[2024] UKUT 33 (LC)

The third strand of Southwark’s application is based on the contention that there had been “a manifest mistake on the part of the judge in the formulation of his order”. Mr Rainey KC dubbed this his “incoherence” point.

Southwark’s proposition was that the effect of the applicant not having correctly and fully set out the lease covenants was that the Tribunal had made an order which was incoherent, in the sense that the changes to the lease made by the order do not dovetail with what is left over of the existing text. This point is therefore the converse of the previous proposition that the Tribunal was misled by selective quotation into making an order which modified the covenants more extensively than had been foreshadowed in the application. It is now said that, by leaving so much of the original text unaltered, the order did not leave obligations which make sense. That proposition is equally unsustainable.

The Tribunal’s order modified the covenants precisely as had been requested in the applicant’s statement of case. Those parts of the covenants which were not included in the Fourth Schedule to the order were not modified and remain part of the Lease. As a piece of drafting the end result is inelegant, but it is not difficult to understand if it is read with a view to identifying its intended meaning rather than with a predisposition to finding it incomprehensible.

Combining the modified part of clause 3(i) with the part which was not the subject of the application (reproduced below in italic script) produces the following obligation:

“3(i) Not to assign any part or parts of the premises demised except where all of the following circumstances apply:

(i)

An assignment of part of separate self-contained commercial or residential purposes by way of a sub-tenancy is permitted;

(ii)

any such sub-tenancy must expire before the end of this Lease; and

(iii)

any such sub-tenancy of any commercial premises is not a protected tenancy for the purposes of the Landlord and Tenant Act 1954, Part 2

and not without the previous written consent of the Lessor to assign the whole of the demised premises or underlet (otherwise than by way of mortgage) or part with possession of the demised premises or any part thereof PROVIDED that the consent of the Lessor shall not be required to the underletting of the demised premises for a term not exceeding three years.”

The modified part of the covenant prohibits “assignment” of part except where three conditions are met. It is clear from the first of those conditions that what will be permitted if they are all satisfied is not an assignment at all, but a subletting. That is explicit – “An assignment of part … by way of a sub-tenancy is permitted” and “any such sub-tenancy must expire before the end of this Lease”, so there is no room for confusion about what transaction is contemplated, however ineptly the applicant chose to describe it.

Next, the text which survives from the original form of the covenant then requires that the consent of the Lessor be sought to any assignment, underletting or parting with possession of the whole or part of the premises unless it is by underletting for less than three years. There is no inconsistency between that requirement and the modified part which precedes it. Their effect in combination is that, if what is proposed is a sub-tenancy of part of the demised premises, in addition to satisfying the three newly introduced conditions, the Lessee will have to seek the Lessor’s consent, unless the proposed sub-tenancy is for less than three years. The modification does not bite on any other form of alienation, and in such a case the only requirement will be to obtain the Lessor’s consent.

Mr Rainey KC suggested that reading the modified clause in that way would mean that paradoxically the Tribunal’s order would have made it more restrictive, rather than less restrictive, but that is clearly not the case. In its original form, alienation of part of the demised premises was absolutely prohibited, and there was no contractual opportunity for the Lessee to request consent to sublet the upper floor separately from the ground floor. Now, if the first three conditions are met, the two floors can each be let separately, if Southwark consents (and by section 19(1)(a), Landlord and Tenant Act 1927, Southwark will not be entitled to withhold its consent unreasonably). There is nothing “incoherent” in that and it provides the Lessee with considerably more flexibility in the use of the premises than it previously enjoyed.

The only suggested “incoherence” in the modification of clause 3(p) was that, if it was construed as relating only to the opening words of the clause, it made no change to the Lease at all. That would indeed appear to be the effect of the modification requested by the applicant. It is certainly peculiar, but it does not seem to me to amount to a procedural irregularity, or to provide any basis on which the Tribunal could set aside the order.