant to the provisions of paragraphs 12.2.3 to 12.2.5 inclusive of the Preliminary Agreement and that the time limits in that agreement and in the Lease (if applicable) were varied so as to provide for completion of the Project on the 7th September 2002. The Bank Charge has been discharged.
21. On the 27^th May 2002 Meretz obtained final judgment against ACP for payment of £373,000 in respect of commission due under the Introduction Agreement.
22. By a transfer dated 19th July 2002 NUBBH transferred the benefit of the NUBBH Charge to FP. The effect of this transfer was that, from 19th July 2002 such sums as might fall due under clause 9 of the Preliminary Agreement were charged to FP, and the only persons with a direct financial interest in the late completion of the Project under the Preliminary Agreement were ACP (as the developer) and FP.
23. On the 19^th July 2002, FP as mortgagee entered into a contract for the sale of the Lease to Mr Tamini. Britel and Meretz thereupon applied for an interlocutory injunction restraining FP and ACP from proceeding with the sale, most particularly complaining that such a sale would override and defeat the contractual right of Britel to enforce the Option and right of Meretz to obtain the payment under the Introduction Agreement of a sum which is currently estimated to amount to £1 million. On the 25^th July 2002 HH Judge Seymour QC dismissed the application on the grounds that neither Britel nor Meretz had any cause of action against either FP or ACP. Meanwhile on the 22^nd July 2002 FP applied to CHAPS for permission to assign the Lease to Mr Tamimi. On the 29^th July, the 16^th August and the 22^nd October 2002 in reply to applications by FP first made on the 22^nd July 2002 for a licence to assign to Mr Tamimi, CHAPS refused a licence save and unless Mr Tamimi agreed to accept and be bound by the obligations assumed by ACP under the Preliminary and Introduction Agreements. Mr Tamimi would not agree to those terms, and on the basis that the consent was being unreasonably withheld FP and Mr Tamimi proceeded to complete the agreement for sale and Mr Tamimi was registered as proprietor of the Lease on the 11^th March 2003. On the 7^th August 2002 the Court of Appeal for reasons set out in its judgment ("the Judgment") dismissed an application by Britel and Meretz for permission to appeal against the judgment of HH Judge Seymour QC on the same ground namely that neither Britel nor Meretz had any cause of action against either FP or ACP.
24. On the 16^th August 2002 CHAPS served on FP and Mr Tamimi a notice under section 146 of the Law of Property Act 1925 alleging breaches of the covenant to carry out and complete expeditiously the Project ("the First Notice") and on the 28^th March 2003 a like notice alleging that the assignment of the Lease constituted a breach ("the Second Notice").
25. For the purposes of this action it is common ground that the consequences of the assignment of the Lease are that:

i. all charges ranking behind the FP charge (including the charge in favour of Meretz, dated 19th September 1997 to secure payments due under the Introduction Agreement) are discharged;

ii. ACP is no longer liable under the terms of the Preliminary and Introduction Agreements to complete the Project or to make further payments to Meretz upon further sales of penthouses or to grant the Development Sublease back; and

iii. Mr Tamimi is not bound to make payments to Meretz upon further sales of penthouses nor to grant the Development Sublease.

26. The position regarding the Project is as follows:

i. penthouse B was completed on 23rd November 1999 and sub-let on 1st March 2000;

ii. penthouse E was completed in April 2000 and sub-let on 15th May 2000;

iii. penthouse C was completed on 5th December 2000 and sub-let on 26th October 2001;

iv. contracts for penthouse A were exchanged between FP and Mr Tamimi on 8th January 2001. The sale of penthouse A has not been completed, and there are currently proceedings brought by Mr Tamimi against FP relating to that sale and other issues between them;

v. on 23rd April 2002 ACP contracted to sell the Loft to FP. The sale was not completed and the assignment of the Lease to Mr Tamimi was subject to this contract. On 25th July 2003 Mr Tamimi let the Loft to Norval Holdings Ltd.

27. On the 10th September 2002 Britel (the original contracting party) NUBBH (to whom Britel had charged the benefit of the agreement) and CHAPS (as the current holder and trustee of the leasehold reversion) purported to exercise the Option and called upon ACP to grant the Development Sublease of the undeveloped portions of the Roof Space. That request was rejected.
28. On the 31st March 2003 at the request of FP the company secretary of CHAPS (a typist) signed a receipt for £7 "for potentially outstanding rent" due under the Lease. At that date CHAPS did not know of the assignment: notice was first given to their solicitors in a letter dated 31st March 2003 which was sent by ordinary post. Such receipt accordingly, if it can operate as a waiver of forfeiture, can only operate in respect of the breach the subject of the First Notice, and not the Second Notice.

