E.ON UK Plc v Gilesports Ltd [2012] EWHC 2172 (Ch)

[2012] EWHC 2172 (Ch)Case No HC11C00275
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Rolls Building, Fetter Lane, London, EC4A 1NLDate 31 July 2012
Before
THE HON MR JUSTICE ARNOLD
Between
E.ON UK PLCClaimantGILESPORTS LIMITEDDefendant
Jonathan Seitler QC (instructed by Wragge & Co LLP) for ClaimantCharles Harpum (instructed by Cobbetts LLP) for DefendantHearing Hearing dates: 18-20 July 2012
Judgment

Introduction

[1]In these proceedings the Claimant (“E.ON”) seeks a declaration that the Defendant (“Gilesports”) remains the tenant of the property known as Unit 17, Abbeygate, 132 Abbey Street, Nuneaton (“the Property”) under a lease dated 28 October 2008 (“the Sublease”) and arrears of rent, alternatively damages. E.ON is the leasehold owner of the property under a lease dated 12 December 1991 (“the Headlease”). At the times relevant to this claim, the owner of the leasehold interest was a company then called East Midlands Electricity plc and later Central Networks East plc (“Central Networks”). E.ON was substituted as Claimant following an assignment by Central Networks to E.ON of the leasehold interest and its cause of action.

Relevant terms of the Headlease

[2]The Headlease and its Schedules runs to 42 pages. Clause 2.3 provides for the Tenant to pay the Rent, the Insurance Rent and Service Rent (all as defined in clause 1.1). The Headlease includes the following tenant’s covenants:
“3. TENANT’S COVENANTS THETENANTCOVENANTS with the Landlord as follows – that is to say:- … 3.12 User 3.12.1 Not to use the Demised Premises otherwise than as a shop for the retail sale of electrical products and ancillary thereto the servicing of customer accounts or any other use within Class A1 of the Town and Country Planning (Use classes) Order 1987 with the prior consent of the Landlord but:- 3.12.1.1 the Demised Premises shall not in any case be used for the sale of hot or cold food or beverages nor in connection with the business of a sex shop betting shop nor for the playing of amusement machines; 3.12.1.2 subject to the foregoing the Landlord’s consent shall not be unreasonably withheld or delayed 3.14 Alienation 3.14.1 Not to assign or charge part only of the Demised Premises nor to underlet the whole or part of the Demised Premises in consideration of a fine or premium 3.14.2 Not otherwise than as may be permitted under clause 3.14.9 to share possession or occupation of the whole or any part of the Demised Premises 3.14.3 Not otherwise than by assignment or underletting permitted under the following provisions of this Clause 3.14 nor otherwise than as provided in clause 3.14.9 to:- 3.14.3.1 part with or share possession or occupation of the whole or any part of the Demised Premises; 3.14.3.2 grant to third parties any rights over the Demised Premises 3.14.4 Not to assign or charge the whole of the Demised Premises without the previous written consent of the Landlord which shall not unreasonably be withheld 3.14.5 Upon any assignment to obtain (if the Landlord shall reasonably so require) a guarantor reasonably acceptable to the Landlord for any assignee and to obtain a direct covenant by the assignee with the Landlord to observe and perform the covenants and conditions on the part of the Tenant contained in this Lease and a direct covenant by any such guarantor in the terms set out in Schedule 5 3.14.6 Not to underlet the whole or any part of the Demised Premises without the previous written consent of the Landlord which shall not be unreasonably withheld 3.14.7 Upon the grant of any underlease to obtain covenants on the part of the underlessee that the underlessee will:- 3.14.7.1 not assign underlet or charge part only of the premises comprised in the underlease nor underlet the whole of the premises comprised in the underlease 3.14.7.2 not part with or share possession or occupation of the whole or any part of the premises comprised in the underlease nor grant to third parties rights over them otherwise than by an assignment permitted hereunder or in accordance with clause 3.14.9 (but substituting ‘underlessee’ for ‘Tenant’) 3.14.7.3 not assign or charge the whole of the premises comprised in the underlease without obtaining the written consent of the Landlord under this Lease 3.14.7.4 provide for the inclusion in any sub-underleases granted out of such underlease (whether immediate or mediate) covenants to the same effect as those contained in this clause 3.14 3.14.8 Upon the grant of any underlease:- ... 3.14.8.3 to include such covenants on the part of the underlessee as shall secure the due performance and observance of the covenants on the part of the Lessee herein contained 3.14.8.4 to obtain (if the Landlord shall reasonably so require) a guarantor reasonably acceptable to the Landlord for any underlessee the guarantee to be in the form set out in Schedule 5 (mutatis mutandis) or such other form as the Landlord shall approve such approval not to be unreasonably withheld 3.14.9 Not to part with possession or occupation or share possession or occupation of the Demised Premises otherwise than to or with a member of a group of companies of which the Tenant is itself a member of having no interest in the Demised Premises other than a licence at will (which shall forthwith be determined if the Tenant and the relevant member shall cease for any reason whatsoever to be members of the same group of companies) ... … 3.15 Registration of assignments etc Within one month after the execution of any assignment charge transfer or upon any transmission by reason of a death or otherwise affecting the Demised Premises to produce to the solicitors for the time being of the Landlord the deed instrument or other document (and in each case a certified copy thereof for retention by the Landlord) evidencing or effecting such transmission and on each occasion to pay to such solicitors a reasonable registration fee (being not less than TWENTY POUNDS (£20))”
. THETENANTCOVENANTS with the Landlord as follows – that is to say:- Within one month after the execution of any assignment charge transfer or upon any transmission by reason of a death or otherwise affecting the Demised Premises to produce to the solicitors for the time being of the Landlord the deed instrument or other document (and in each case a certified copy thereof for retention by the Landlord) evidencing or effecting such transmission and on each occasion to pay to such solicitors a reasonable registration fee (being not less than TWENTY POUNDS (£20))”.

