LANDLORD AND TENANT – DAMAGES

EXEMPLARY DAMAGES : ASSIGNMENT : LANDLORD’S POWERS AND DUTIES : CONSENT : BUSINESS TENANCIES : BREACH OF STATUTORY DUTY: REASONABLE TIME : MITIGATION : LICENCES : BREACH OF STATUTORY DUTY TO CONSENT TO ASSIGNMENT : FAILURE TO GIVE DECISION WITHIN REASONABLE TIME : ABUSE OF PROCEDURES OF LANDLORD AND TENANT ACT 1988 : TENANT’S ENTITLEMENT TO EXEMPLARY DAMAGES : COMMERCIAL LEASES : LICENCES TO ASSIGN : BAD FAITH : WASTED EXPENDITURE : LOSS OF PROFITS : DEEMED REFUSAL : S.1 LANDLORD AND TENANT ACT 1988

It was illegitimate for a landlord to abuse the procedures of the Landlord and Tenant Act 1988 in order to achieve full market rental for its property. There was a right to seek exemplary damages against a landlord for breach of its statutory duty under the Act. Such damages were payable to a tenant where a landlord, via its agents, had failed to provide an answer to the tenant’s application for consent to assign its commercial lease within a reasonable time as a consequence of its strategy to frustrate the tenant’s legitimate expectation of assigning the lease.

The claimant tenant (D) sought damages from the defendant landlord (T) for breach of the statutory requirement to give reasons for its deemed refusal of consent to assign the residue of its lease. The lease was in respect of ground floor shop premises. D had found a prospective assignee (H) and, in January 2002, submitted an application to T for a licence to assign. When the licence to assign was sought the premises were significantly under-rented in that the open market rental value of the premises was considerably greater than the rent paid by D. Subsequently D exchanged contracts with H to assign the lease in exchange for payment of a premium, with completion conditional on obtaining T’s licence. T’s agents repeatedly requested further information from D, chiefly in relation to the financial position of H’s business. In the event, no consent to assign was ever given by T and H signed a contract in respect of other premises. D, which had moved out of the premises in anticipation of the assignment, returned after three months to mitigate its loss. D’s primary claim was failure to give any decision within the reasonable time imposed on T under Landlord and Tenant Act 1988 s.1.

HELD: (1) By March 21, 2002 T had all the relevant information in its possession for the purpose of enabling it to decide whether to give licence to assign. As no decision had been communicated at the date, T had failed to provide an answer within a reasonable time and was in breach of its statutory obligation under the Act. In any event T was plainly in breach by its failure to grant licence to assign by April 25, 2002. The reason that no decision was given was because T, through its agents, was pursuing a deliberately obstructive policy designed to prevent the assignment going through. T was liable to D in damages for breach of its statutory duty. (2) Had it not breached its duty, the assignment of the lease would have taken place on March 25, 2002, in accordance with the original provisions in the agreement for assignment to H. By reason of T’s breach, D had lost the premium payable by H and prima facie was exposed to the balance of the rent for the residue of the lease. D had mitigated its loss by returning to the premises and was entitled to the premium and an amount for loss of profit, in addition to the quarter’s rent when the premises were empty and reduced amounts for stripping out (in anticipation of completion) and subsequently reinstating the premises. (3) In light of the authorities referred to in Mount Eden Land Ltd v Folia Ltd (2003) EWHC 1815 (Ch) and the decision in Kuddus v Chief Constable of Leicestershire Constabulary (2001) 2 W.L.R. 1789, there was a right to seek punitive or exemplary damages against a landlord for breach of its statutory duty under the Act. It was clear that T, through its agents, had operated in a cynical way designed to frustrate D in obtaining its legitimate expectation of an assignment of the premises coupled with the receipt of a premium and an ending of its further obligations under the lease. It was done to extract for itself the value of the property by virtue of the difference between the passing rent and the market rent when it had no legitimate reason for acting the way it did in response to D’s application for licence to assign. It was illegitimate for a landlord to abuse the procedure of the Act in order to achieve such a purpose. T’s conduct was deplorable and was well within the requirements of the second limb of Lord Devlin’s judgment in Rookes v Barnard (1964) A.C. 1129. If T’s designs had been successful and discovered later, it was likely that it would have made a profit of some £25,000. It was important for landlords to realise that they should not resort to tactics to frustrate the legitimate expectations of tenants by raising long and irrelevant queries designed to avoid giving the answer to the application to assign. This was the more so when the conduct was calculated to achieve an extraneous benefit for itself at the expense of the tenant. The way to mark disapproval of T’s conduct was to award D an additional sum of £25,000 by way of exemplary damages.

Judgment for claimant.

DESIGN PROGRESSION LTD V THURLOE PROPERTIES LTD (2004)

Ch D (Smith Peter J) 25/2/2004

“Lawtel”: 22nd March 2004