COVENANT TO CARRY OUT AND COMPLETE THE PROJECT AS EXPEDITIOUSLY AS POSSIBLE

29. Mr Tamimi and FP concede for the purpose of these proceedings that ACP was in breach of the covenant to carry out and complete the Project expeditiously and that accordingly CHAPS was entitled to forfeit the Lease on this ground unless CHAPS waived its right of forfeiture by serving the notice under clause 12.4.2 of the Preliminary Agreement exercising the Option or by accepting (and giving a receipt for) payment of £7 in respect of rent.
30. The critical issue for this purpose is whether the breach of covenant was a once and for all breach or a continuing breach of covenant. If it was a continuing breach, anomalously acts of a landlord waiving a right of forfeiture may leave in force a section 146 notice served prior to the waiver in respect of breaches occurring after the acts of waiver: see Greenwich LBC v. Discreet Selling Estates Ltd [1990] 2 EGLR 65 (CA). In my judgment however the breach of covenant is not a continuing breach: there was a once and for all obligation to "carry out and complete" the Project with the required expedition. The time for completion expired in 2001 and the right of re-entry arose on that date. The obligation was breached at the dates of the purported exercise of the Option and of the acceptance of rent. The acts of CHAPS in this regard were, in the language of Buckley LJ in Central Estates (Belgravia) Ltd v Woolgar (No 2) [1972] 1 WLR 1048 at 1054 G-H, acts of a landlord at a time when it had the right to elect to forfeit the Lease or affirm it, unequivocally demonstrating the decision to affirm it. In the circumstances it is quite clear that CHAPS have irrevocably waived the right to forfeit the Lease. At one stage CHAPS contended that for there to be a waiver of the right to forfeit there must be at the date of the acts of waiver not merely a right to forfeit, but the right must be enforceable and accordingly any necessary notice served under section 146 of the Law of Property Act must have been served and expired. In my judgment there is no need for service or expiration of such notice. It is sufficient that the right to forfeit has arisen.
31. I should add that I am troubled by the exercise undertaken by FP of obtaining in the way it did the receipt for rent from a mere typist who occupied the position of company secretary of CHAPS. This appears to have involved requesting the typist to do what on its face to her, a layman, must have appeared a totally innocuous act devoid of legal consequence, without disclosing the intended use and significance of the signature to the receipt. This practice is open to objection at any rate on moral grounds, but without more (e.g. a misrepresentation) appears to be effective in law to obtain a waiver. No such anxiety is occasioned by the reliance of FP on the service by CHAPS of the notice of exercising the Option.

REFUSAL OF CONSENT TO ASSIGN

32. Paragraphs 3 and 4 of the notice dated the 16^th August 2002 refusing consent to assign the Lease ("the Refusal Notice") read as follows:

"(3) The tenant is in serious breach of covenant contained in the lease. Clause 2(ix) of the lease contains a covenant by the tenant to observe and perform the obligations on the part of the Lessee set out in the Third Schedule hereto in respect of the Works. As appears from recital D of the Lease and from the agreement referred therein (the Preliminary Agreement) 'the Works' comprised the construction of 5 penthouses (with accompanying roof terracing and/or landscaping) within the roof space area demised by the Lease. The obligations on the part of the Lessee set out in the Third Schedule to the Lease included the obligation to carry out and to complete the Works as expeditiously as possible. In breach of covenant, the tenant has failed to carry out the Works expeditiously and/or has failed to complete the Works expeditiously or at all.

(4) The landlord holds the reversion upon the lease upon trust for Britel Corporation NV, NUBBH Limited, Meretz Investments NV and Channel Hotels and Properties Limited. The proposed assignment will seriously prejudice the interests of the landlord and/or the beneficiaries.