Relevant terms of the Sublease

[3]The Sublease runs to just seven pages. Clause 1.1.5 defines the Headlease in the same manner as I have. The other relevant terms are as follows:
“2.3 Subjections : The Demise is made subject to and with the benefit of all the rights easements exceptions reservations covenants and other matters contained mentioned or referred to in the Headlease as if the same were repeated herein in full mutatis mutandis save where the same are amended by the provisions hereof … 4. TENANT’S COVENANTS The Tenant covenants with the Landlord in the terms set out in this Clause : … 4.2 Alienation : Not to assign underlet or charge part only of the Demised Premises nor underlet the whole of the Demised Premises. ... 4.4 To Observe and Perform Covenants in Headlease At all times during the term to observe and perform the covenants and conditions contained in the Headlease on the part of the tenant thereof to be observed and performed with the exception of the covenant to pay rent (but including the obligation to pay insurance rent and service charge rent) and so far as the same are not inconsistent with the terms hereof as if the same had been herein repeated and set out in full mutatis mutandis and to indemnify the Landlord and by way of separate indemnity the Head Landlord against all costs claims damages and demand whatsoever and howsoever arising as a result of any breach non-performance and non-observance of such covenants and conditions as aforesaid … 5. LANDLORD’S COVENANTS The Landlord covenants with the Tenant in the terms set out in this Clause : … 5.4 To Obtain Consents At the reasonable cost of the Tenant to take all reasonable steps to obtain the consent and/or approval of the Head Landlord whenever the Tenant makes an application for any such consent and/or approval required hereunder where the consent of both the Landlord and the Head Landlord is required by virtue of this Lease and the Headlease … 6.6 Notices : This Lease shall incorporate the provisions as to notices contained in Section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1962.”
The Demise is made subject to and with the benefit of all the rights easements exceptions reservations covenants and other matters contained mentioned or referred to in the Headlease as if the same were repeated herein in full mutatis mutandis save where the same are amended by the provisions hereof … The Tenant covenants with the Landlord in the terms set out in this Clause : … Not to assign underlet or charge part only of the Demised Premises nor underlet the whole of the Demised Premises. ... At all times during the term to observe and perform the covenants and conditions contained in the Headlease on the part of the tenant thereof to be observed and performed with the exception of the covenant to pay rent (but including the obligation to pay insurance rent and service charge rent) and so far as the same are not inconsistent with the terms hereof as if the same had been herein repeated and set out in full mutatis mutandis and to indemnify the Landlord and by way of separate indemnity the Head Landlord against all costs claims damages and demand whatsoever and howsoever arising as a result of any breach non-performance and non-observance of such covenants and conditions as aforesaid … The Landlord covenants with the Tenant in the terms set out in this Clause : … At the reasonable cost of the Tenant to take all reasonable steps to obtain the consent and/or approval of the Head Landlord whenever the Tenant makes an application for any such consent and/or approval required hereunder where the consent of both the Landlord and the Head Landlord is required by virtue of this Lease and the Headlease … This Lease shall incorporate the provisions as to notices contained in Section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1962.”