(a) Clause 12 of the Preliminary Agreement (as amended by a further agreement between, inter alia, Britel and ACP made on 20^th April 1999) contains a provision that upon the failure by the tenant to complete the works in respect of the project by 7^th September 2002, Britel may call upon ACP to grant a sublease to Britel of such parts of the property as are at that date undeveloped. Part of the property in which two penthouses were to be built is undeveloped, there is no reasonable prospect that ACP will complete the works in respect of the project by 7^th September 2002 and on the earliest date the landlord (in whom the benefit of this clause is currently vested) alternatively Britel (the original party to the Preliminary Agreement entitled to the benefit of clause 14) alternatively NUBBH (to whom the benefit of the Preliminary Agreement was assigned by Britel) would seek to rely upon clause 12 of the Preliminary Agreement. Clause 12 of the Preliminary Agreement is not binding upon an assignee and the proposed assignee is not prepared to undertake the burden of the Preliminary Agreement, with the result that upon assignment the landlord (alternatively Britel, alternatively NUBBH) would lose a valuable right to obtain a sublease of the property.

(b) By an agreement known as the 'Introduction Agreement for Proposed Penthouse Development in respect of Albert Court' dated 7^th march 1996 and made between (1) ACP Ltd and (2) Meretz, (as subsequently varied) ('the Introduction Agreement') ACP Ltd agreed to pay Meretz by way of a commission for introducing ACP to Britel a share in the proceeds of sale of the penthouses developed pursuant to the Preliminary Agreement and the Lease. Substantial sums would be payable by ACP to Meretz upon the sale of the remaining two penthouses to be developed in accordance with the Preliminary Agreement and the Lease. The Introduction Agreement is not binding upon an assignee of the mortgagee who may complete the works without liability to pay the agreed commission. Accordingly, the proposed assignment would prejudice Meretz and the assignee would obtain a collateral advantage not available to the tenant.

(c) The proposed assignee will not undertake the burden of the Preliminary Agreement not the Introduction Agreement."

33. Following the enactment of the Landlord and Tenant Act 1988, the landlord is restricted to the reasons which he has given for refusing his consent: see Go West v. Spigarolo [2003] 2 WLR 896 at 1002. CHAPS has abandoned the other reasons given in the Refusal Notice.
34. I can deal quite shortly with ground (3). CHAPS as landlord could have no reasonable ground for objecting to the assignment proceeding. As CHAPS well knew, both ACP and its mortgagee FP did not have the means to complete the Project. Mr Tamimi had ample funds to complete the Project and the will to do so. The assignment would secure performance of the obligation to complete the Project. Mr Gary Lever, a director of CHAPS, gave evidence as to the reasons for refusing consent and as to the significance in this regard of the breach referred to in paragraph 3. He told me that CHAPS did not want ACP or FP to complete the Project and remedy the breach. Rather CHAPS wished to take advantage of the failure to complete the Project to obtain the benefit of and enforce the Option which arose by reason of default of ACP. The refusal of consent was in nowise required to protect the leasehold reversion vested in CHAPS or the interests of CHAPS as owners of that reversion. It is clear that the existence of the breach of covenant was not of itself a ground, let alone a sufficient ground, for refusing consent, for the proposed assignment secured the effective remedy of the breach. The real ground for refusal of consent relied on is that set out in paragraph 4, namely the effect of the assignment on other rights of CHAPS and Meretz, and the grounds set out in paragraph 3 accordingly add nothing to them.
35. I accordingly turn to ground (4). The grounds there relied on are that (as is common ground for the purposes of this action) the assignment to Mr Tamimi would be effective to defeat or override the rights under clause 2.4.2 of the Preliminary Agreement to the Development Sublease and of Meretz to payment of its commission under the Introduction Agreement. The question of law arises whether these are sufficient grounds for the refusal and (as a corollary) whether CHAPS was entitled to require as a condition of giving consent that Mr Tamimi personally assume obligations to like effect.
36. In Ashworth Frazer Ltd v. Gloucester City Council [2001] 1 WLR 2180 the House of Lords reviewed the criteria identified by the Court of Appeal in International Drilling Fluids v. Louisville Investments (Uxbridge) Ltd [1986] Ch 513 and held that the following were overriding principles in determining whether or not a landlord had unreasonably withheld consent:

i. a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease;

ii. it is not necessary for the landlord to prove that the conclusions which led him to refuse to consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances;

iii. in each case it is a question of fact, depending on all the circumstances, whether the landlord's consent to an assignment has been unreasonably withheld.

37. Three grounds are put forward by FP (supported by Mr Tamimi) for challenging the reasonableness of CHAPS' refusal and I must consider each in turn:

(1) The effect of the 1999 Deed of Priorities

38. The effect of the 1999 Deed of Priorities on the rights of ACP under the Preliminary Agreement and of Meretz under the Introduction Agreement were the subject of the decision of the Court of Appeal to which I have already referred in paragraph 23 above. The Court of Appeal in the Judgment pointed out that Britel as owner of the freehold reversion on the Lease and Meretz as holder of a mortgage securing its entitlement under the Introduction Agreement were parties to the 1999 Deed of Priorities and that deed expressly provided that (whatever may have been its effect in this regard otherwise) the FP Charge on the subsequent discharge or redemption of the Varlet Charge should come into full force and take effect. The Court of Appeal held that this provision was totally inconsistent with the provisions of the Introduction or Preliminary Agreements in favour of Meretz and CHAPS restricting the full and unfettered exercise by FP as mortgagee of the power of sale conferred by the FP Mortgage. The issue raised before me is whether the 1999 Deed of Priorities likewise precludes CHAPS as successor in title to the reversion upon the Lease from exercising the power to refuse consent to an exercise of the power of sale on the ground that it will defeat the rights in question. In my view the answer is clearly in the affirmative. Since the 1999 Deed of Priorities conferred on FP as mortgagee the right to override the rights of CHAPS and Meretz in question, it cannot be reasonable for CHAPS as landlord to refuse consent to an assignment by FP to Mr Tamimi on the grounds that the assignment will have this overriding effect and to require as a condition of giving consent that Mr Tamimi confer equivalent rights on CHAPS and Meretz. CHAPS by taking this position was not protecting or preserving existing rights but attempting to create new ones. To allow CHAPS to take the position which it has taken is to set at nought the provision in the 1999 Deed of Priorities and a refusal of consent on these grounds and the insistence on these conditions are in fundamental derogation from the rights conferred on FP by the 1999 Deed of Priorities. Whilst the 1999 Deed of Priorities left it open to CHAPS to object to an assignment on other grounds (e.g. the character or worth of the assignee), it precluded objections in principle to an assignment on the grounds that it would have the legal effect contemplated and provided for by the 1999 Deed of Priorities. I accordingly hold that the refusal of consent was unreasonable on this ground.

(2) Commercial connection of ground of refusal with relationship of landlord and tenant

39. I shall first consider whether the connection between the ground of refusal and the relationship of landlord and tenant is sufficient, leaving aside for separate consideration the relevance and effect of the Landlord and Tenant (Covenants) Act 1995 ("the 1995 Act").
40. CHAPS contends that there is a close relationship and indeed linkage between the Introduction Agreement, the Preliminary Agreement and the Lease, and that the provisions of the Introduction and Preliminary Agreements were directed to ensuring that Britel and Meretz in respect of their respective contributions to the Project should receive in the forms provided of the benefits thereby conferred a share of the profits of the Project, and that it was reasonable for CHAPS in deciding whether consent should be given to take into account the adverse consequences of the sale upon CHAPS as successor in title of Britel under the Preliminary Agreement to the Option and of Meretz under the Introduction Agreements, most particularly since both Britel and Meretz were beneficiaries under its trusteeship of the Reversionary Lease.
41. I accept that circumstances can exist where a landlord trustee may be entitled to take into account the consequences of an assignment on the beneficiaries under the trust if the consequences have something to with the relationship of landlord and tenant in regard to the subject matter of the Lease. In my view the fundamental objection to the approach adopted by CHAPS in this case is that the considerations relied on have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the Lease: they are totally collateral to that relationship. I therefore hold that the grounds relied on afford no basis for the refusal of consent unless reinforced by the provisions of the 1995 Act.