Factual background

[4]Abbeygate is a shopping centre in Nuneaton. As can be seen from clause 3.12.1 of the Headlease, at the time of the Headlease, the Property was to be used as a shop for the retail sale of electrical products. Gilesports is, and has at all material times been, a subsidiary of Sports Direct International plc (“Sports Direct”). It used the Property as a shop selling sports clothing and equipment.[5]In March 2006 Sports Direct acquired Original Shoe Company Ltd (“OSC”). It appears that in late October 2006 OSC moved into occupation of the Premises. E.ON’s case is that this was permissible by virtue of clause 3.14.9 of the Headlease as incorporated into the Sublease by clause 4.4. It is not clear to me on what basis Gilesports contends that it was permissible.[6]On 17 December 2007 Sports Direct contracted to sell OSC to JJB Sports plc (“JJB”) for £5 million, the sale to be completed on 28 January 2008. This entailed a transfer of eight leases to OSC, including the Property, since occupation would no longer be permissible under group sharing arrangements such as clause 3.1.4.9/clause 4.4. Sports Direct instructed Cobbetts as its solicitors to deal with this, while JJB instructed Halliwells.[7]On 11 January 2008 Cobbetts sent Sports Direct an email requesting the name and address of the landlord and/or managing agent of the Property, together with any contact details so that they could make an application for a licence to assign. Sports Direct replied on the same day to say that the landlord was The Royal London Mutual Insurance Society Ltd (“Royal London”) and that the managing agent was NB Real Estate (“NBRE”). In fact, Royal London was the head lessor under the Headlease.[8]On 14 January 2008 Cobbetts emailed NBRE a letter seeking Royal London’s consent to assign the Sublease to OSC and for a change of use of the Property to the sale of menswear, ladieswear, childrenswear and mens’, ladies’ and children’s footwear and accessories. The letter enclosed a copy of OSC’s accounts for the year ended 31 October 2005. On the same day NBRE asked Cobbetts for confirmation that Gilesports was seeking an assignment of the Sublease, not the Headlease. Cobbetts confirmed this the next day.[9]On 6 March 2008 Halliwells confirmed to Cobbetts that JJB would provide guarantees for the leasehold properties to be assigned where licences had not been forthcoming, one of which was the Property. On 7 March 2008 Cobbetts relayed this to NBRE.[10]On 3 April 1998 Royal London’s in-house solicitor Susan Guy requested a copy of the Sublease from Cobbetts. Cobbetts sent a copy the same day. On 7 April 2008 Ms Guy sent Cobbetts a draft licence to assign the Sublease and for change of use. One of the parties to the draft licence was Central Networks. On the same day Cobbetts sent Ms Guy proposed amendments to the draft licence, with copies to Halliwells and NBRE. On 8 April 2008 Halliwells agreed the amendments and on 21 April 2008 Ms Guy did. Later the same day Ms Guy sent Cobbetts a clean copy of the licence for engrossing. On 22 April 2008 Cobbetts sent the licence to assign to Sports direct for signature. This was duly returned on 23 April 2008, and sent to Halliwells on 24 April 2008. Halliwells returned it on 30 April 2008.[11]On 1 May 2008 Ms Guy sent Cobbetts an email saying that she was holding a signed licence. The email also stated:
“I will email to you a [rent review memorandum] for signature by [Central Networks] and would you please send it to them for signature. I assume that you have a contact as they have signed the licence to assign.”
[12]This email prompted a telephone conversation between Cobbetts and Ms Guy during which it transpired that each had assumed that the other was liaising with Central Networks. Thus, contrary to Ms Guy’s assumption, Cobbetts had had no communication with Central Networks, which had not signed the licence. Cobbetts reported this to Sports Direct the same day, and asked for contact details for Central Networks.[13]On 2 May 2008 Sports Direct replied by providing contact details for Gary Woodward of Innes England, Central Networks’s managing agent. On the same day Angela Bhaseen of Cobbetts telephoned Mr Woodward and discovered that he was out of the office until 6 May 2008 (5 May 2008 being a bank holiday). She left a telephone message. Shortly afterwards, she sent him an email which explained that Gilesports was seeking a licence to assign to OSC and change of use, that application had originally been made to Royal London on 14 January 2008, that Royal London had given its consent and that Cobbetts had assumed that Royal London had contacted Innes England. She attached copies of the licence as signed by Gilesports, OSC and JJB and of the letter dated 14 January 2008 (but not the accounts enclosed with that letter). She asked Mr Woodward to contact her on 6 May 2008. Her email did not state that the matter was urgent, let alone give any reason for urgency or stipulate any deadline for completion of the licence.[14]On 7 May 2008 Alexandra Plane of Cobbetts telephoned Mr Woodward, who said that solicitors would be instructed and he would forward details that afternoon. On 8 May 2008 she sent Mr Woodward an email confirming the conversation and saying “I look forward to hearing from you as soon as possible”.[15]On 9 May 2008 Mr Woodward replied asking asked for copies OSC’s accounts “so that I can provide our due diligence to our client”. He went on to say that he understood that Cobbetts had the superior landlord’s consent, “but clearly from our point of view I need to ensure our client is happy”. Ms Plane sent Mr Woodward OSC’s accounts for the 18 month period ended 29 April 2007 by email later that day. These showed that OSC had made a loss of £7.6 million in that period, against a loss of £529,000 in the year to 31 October 2005, and a deficiency in shareholders’ funds as at 29 April 2007 of £6.8 million. The directors’ report revealed that during this period OSC was financed by a non-interest bearing loan from Sports Direct and that OSC had been sold to a third party (i.e. JJB) with effect from 28 January 2008.[16]On 12 May 2008 Mr Woodward sent a memo to his colleague Matthew Hannah, reporting on Gilesports’ application for consent to assign. He said that he had carried out Experian credit checks on OSC, which was reported as high risk for 2008, and on JJB, which was shown as very low risk. He concluded that: “subject to them meeting our costs and E-On’s costs in respect of the transaction, there seems no particular reason to look at withholding consent to the under-lease. This is subject just to my general quick review to make sure everything is paid up to date etc”.[17]On 16 May 2008 Ms Plane sent Mr Woodward an email asking whether he had been able to consider the licence yet. She went on, “We are hoping to get the licence signed as soon as possible and complete this matter”, but did not give any reason for urgency or stipulate any deadline. She concluded by noting that she would be away for the next two weeks and Mr Woodward should contact Ms Bhaseen during that time.[18]On 19 May 2008 Mr Woodward’s personal assistant sent Ms Bhaseen an email saying that that he had submitted the documentation to his client and would chase during the course of the week to seek further instructions. He asked for confirmation that Gilesports would meet Central Networks’ legal and surveyor’s costs. The next day Ms Bhaseen asked Mr Woodward for confirmation of the amount of those costs.[19]On 23 May 2008 Mr Woodward sent a memo to Mr Hannah with an update asking him to identify the solicitor from whom to request an estimate. He went on to discuss the rent review memorandum received from Royal London and the fact that the Sublease had not been assigned to E.ON.[20]Monday 26 May 2008 was a bank holiday. On Tuesday 27 May 2008 Ms Bhaseen telephoned Innes England and told that Mr Woodward was away until 2 June 2008 (i.e. for the Whitsun school half-term week).[21]Ms Bhaseen gave evidence that she had been instructed by Sports Direct to complete any outstanding assignments of the eight properties by the end of May 2008 whether or not the licences had been completed by then. She was unable to be specific as to precisely when she received this instruction, since she apparently had no documentary record of it, but thought that it might have been in mid May 2008. There is no evidence as to the reason for this deadline, if any.[22]Accordingly, Ms Bhaseen telephoned Steve Peel at Halliwells on Wednesday 28 May 2008 and they completed the assignment of the Sublease from Gilesports to OSC (“the Transfer”). She wrote to him the same day recording completion on that date and enclosing her client’s part of the Transfer together with the deeds for the Property. Mr Peel replied on 2 June 2008 acknowledging receipt. For reasons that are unclear, both counterparts of the form TR1 executed by Gilesports and OSC are dated 29 May 2008, even though completion in fact took place on 28 May 2008.[23]Ms Bhaseen gave evidence that, as at 28 May 2008, she assumed that Halliwells would give notice of the Transfer to Central Networks. It appears from documents obtained and disclosed in these proceedings that Halliwells prepared draft letters giving notice of the Transfer to both Central Networks and the Land Registry dated 11 June 2008, but these were never sent. There is no evidence which explains why not.[24]On 4 June 2008 Mr Hannah sent Geldards an email asking for an estimate of their fees for acting as Central Networks’ solicitors on the transaction.[25]On 12 June 2008 Mr Woodward wrote to Richard Rogers of Central Networks seeking his approval to the assignment of the Sublease and recommending that the application should proceed in view of the guarantee by JJB. On the same day, Geldards sent Mr Hannah a fee estimate.[26]On 13 June 2008 Mr Woodward relayed the fee estimate to Cobbetts together with a figure for Innes England’s fees and asked for Gilesports’ undertaking to pay these. On the same day he confirmed to Geldards that he had recommended consent to Mr Rogers, subject to Geldards’ review of the documentation. On 16 June 2008 Cobbetts emailed Mr Woodward a letter containing the necessary undertaking.[27]On 17 June 2008 Mr Rogers sent Mr Woodward an email agreeing to the assignment subject to preparation of the necessary legal documentation. Innes England relayed this to Cobbetts the same day.[28]After a certain amount of toing and froing, Cobbetts sent Geldards the draft licence agreed with Royal London on 30 June 2008.[29]On 3 July 2008 Halliwells informed Geldards that they had been instructed to withdraw the offer of a guarantee from JJB in respect of the Property and another property.[30]After more toing and froing, on 28 July 2008 Geldards sent Cobbetts proposed amendments to the draft licence by email. One of the amendments proposed was to add the underlined words to clause 3.1:
“The Landlord at the request of the Guarantor grants to the Tenant and the Tenant grants to the Undertenant its licence to assign the whole of its estate and interest in the Premises to the Assignee on condition that the Transfer will completed within three months from the date of this Licence otherwise the provision of this Licence shall immediately determine and cease to have effect …”
Another amendment added a new clause 4.2.5 to the effect that, if the Guarantor (i.e. JJB) became insolvent, then the Assignee (i.e. OSC) would procure a substitute guarantor acceptable to the Landlord (i.e. Royal London) and the Tenant (i.e. Central Networks).[31]On 29 July 2008, Ms Plane, having discussed the matter with her superior Ms Bhaseen, sent Geldards an email refusing to agree to these changes and trying to persuade Geldards to drop them. Ms Bhaseen accepted that it must have been apparent to her by this time that Geldards did not know that the Transfer had been completed, yet Ms Plane’s email did not reveal the real reason why Gilesports could not agree to the proposed amendment to clause 3.1. Ms Bhaseen’s explanation for this was that she was concentrating on trying to complete the licence. Furthermore, Ms Plane’s email did not reveal that JJB had withdrawn its offer, but on the contrary sought to justify the deletion of clause 4.2.5 on the basis of “the covenant strength of the Guarantor”. Ms Bhaseen’s explanation for this was that her instructions were that Sports Direct hoped to persuade JJB to change its mind. Ms Plane reiterated this point in an email dated 8 August 2008.[32]By 12 August 2008 the only point not agreed was clause 4.2.5. After that, the negotiations proceeded in a desultory manner. By 26 September 2008 it was Geldards who were chasing Cobbetts rather than the other way around, noting in communications with Mr Rogers and Mr Woodward that(i) JJB had lost half of its market share value in the previous week and(ii) the June quarter rent and service charge were outstanding.[33]On 2 October 2008 Ms Plane, with Ms Bhaseen’s express approval, again tried to persuade Geldards to drop clause 4.2.5, saying “you are being offered JJB Sports PLC as guarantor and I would ask, in the light of your suggested clause at 4.2.5, that you consider the covenant strength of this PLC”. Geldards did not reply to this email, and Cobbetts only chased for a reply once, by telephone on 5 November 2008.[34]On 8 October 2008 Ms Plane asked Halliwells whether they had instructions for JJB to act as guarantor. On 13 October 2008 Halliwells informed Ms Plane and Ms Bhaseen that JJB had “dug their heels in” with regard to the guarantee. Ms Bhaseen relayed this to Sports Directs’ Head of Property on 20 October 2008, who replied “Leave it to Dave [Forsey, Sports Directs’ CEO] to ‘sort out’ JJB”. On 23 December 2008 Halliwells confirmed to Cobbetts that no JJB guarantee would be given in respect of the Property. On 29 December 2008 Cobbetts asked Mr Forsey to take the matter up again with JJB. On 15 January 2009 Mr Forsey replied that no progress had been made.[35]On 19 February 2009 OSC went into administration. Cobbetts did not inform Geldards of this. Indeed, on 30 March 2009 Innes England accepted advice which Geldards had given on 24 December 2008 to drop clause 4.2.5. Before Geldards could communicate this to Cobbetts, however, Innes England discovered that OSC had gone into administration.[36]On 26 August 2009 Geldards wrote to Cobbetts noting that Gilesports had not paid any rent since April 2008 and asking for its proposals for discharging arrears of rent which stood at £111,2333.67 as at the March quarter day. Not having received any reply, Geldards wrote again on 15 September 2009 with an up to date schedule of arrears as at 2 September 2009 totalling £139,869.48.[37]On 5 October 2009 Cobbetts informed Geldards for the first time that the Transfer had taken place on 29 May 2008. Geldards registered their surprise at this news in a letter dated 20 October 2009.[38]On 23 June 2010 Central Networks’ (now E.ON’s) present solicitors served on Gilesports a notice under section 17 of the Landlord and Tenant (Covenants) Act 1995 (“LTCA 1995”) without prejudice to Central Networks’ contention that Gilesports remained the tenant of the Property. Further notices have been served every quarter since then.[39]These proceedings were commenced on 10 February 2011.