(3) The 1995 Act

42. CHAPS argues that the provisions of the 1995 Act operate to annexe to the reversion to the Lease the covenant of ACP in the Introduction Agreement to pay the commission to Meretz and the covenant of ACP in the Preliminary Agreement to grant the Development Sublease and render them enforceable by CHAPS as owner of the Overriding Lease, and that if the covenants are so annexed, the necessary connection with the relationship of landlord and tenant is established.
43. The 1995 Act is the product of rushed drafting and its provisions create exceptional difficulties. Some of these difficulties were addressed when the scheme of the legislation was considered in my judgment and the judgment of the Court of Appeal (which approved my judgment) in BHP Petroleum Great Britain Limited v. Chesterfield Properties Ltd [2002] Ch 12 and 194 ("BHP"). Those judgments provide some assistance on the issues before me.
44. Section 2 of the 1995 Act provides that the Act applies to landlord and a tenant covenants of a tenancy. Section 28(1) contains a set of definitions:

"(1) In this Act (unless the context otherwise requires)-

'assignment' includes equitable assignment …

'collateral agreement', in relation to a tenancy, means any agreement collateral to the tenancy, whether made before or after its creation;

'covenant' includes term, condition and obligation, and references to a covenant (or any description of covenant) of a tenancy include a covenant (or a covenant of that description) contained in a collateral agreement;

'landlord' and 'tenant', in relation to a tenancy, mean the person for the time being entitled to the reversion expectant on the term of the tenancy and the person so entitled to that term respectively;

'landlord covenant', in relation to a tenancy, means a covenant falling to be complied with by the landlord of premises demised by the tenancy;

'new tenancy' means a tenancy which is a new tenancy for the purposes of section 1;

'reversion' means the interest expectant on the termination of a tenancy;

'tenancy' means any lease or other tenancy …

'tenant covenant', in relation to a tenancy , means a covenant falling to be complied with by the tenant of premises demised by the tenancy."

45. Section 3 provides for the annexation and transmission of landlords and tenants covenants:

"(1) The benefit and burden of all landlord and tenant covenants of a tenancy-

(a) shall be annexed and incident to the whole, and to each and every part, of the premises demised by the tenancy and of the reversion in them, and

(b) shall in accordance with this section pass on an assignment of the whole or any part of those premises or of the reversion in them…

(3) Where the assignment is by the landlord under the tenancy, then as from the assignment the assignee-

…

(b) becomes entitled to the benefit of the tenant covenants of the tenancy ….

(6) Nothing in this section shall operate-

(a) in the case of a covenant which (in whatever terms) is expressed to be personal to any person to make the covenant enforceable by or (as the case may be) against any other person; …"

46. Section 4 provides for transmission of the right of re-entry:

"The benefit of a landlord's right of re-entry under a tenancy-

(a) shall be annexed and incident to the whole, and to each and every part, of the reversion in the premises demised by the tenancy, and

(b) shall pass on an assignment of the whole or any part of the reversion in those premises."

47. Section 15 provides that the covenants of a tenancy shall be enforceable, not merely by the reversioner, which is defined as meaning the holder for the time being of the interest of the original lessor (and accordingly in this case Albert Court), but also by the holder of the immediate reversion on the lease (in this case CHAPS as holder of the Overriding Lease):

"(1) Where any tenant covenant of a tenancy, or any right of re-entry contained in a tenancy, is enforceable by the reversioner in respect of any premises demised by the tenancy, it shall also be so enforceable by-

(a) any person (other than the reversioner) who, as the holder of the immediate reversion in those premises, is for the time being entitled to the rents and profits under the tenancy in respect of those premises, or

(b) any mortgagee in possession of the reversion in those premises who is so entitled.

(2) Where any landlord covenant of a tenancy is enforceable against the reversioner in respect of any premises demised by the tenancy, it shall also be so enforceable against any person falling within subsection (1)(a) or (b).

(3) Where any landlord covenant of a tenancy is enforceable by the tenant in respect of any premises demised by the tenancy, it shall also be so enforceable by any mortgagee in possession of those premises under a mortgage granted by the tenant.

(4) Where any tenant covenant of a tenancy, or any right of re-entry contained in a tenancy, is enforceable against the tenant in respect of any premises demised by the tenancy, it shall also be so enforceable against any such mortgagee.

(5) Nothing in this section shall operate-

(a) in the case of a covenant which (in whatever terms) is expressed to be personal to any person, to make the covenant enforceable by or (as the case may be) against any other person; …

(6) In this section-

'the reversioner', in relation to a tenancy, means the holder for the time being of the interest of the landlord under the tenancy."

48. The first critical issue is whether the covenants by ACP in favour of Meretz in the Introduction Agreement and in favour of Britel in the Preliminary Agreement constitute "tenant covenants" within the meaning of the 1995 Act and are accordingly annexed or whether they are personal covenants. The judgments in BHP establish that the term "tenant covenant" connotes a covenant falling to be complied with by the person from time to time entitled to the tenancy which is capable (in the language of section 3) of subsisting as a transmissible interest; and the term "personal covenant" connotes in this context a covenant which does not fall to be so complied with and therefore cannot subsist as a transmissible interest: see e.g. at page 21 paragraph 22 and pages 211-212 paragraph 59. The term "personal" does not mean non-transferable, but means not intended to bind the person from time to time entitled to the tenancy. Sections 3(6) and 15 make plain that a covenant is not to be regarded as personal (and therefore disqualified from being a landlord or tenant covenant) unless it is "in whatever terms" expressed to be personal to any person. The question immediately arises what that phrase means.
49. As it seems to me, the formula requires that the language of tenancy, read in its context, expresses or otherwise conveys the intention that the covenant shall be personal in the sense that it is not to be annexed to the tenancy or reversion. There is no requirement as to how the intention is to be expressed: the tenancy does not have to spell it out in terms that the covenant is to be personal. The intention may be expressed explicitly or implicitly. The intention may be stated in terms or it may be deduced from the language used read in its proper context. In either case the tenancy expresses in a direct or indirect form the required intention.
50. In my judgment there can be no doubt that the covenant entered into by ACP with Meretz for payment of commission was not intended to be annexed to the Lease. No lease existed at the date when the Introduction Agreement was entered into and at no time has the relationship of landlord and tenant existed between ACP and Meretz. The Introduction Agreement was quite separate and distinct from the Lease and imposed quite separate and distinct obligations. The obligation imposed on ACP was in all senses personal to ACP and could on no basis constitute a tenant covenant.
51. I turn to the Option conferred on Britel by the Preliminary Agreement. The position in regard to this covenant is more difficult. The Preliminary Agreement is, I think, a collateral agreement within the definition contained in section 28 of the 1995 Act. But, as it seems, to me the Preliminary Agreement sufficiently expresses the intention that the Option shall be personal to ACP and not be a tenant covenant. The provision for the grant of the Option is part of machinery set up for payment by ACP to Britel of a premium for the grant of the Lease. The premium is payable when and if ACP has fulfilled its obligation to complete the Project expeditiously and to sell the completed penthouses. The provision granting the Option is a default provision, arising in the event of default by ACP in fulfilling this obligation. An obligation to pay a premium is ordinarily to be regarded as personal: see Hill v. Booth [1930] 1 KB 381 at 387 per Scrutton LJ. The detailed machinery relating to payment of the premium including the default provision should likewise be regarded as applicable and personal to ACP alone. The provision for the grant of the Option (in particular in the present context) cannot readily be construed as intended to be a covenant falling to be complied with by the person from time to time entitled to the Lease. Like the obligation to pay the premium, it is personal to ACP, the original grantee of the Lease. The intention to confine to ACP the obligation to pay and the obligation in default to grant the Development Sublease and the intention not to annex them to the Lease are confirmed by the provisions of clause 12.4.5 which as part of the same machinery bars Britel after the grant of the Development Sublease from making any claim of whatever nature against ACP and clause 15 which imposes confidentiality obligations on both parties in respect of the terms of the Preliminary Agreement, allowing no exception in favour of any successor in title to the Lease.
52. I therefore hold that the provisions of the 1995 Act do not reinforce the grounds relied on by CHAPS and that the refusal of consent was unreasonable not withstanding the provisions of the 1995 Act.
53. A further question would arise if under the 1995 Act clause 12.4.2 of the Preliminary Agreement was a tenant covenant and not a personal covenant. It is unnecessary to decide the question, but I have been asked to express my view on it. It can only be provisional since Albert Court is not a party to these proceedings and accordingly has had no opportunity to address me. There is very limited consideration of the question raised in the books and it may be opportune to make a preliminary exploration of it.