The issues

[40]The following issues arise for decision: i) As a matter of construction of the Sublease, was Central Networks’ consent to the Transfer required? ii) If consent was required, did Central Networks unreasonably delay in giving its consent to the Transfer? iii) Was the Transfer effective to assign the benefit and burden of the tenant’s covenants in the Sublease given that the Transfer was not registered at the Land Registry? iv) Does section 17 LTCA 1995 apply so as to limit Gilesports’ liability to the amounts claimed in the notices? If it does, does E.ON have a claim for damages for the remaining arrears of rent?

Issue 1: Construction of clause 4.4

[41]E.ON contends that clause 4.4 of the Sublease imported clauses 3.14 and 3.15 of the Headlease into the Sublease with the effect that the obligations imposed by those provisions were owed by Gilesports to Central Networks. Gilesports disputes this. This is a short point of construction.[42]It is common ground that the language of clause 4.4 can be broken down into three parts: i) The first part consists of the words “At all times during the term to observe and perform the covenants and conditions contained in the Headlease on the part of the tenant thereof to be observed and performed with the exception of the covenant to pay rent (but including the obligation to pay insurance rent and service charge rent)”. ii) The second part consists of the words “and so far as the same are not inconsistent with the terms hereof as if the same had been herein repeated and set out in full mutatis mutandis”. It is these words which give rise to the dispute. iii) The third part consists of the words “and to indemnify the Landlord and by way of separate indemnity the Head Landlord against all costs claims damages and demand whatsoever and howsoever arising as a result of any breach non-performance and non-observance of such covenants and conditions as aforesaid”.[43]It is agreed that the first part requires the tenant under the Sublease to observe and perform the tenant’s covenants and conditions in the Headlease (except the covenant to pay rent). This shifts the onus of performing the tenant’s covenants under the Headlease to the sublessee.[44]Counsel for E.ON submitted that the effect of the disputed words, and in particular the words “mutatis mutandis”, was to require the tenant under the Sublease to observe and perform the same covenants with respect to the sublessor as the sublessor was required to observe and perform respect to the head lessor. Counsel for Gilesports submitted that the effect of the disputed words was to ensure that all the obligations that were cast on the tenant under the Headlease were complied with, by reading into the Sublease such terms as were necessary to achieve this.[45]In my judgment E.ON’s construction is the correct one for the following reasons. First, I consider that it is the more natural reading of the disputed words, and in particular the words “mutatis mutandis”.[46]Secondly, as counsel for Gilesports accepted, Gilesports’ construction means that the disputed words add nothing to the first part of clause 4.4. He submitted that this was not a point against Gilesports’ construction, because on E.ON’s construction clause 4.2 of the Sublease was redundant, since clause 4.4 of the Sublease would import clause 3.14.1 of the Headlease. As he accepted, however, clause 4.2 of the Sublease gives effect to clause 3.14.7.1 of the Headlease. That cannot be achieved merely by importing clause 3.14.1 of the Headlease. Thus I do not agree that clause 4.2 of the Sublease is redundant on E.ON’s construction.[47]Thirdly, I agree with counsel for E.ON that E.ON’s construction is supported by clause 5.4 of the Sublease. Counsel for Gilesports had no answer to this point.[48]Fourthly, I agree with counsel for E.ON that Gilesports’ construction is uncommercial. It is clear that the purpose of clause 4.4, and in particular the disputed words, is to enable the Sublease to be expressed in short form, and that the sublessor would want to be protected by tenant’s covenants from the sublessee corresponding to those he had given to the head lessor.

Issue 2: Unreasonable delay

[49]It follows from my conclusion on issue 1 that clause 3.14.4 of the Headlease as imported by clause 4.4 of the Sublease obliged Gilesports not to assign or charge the whole of the Property without the previous written consent of Central Networks “which shall not be unreasonably withheld”. By contrast with clause 3.12.1.2, there is no requirement in clause 3.14.4 that consent shall not be unreasonably delayed. Gilesports contends that that requirement is supplied by section 1(3) of the Landlord Tenant Act 1988 (“LTA 1988”). This gives rise to two sub-issues. First, does section 1(3) LTA 1988 apply? Secondly, if it does, did Central Networks fail to give its consent to the Transfer within a reasonable time?[50]Does section 1(3) apply? LTA 1988 provides so far as relevant as follows:
“Qualified duty to consent to assigning, underletting etc. of premises 1.(1) This section applies in any case where— (a) a tenancy includes a covenant on the part of the tenant not to enter into one or more of the following transactions, that is— (i) assigning, … the premises comprised in the tenancy or any part of the premises without the consent of the landlord or some other person, but (b) the covenant is subject to the qualification that the consent is not to be unreasonably withheld (whether or not it is also subject to any other qualification). … (3) Where there is served on the person who may consent to a proposed transaction a written application by the tenant for consent to the transaction, he owes a duty to the tenant within a reasonable time— (a) to give consent, except in a case where it is reasonable not to give consent, (b) to serve on the tenant written notice of his decision whether or not to give consent specifying in addition— (i) if the consent is given subject to conditions, the conditions, (ii) if the consent is withheld, the reasons for withholding it. … (5) 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. (6) It is for the person who owed any duty under subsection (3) above— … (c) if he did not give consent and the question arises whether it was reasonable for him not to do so, to show that it was reasonable, and, if the question arises whether he served notice under that subsection within a reasonable time, to show that he did. … Interpretation 5. … (2) An application or notice is to be treated as served for the purposes of this Act if— (a) served in any manner provided in the tenancy, …” (a) a tenancy includes a covenant on the part of the tenant not to enter into one or more of the following transactions, that is— (i) assigning, … the premises comprised in the tenancy or any part of the premises without the consent of the landlord or some other person, but (b) the covenant is subject to the qualification that the consent is not to be unreasonably withheld (whether or not it is also subject to any other qualification). (a) to give consent, except in a case where it is reasonable not to give consent, (b) to serve on the tenant written notice of his decision whether or not to give consent specifying in addition— (i) if the consent is given subject to conditions, the conditions, (ii) if the consent is withheld, the reasons for withholding it. … (c) if he did not give consent and the question arises whether it was reasonable for him not to do so, to show that it was reasonable, and, if the question arises whether he served notice under that subsection within a reasonable time, to show that he did.

Interpretation

(a) served in any manner provided in the tenancy, …”