54. The question is whether CHAPS or Britel would be entitled to the grant of the Development Sublease. Section 3 of the 1995 Act provides that the benefit of tenant covenants is annexed to the estate held by the landlord at the date of the grant of the lease in question. Section 3 read on its own leaves naked of benefit and protection the grantee by the landlord of an overriding lease such as the Overriding Lease in this case. Only at the last hour did Parliament supplement section 3 and fill this lacuna by introducing into the 1995 Act section 15. Section 15 renders tenant covenants enforceable by and against the grantee of an overriding lease. In these circumstances it is apparent that: (1) under section 3 the original lessor and the holder from time to time of his estate; and (2) under section 15 the grantee of an overriding lease (and others there stated) can enforce tenant covenants. The critical question arises as to who is entitled to the fruits of such enforcement. It is not immediately apparent whether: (a) the party who obtains the court order enforcing the obligations is solely entitled to the benefit; (b) the benefit is to be shared between all parties entitled to enforce or enforcing the covenant; (c) the holder of the landlord's original estate alone is alone entitled as under section 3 entitled to "the benefit of the covenant" and not merely to enforce it; (d) the party is entitled who may be deemed to have the better claim to the fruits; or (e) entitlement turns on the expressed or (in default of expressed) presumed intention of the parties. The position is far from clear. Clearly there should only be one set of enforcement proceedings: separate proceedings should not be possible by each person entitled to enforce a tenant's covenant or landlord's covenant. Unless and until all parties agree the result or the law is far clearer than it is today, all parties with potential rights of enforcement should surely be joined as parties in the single action to ensure that the defendant obtains a good release and that all claims between the various "enforcers" can be resolved at the same time.
55. The first question is whether guidance is afforded by the distinction in the language used in sections 3 and 15. I do not think that Parliament intended to attach any significance for this purpose to the distinction between "the benefit of the covenant" granted by section 3 to holders of the original lessor's estate and the right to enforce granted by section 15 to grantees and holders of overriding leases: consider section 3(6).
56. My provisional view is that the entitlement to the fruits must turn on the expressed or (in default of expressed) presumed intention of the parties. This intention in a case such as the present must be deduced from the terms of the Overriding Lease. If any agreement between the parties can be deduced, it may bind the parties and their successors in title by way of a form of estoppel: see Charles Harpum, Megarry & Wade's Law of Real Property 6^th ed. paragraph 15.084. For this purpose it may be proper to draw a distinction between fruits of an income and fruits of a capital nature. In the ordinary way the parties to an overriding lease may be presumed to intend (unless the contrary appears) that the grantee shall be entitled to receive and hold for his own benefit the benefits of an income nature of the tenant covenants in the pre-existing lease and the payments made in pursuance of these covenants, e.g. in respect of rent and reimbursement of insurance premiums and (so far as they adversely affect the Overriding Lease) damages for dilapidation as well as the right to possession arising on the exercise of the right of re-entry. The holder of the original lessor's estate may be presumed to be intended to be entitled to retain and hold for his own benefit damages for breaches of covenant so far as they adversely affect his reversionary interest. It may also be readily assumed that the grantor of the overriding lease is intended to be entitled to retain and hold for his own benefit fruits of a capital nature, e.g. the rights arising on exercise of pre-existing options.
57. Obviously it is desirable that express provision is made in any overriding lease regarding entitlement generally.
58. Assuming that clause 12.4.2 created a tenant covenant and that therefore the benefit passed to Albert Court on its purchase of the freehold reversion (see section 3), the issue arises whether on the grant of the Overriding Lease there passed and vested in CHAPS, not merely the enforcement rights under section 15, but also (as against Albert Court) the right to the fruits of the exercise of the Option i.e. the Development Sublease. Looking at the capital character of the Option as part of the consideration for the grant of the Lease, it seems to me quite unreal to presume an intention on the part of the parties to the Overriding Lease that the Development Sublease should pass as a windfall to CHAPS. Looked at objectively, in the absence of any contrary indication, the ordinary expectation would surely be that the fruits of exercise of the Option should remain with Albert Court. There is a degree of unreality, of course, in this whole exercise, for (as I have already held) it cannot sensibly be inferred that ACP and Britel ever intended that right to so special and valuable a right, tied up as it is with payment by ACP to Britel of the premium for the grant of the Lease, should be otherwise than a personal covenant. As however I have held that the refusal of consent was unlawful for the other reasons which I have given, it is unnecessary for me finally to decide this question.

CONCLUSION

59. My conclusion is that: (1) for the reasons which I have given CHAPS unreasonably refused consent to the assignment of the Lease to Mr Tamimi and FP is accordingly entitled to the declaration which it seeks in the first action; and (2) CHAPS waived the right to forfeit the Lease for breach of the covenant to carry out and complete the Project expeditiously and that therefore the second action brought by CHAPS should be dismissed.