[51]It is common ground that the conditions in section 1(1)(a)(i) and (b) are satisfied. The issue is whether Gilesports “served” on Central Networks a written application for consent to the transaction. Gilesports relies for this purpose on Ms Bhaseen’s email to Mr Woodward dated 2 May 2008. There is no dispute that that was a written application for consent. E.ON disputes that the sending of the email to Innes England constituted good service for the purpose of section 1(3).[52]It is common ground that(i) section 5(2)(a) LTA 1988 requires the application to be served in a manner provided in the Sublease (Gilesports does not rely upon section 5(2)(b)) and(ii) clause 6.6 of the Sublease incorporates section 196 of the Law of Property Act 1925 (“LPA 1925”).[53]Section 196(2), (3) and (4) LPA 1925 provide:
“(2) Any notice required or authorised by this Act to be served on a lessee or mortgagor shall be sufficient, although only addressed to the lessee or mortgagor by that designation, without his name, or generally to the persons interested, without any name, and notwithstanding that any person to be affected by the notice is absent, under disability, unborn, or unascertained. (3) Any notice required or authorised by this Act to be served shall be sufficiently served if it is left at the last-known place of abode or business in the United Kingdom of the lessee, lessor, mortgagee, mortgagor, or other person to be served, or, in case of a notice required or authorised to be served on a lessee or mortgagor, is affixed or left for him on the land or any house or building comprised in the lease or mortgage, or, in case of a mining lease, is left for the lessee at the office or counting-house of the mine. (4) Any notice required or authorised by this Act to be served shall also be sufficiently served, if it is sent by post in a registered letter addressed to the lessee, lessor, mortgagee, mortgagor, or other person to be served, by name, at the aforesaid place of abode or business, office, or counting-house, and if that letter is not returned by the postal operator (within the meaning of Part 3 of the Postal Services Act 2011) concerned undelivered; and that service shall be deemed to be made at the time at which the registered letter would in the ordinary course be delivered.”
[54]Counsel for E.ON submitted that section 196(3) required physical delivery of the application to Central Networks’ last known place of business, and that the email dated 2 May 2008 was neither physically delivered nor sent to Central Networks. Counsel for Gilesports submitted that section 196(3) merely stipulated that such service was “sufficient”, not that it was required, and that there was good service because the application was in fact received by Central Networks’ agent. I do not accept that submission. In my judgment section 196 requires service by one of two methods: either delivery to (in the case of a landlord) the landlord’s last known place of abode or business or by registered post. In the present case neither method was used. Accordingly the application was not “served” on Central Networks.[55]In the alternative, counsel for Gilesports submitted that Central Networks was bound by an estoppel by convention from denying that the application had been served. In support of this he relied upon the fact that all parties proceeded on the basis that Gilesports had made an application for consent. In my judgment that does not establish an estoppel by convention. There was no agreement, mutual understanding or mutual assumption that section 1 LTA 1988 was engaged.[56]Did Central Networks fail to give its consent within a reasonable time? If, contrary to my previous conclusion, section 1(3) LTA 1998 does apply, Gilesports contends that Central Networks failed to give its consent within a reasonable time. It is not open to a landlord to put forward reasons justifying the withholding of consent if those reasons are not put forward within a reasonable time: see Go West Ltd v Spigarolo [2003] EWCA Civ 17, [2003] QB 1140 at [22] and [80(ii)]. By virtue of section 1(6)(c) LTA 1988, the onus lies on E.ON to show that Central Networks’ failure to give consent by 28 May 2008 was reasonable.[57]The correct approach to deciding what constitutes a reasonable time has been considered in two decisions of the Court of Appeal. In the Go West case, Munby J (as he then was), with whom Potter LJ agreed and Pill LJ concurred, said:
“35. If one asks what is the reference point by which one answers the question posed in section 1(3)—Has the landlord done ‘within a reasonable time’ what he should have done?—the answer can only be that the reference point is the date when the tenant made his written application. Section 1(3) invites a question—‘Within a reasonable time’ of what?—to which there can be only one answer: within a reasonable time after the service by the tenant of his written application. But this does not mean that what is a ‘reasonable time’ thereafter is something that can be determined a priori as at the date when the application is made. Nor does it mean that only the circumstances at that date can be taken into account in determining what is ‘a reasonable time’. That has to be assessed, in my judgment, having regard to all the circumstances of the particular case. Those circumstances will obviously include, but will not be confined to, the circumstances known to the landlord and the tenant at the date when the tenant makes his application. I entirely agree with Mr Dutton that subsequent events also have to be taken into account. This, after all, accords with Sir Richard Scott V-C's view in the Norwich Union case [1999] 1 WLR 531—a view with which I entirely agree, though the point was a slightly different one—that the position must be tested by reference to the state of affairs at the expiry of the reasonable time. … 39. This leads on to the second point. In one important sense the ‘reasonable time’ requirement in section 1(3) is there to protect the tenant: the landlord must perform his duty ‘within a reasonable time’. But in another and equally important sense it is there to protect the landlord: the landlord is given a reasonable time within which to do what the 1988 Act requires of him. Moreover, the ‘reasonable time’ referred to in section 1(3) is the time within which the landlord has to do something, not the time within which the tenant has to do anything. In other words, and as section 1(3) makes clear, the ‘reasonable time’ is the time reasonably required by the landlord to do the things which the Act requires of him. … 73. … I repeat, and for my own part would wish to emphasise, Sir Richard Scott V-C's references in the Norwich Union case [1999] 1 WLR 531to the landlord dealing with his tenant's application "expeditiously" and "at the earliest sensible moment". It may be that the reasonable time referred to in section 1(3) will sometimes have to be measured in weeks rather than days; but even in complicated cases, it should in my view be measured in weeks rather than months. …”
[58]In NCR Ltd v Riverland Portfolio (No 1) Ltd (No 2) [2005] EWCA Civ, [2005] L&TR 25 Carnwath LJ (as he then was), with whom Lord Slynn of Hadley and Ward LJ agreed, said:
“21. … In my view, whatever earlier discussions there had been, Riverland was entitled to adequate time following receipt of the completed application to consider the serious financial and legal implications of a refusal with its advisers, and if necessary to report to the relevant Board. In the absence of special exceptional circumstances, a period of less than three weeks (particularly in the holiday period) cannot in my view be categorised as inherently unreasonable for that process. … 23. … it is in neither side's interests, at least where a refusal is being contemplated, for the decision to be rushed. The lessor is properly concerned to protect himself against the possible consequences of a finding of unreasonableness, while the lessee's primary objective is to achieve an underletting, rather than an uncertain cause of action under the Act.”
[59]In the present case counsel for Gilesports conceded that time should not be regarded as having started to run until 16:14 on Friday 9 May 2008, when Cobbetts sent OSC’s accounts to Innes England by email. As counsel for E.ON pointed out, 11 working days elapsed between then and 28 May 2008. I do not regard that as a reasonable time in which to require Central Networks to either consent or give reasons for refusing consent for the following reasons: i) 11 working days is on any view a fairly short time in which to require Central Networks to consider the financial and legal implications of the transaction with its advisors, to consider the matter internally and to formulate its response. ii) One of those working days was during the Whitsun half-term break. Not only was that a period during which it was inherently likely that relevant personnel would be on holiday, but also Gilesports knew (through Cobbetts) prior to completion of the Transfer that Mr Woodward was in fact away that week (like Ms Plane). iii) As noted above, Ms Bhaseen’s email dated 2 May 2008 did not state that the matter was urgent, let alone give any reason for urgency or stipulate a deadline for response. A landlord cannot be blamed for not treating a request for consent as urgent if it is not informed that the request is urgent or why it is urgent. iv) In my view it would have been reasonable for Innes England (and hence Central Networks) to conclude from the email dated 2 May 2008 that the matter was far from urgent, because Royal London’s consent had been sought as long ago as 14 January 2008 and only now was Gilesports seeking Central Networks’ consent. Furthermore, the letter dated 14 January 2008 did not suggest that the matter was urgent. v) It took Royal London roughly 3½ months to give its consent, yet Gilesports did not suggest at any stage that it was unreasonably delaying the matter. As counsel for E.ON pointed out, Central Networks had a more direct interest in the identity and financial security of the sublessee than Royal London did. vi) The only chaser which Cobbetts sent between 9 May 2008 and 28 May 2008 was the email dated 16 May 2008. This did not state that the matter was urgent or why or stipulate any deadline for response. Nor did Cobbetts ever assert to Innes England that Central Networks was under a duty to consider the matter expeditiously by virtue of section 1(3) LTA 1988. vii) Cobbetts did not inform Central Networks of the deadline of the end of May 2008 imposed by Sports Direct. Even now it is not clear what the reason for the deadline was given that the transaction under which OSC was sold by Sports Direct to JJB had completed on 28 January 2008. viii) While the transaction was not particularly complicated, it did require Central Networks to consider both the adverse financial position of OSC and JJB’s position as guarantor. Furthermore, it also involved a change of use.[60]I therefore conclude that Gilesports executed the Transfer in breach of covenant. It is common ground that it follows that the Transfer was an excluded assignment within section 11(1) LTCA 1995, and accordingly Gilesports remains liable under the tenant’s covenants in the Sublease.

Issue 3: Effect of the Transfer

[61]As is common ground, the Sublease was not registrable when it was first granted in 1998, because it was not for a term exceeding 21 years and such leases were not then registrable: Land Registration Act 1925, section 19(2). The Land Registration Act 2002 (“LRA 2002”) was brought into force on 13 October 2003. The assignment of the Sublease by the Transfer triggered the requirement of compulsory first registration, because it was a transfer of a qualifying estate (within LRA 2002, section 4(2)(b)) for valuable or other consideration: LRA 2002, section 4(1)(a)(i).[62]Section 6 LRA 2002 provides as follows: “Duty to apply for registration of title(1) If the requirement of registration applies, the responsible estate owner, or his successor in title, must, before the end of the period for registration, apply to the registrar to be registered as the proprietor of the registrable estate.(2) If the requirement of registration applies because of section 4(1)(g)— (a) the registrable estate is the estate charged by the mortgage, and (b) the responsible estate owner is the owner of that estate.(3) If the requirement of registration applies otherwise than because of section 4(1)(g)— (a) the registrable estate is the estate which is transferred or granted, and (b) the responsible estate owner is the transferee or grantee of that estate.(4) The period for registration is 2 months beginning with the date on which the relevant event occurs, or such longer period as the registrar may provide under subsection (5).(5) If on the application of any interested person the registrar is satisfied that there is good reason for doing so, he may by order provide that the period for registration ends on such later date as he may specify in the order.(6) Rules may make provision enabling the mortgagee under any mortgage falling within section 4(1)(g) to require the estate charged by the mortgage to be registered whether or not the mortgagor consents.” (a) the registrable estate is the estate charged by the mortgage, and (b) the responsible estate owner is the owner of that estate. (a) the registrable estate is the estate which is transferred or granted, and (b) the responsible estate owner is the transferee or grantee of that estate.[63]The obligation to register the Transfer was on the “responsible estate owner”: section 6(1). The responsible estate owner was the transferee i.e. OSC: section 6(3)(b). The period for registration was two months from 28 May 2008: section 6(4). As noted above, Halliwells did not register the Transfer on behalf of OSC within that period. There has been no application under section 6(5).[64]Section 7 LRA 2002 provides so far as relevant:
“Effect of non-compliance with section 6 (1) If the requirement of registration is not complied with, the transfer, grant or creation becomes void as regards the transfer, grant or creation of a legal estate. (2) On the application of subsection (1)- (a) in a case falling within section 4(1)(a) or (b), the title to the legal estate reverts to the transferor who holds it on a bare trust for the transferee …” (a) in a case falling within section 4(1)(a) or (b), the title to the legal estate reverts to the transferor who holds it on a bare trust for the transferee …”
[65]It is common ground that, because the Transfer was not registered, by virtue of section 7 LRA 2002 the assignment of the legal estate under the Sublease became void and on 28 July 2008 the legal estate reverted to the transferor (Gilesports), who thereafter held it on a bare trust for the transferee (OSC).[66]The issue is as to the effect in these circumstances of section 3(2)(a) LTCA 1995. It is common ground that the Sublease was a new tenancy for the purposes of the LTCA 1995, and so section 3 applies to it. Section 3 LTCA 1995 provides so far as relevant:
“Transmission of benefit and burden of 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. (2) Where the assignment is by the tenant under the tenancy, then as from the assignment the assignee— (a) becomes bound by the tenant covenants of the tenancy except to the extent that— (i) immediately before the assignment they did not bind the assignor, or (ii) they fall to be complied with in relation to any demised premises not comprised in the assignment; …” (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. (a) becomes bound by the tenant covenants of the tenancy except to the extent that— (i) immediately before the assignment they did not bind the assignor, or (ii) they fall to be complied with in relation to any demised premises not comprised in the assignment; …”
[67]E.ON contends that, if (contrary to my previous conclusions) the Transfer was not in breach of the covenant not to assign without previous consent, then(i) from 28 May 2008 to 28 July 2008, OSC was the tenant under the Sublease,(ii) on 28 July 2008 there was an assignment of the Sublease from OSC back to Gilesports by virtue of section 7(2)(a) LRA 2002 and thus(iii) Gilesports became bound by the tenant’s covenants by virtue of section 3(2)(a) LTCA 1995.[68]In answer to this, Gilesports relies upon section 28(1) LTCA 1995, which provides: “In this Act (unless the context otherwise requires)- ‘assignment’ includes equitable assignment and in addition (subject to section 11) assignment in breach of a covenant of a tenancy or by operation of law”.[69]Gilesports contends that(i) despite the transfer of the legal estate being void for non-registration, the Transfer operated as an equitable assignment and hence an “assignment” within section 28(1), and thus(ii) OSC became bound by the tenant’s covenants by virtue of section 3(2)(a) LTCA 1995.[70]E.ON replies that, even if this definition applies in the present context (which it disputes), this does not assist Gilesports, because section 28(1) also includes an assignment by operation of law within the definition of “assignment”. E.ON contends that(i) reversion of the legal estate under section 7(2)(a) LRA 2002 is an assignment by operation of law, and thus(ii) Gilesports became bound from 28 July 2008 as set out above.[71]While I have not found this question easy, I find E.ON’s analysis more persuasive. In my view the Transfer was not, on the date it was executed, an equitable assignment: it was an assignment of the entire legal and beneficial interest under the Sublease from Gilesports to OSC, and OSC thus became the tenant. The effect of section 7 LRA 2002 was that, on 28 July 2008, the transfer of the legal estate became void and the legal estate reverted to Gilesports. In my view that amounts to an assignment of the legal estate by operation of law from the then tenant, OSC, to Gilesports. Accordingly, the assignee, Gilesports, became bound by the tenant’s covenants by virtue of section 3(2)(a) LTCA 1995.[72]Counsel for Gilesports submitted that this result was unfair, since it imposed liability on the transferor as a result of a default on the part of the transferee. Counsel for E.ON gave three answers to that submission.[73]First, he submitted that the result was the same as in the pre-LTCA 1995 and pre-LRA 2002 decision of the Court of Appeal in Brown & Root Technology Ltd v Sun Alliance & London Assurance Co Ltd [2001] Ch 733. I do not regard that as a satisfactory answer, however.[74]Secondly, he submitted that the result could only be regarded as unfair if the transferor was unable to register the Transfer, as counsel for Gilesports suggested, but disputed that that was correct. It is not necessary for me to reach a conclusion on this point, but my provisional view is that counsel for Gilesports is correct. While I find it surprising that the transferor should not be able to register the Transfer, that appears to be implied by section 6(6) LRA 2002.[75]Thirdly, he submitted that, even if the transferor was unable to register the Transfer, the transferor did have a remedy, which was to apply to the Registrar for an extension of time under section 6(5) LRA 2002 and to apply to the court for an order compelling the transferee to register the Transfer. In my view this is the most satisfactory answer of the three, short of an amendment to the LRA 2002 to make it clear that the transferor can register a transfer.

Issue 4: Section 17

[76]Section 17 LTCA 1995 provides so far as relevant:
“Restriction on liability of former tenant or his guarantor for rent or service charge etc (1) This section applies where a person (‘the former tenant’) is as a result of an assignment no longer a tenant under a tenancy but- (a) (in the case of a tenancy which is a new tenancy) he has under an authorised guarantee agreement guaranteed the performance by his assignee of a tenant covenant of the tenancy under which any fixed charge is payable; or (b) (in the case of any tenancy) he remains bound by such a covenant. (2) The former tenant shall not be liable under that agreement or (as the case may be) the covenant to pay any amount in respect of any fixed charge payable under the covenant unless, within the period of six months beginning with the date when the charge becomes due, the landlord serves on the former tenant a notice informing him- (a) that the charge is now due; and (b) that in respect of the charge the landlord intends to recover from the former tenant such amount as is specified in the notice and (where payable) interest calculated on such basis as is so specified.” (a) (in the case of a tenancy which is a new tenancy) he has under an authorised guarantee agreement guaranteed the performance by his assignee of a tenant covenant of the tenancy under which any fixed charge is payable; or (b) (in the case of any tenancy) he remains bound by such a covenant. (a) that the charge is now due; and (b) that in respect of the charge the landlord intends to recover from the former tenant such amount as is specified in the notice and (where payable) interest calculated on such basis as is so specified.”
[77]If the Transfer was made in breach of covenant (as I have concluded), Gilesports contends that section 17 applies so as to limit its liability to the amounts claimed in the section 17 notices served by Central Networks and E.ON. Accordingly, Gilesports disputes liability for the rent due under the Sublease during the period between 28 May 2008 and 25 December 2009, the latter being the earliest date covered by the first section 17 notice.[78]E.ON contends that section 17 does not apply for similar reasons to those advanced by it in relation to the previous issue. Section 17(1) provides that section 17 applies where “a person (‘the former tenant’) is as a result of an assignment no longer a tenant under a tenancy”. E.ON argues that, as from 28 July 2008, Gilesports was not the former tenant, but the present tenant, since the effect of section 7(2)(a) LRA 2002 was that the legal estate under the Sublease reverted to it. I accept that argument.[79]It follows that it is not necessary for me to deal with E.ON’s alternative claim in respect of the period from 28 July 2008 to 25 December 2009, which is for damages for breach of clause 3.15 of the Headlease as imported into the Sublease. As for the period from 28 May to 28 July 2008, Gilesports accepts that, in the light on my previous conclusions, it is liable to pay the rent for this period.

Conclusions

[80]For the reasons given above, I conclude that: i) On the true construction of the Sublease, Gilesports required Central Networks’ consent to the Transfer. ii) Section 1(3) LTA 1988 did not apply, and so Central Networks was not under a duty to give consent or reasons for refusal within a reasonable time; but if it was, a reasonable time had not expired by 28 May 2008 when the Transfer was executed. iii) Even if the Transfer was not in breach of covenant, by virtue of section 7(2)(a) LRA 2002 and section 3(2)(a) LTCA 1995 Gilesports was bound by the tenant’s covenants in the Sublease from 28 July 2008. iv) Section 17 LTCA 1995 does not apply so as to limit Gilesports’s liability to the sums claimed in the section 17 notices.

Cited in 4 later judgments