(back to preceding text)

    34. By clause 2(viii) the lessee covenants with the council

"not to assign the demised land or any part thereof (other than to a subsidiary of the Lessee) to any person without the previous consent in writing of the Corporation such consent not to be unreasonably withheld in the case of a respectable and responsible assignee being proposed…."

    35. At some time before November 1996 Mountstar Metal Corporation Ltd ("Mountstar"), who were not, of course, tenants under the lease, applied to the council as planning authority for planning permission to use the premises, described as "the former Kentron Plastics site", for metal recycling. The council refused that application in November 1996 but on 26 February 1997 Mountstar submitted an amended application and on 13 May 1997 the council granted planning permission for the "use of land and building for metal recycling and erection of boundary fencing and storage bay enclosures". To judge from the correspondence between Mountstar's agents and the planning department, while the two applications were being considered, the council's planning officials, at least, must have been given a considerable amount of information about Mountstar's proposed operations on the premises.

    36. Two months later, on 16 July 1997, solicitors acting on behalf of the respondents, as lessee, wrote to the council saying:

"Our client wishes to assign the Lease to Mountstar Metal Corporation Limited and accordingly we are applying to you for consent to the assignment."

Counsel referred to only one other letter dealing with the matter at this time. It is from Mr David Hook, the council's senior surveyor and valuer, to the solicitors and is dated 16 September 1997. Mr Hook refers to a previous letter dated 12 September and continues:

"The City Secretary and Solicitor having regard to the User Clause in the Lease is of the opinion that Mountstar Metal's proposed use for the site is contrary to the existing User Clause and therefore he is not prepared to exercise delegated authority to approve an assignment which would be in breach of the User Clause.

Gloucester City Council as landlords will not therefore be approving your request."

In the present proceedings against the council the respondents seek a declaration that the council are not entitled to refuse their consent to the assignment, a second declaration that the respondents are entitled to assign the lease to Mountstar without the further consent of the council and damages. It is agreed that Mountstar are a respectable and responsible company.

    37. Before this House and the Court of Appeal there were two main issues in dispute between the parties. As Mr Hook made clear in his letter, the council refused to approve the respondents' application for consent to assign the lease of the premises to Mountstar because they considered that Mountstar's proposed use was "contrary to the existing User Clause". It is common ground that Mr Hook was referring to sub-clause 2(iii)(a):

"The Lessee hereby covenants with the Corporation as follows:-

(iii)(a) to commence within a period of One year from the date hereof and within the period of five years from the date hereof to complete the erection on the demised land fit for immediate occupation and use in a substantial and workmanlike manner with good quality materials and in conformity with all licences permissions and consents required by bye-laws regulations planning provisions orders and statutes and in conformity with detailed plans elevations sections and specifications as shall previously be approved by the City Architect (such approval not to be unreasonably withheld and be given within one month of the submission of the said plans and specifications) a building development for uses within Use Classes III IV or X of the Town and Country (Use Classes) Order 1963 together with all necessary roads amenity areas cattle grids fences drains and sewers (hereinafter called 'the works' which expression shall also be deemed to mean any work which may from time to time be necessary for the replacement maintenance alterations or repair of such buildings erections or constructions)...."

The council contend that this covenant includes a negative covenant that the buildings erected in terms of this obligation will not be used for uses falling outside Use Classes III, IV or X of the Town and Country Planning (Use Classes) Order 1963. For their part the respondents submit that the sub-clause simply imposes an obligation to erect buildings of a certain kind and contains no negative covenant restricting their use. The only restrictions on use, they contend, are to be found in clause 2(v) and (vi). On the basis of their own preferred interpretation of sub-clause 2(iii)(a), however, the council refused consent to the respondents' application to assign the lease to Mountstar because they considered that Mountstar's proposed use of the premises for recycling scrap metal was not one of the uses permitted under sub-clause 2(iii)(a) and so would be in breach of the covenant in that sub-clause. The respondents contend that, in terms of clause 2(viii), it was unreasonable of the council to withhold consent on this ground alone.

    38. Mr David Donaldson QC, sitting as a deputy judge, found in favour of the council on the interpretation of the covenant in sub-clause 2(iii)(a). He also made a declaration that, even if the user proposed by Mountstar would constitute a breach of the lease, that does not of itself render unreasonable the council's objection to the proposed assignment to Mountstar. The respondents appealed and the decision of the Court of Appeal is reported as Ashworth Frazer Ltd v Gloucester City Council (2000) 80 P & CR 11. The Court of Appeal (Waller and Chadwick LJJ) agreed with the deputy judge on the interpretation point and therefore left undisturbed his first declaration that the only uses permitted by the lease are those set out in the relevant Use Classes and subject to the user restrictions in clause 2(vi). As Chadwick LJ noted at pp 24 - 25, the particular point on which the deputy judge had focused in the second of his declarations was not argued before the Court of Appeal where the contention for the respondents was simply that, if the only objection to the use proposed by Mountstar is that it would, or might, be a breach of the lease, it is unreasonable for the council to refuse consent to an assignment to Mountstar on that ground alone. In those circumstances, since it had not been challenged, the Court of Appeal were content to leave the deputy judge's second declaration standing. But on the consent point, as argued before them, the Court of Appeal held in favour of the respondents. They therefore allowed the appeal and added a third declaration to the effect that, if the only objection to the use proposed by the prospective assignee is that it would, or might, be a breach of the lease, it is unreasonable for the landlord to refuse consent to an assignment on that ground alone. The council have appealed against the order of the Court of Appeal in respect of this third declaration while the respondents have cross-appealed in respect of the deputy judge's first declaration which the Court of Appeal left undisturbed. The point in the second of the deputy judge's declarations was not reopened before this House.

    39. The council accept that, if the respondents succeed in their cross-appeal, the council will have to give consent to the assignment since the only ground on which they refused consent was that the proposed use would be in breach of sub-clause 2(iii)(a). On the other hand Mr Pymont emphasised that this concession did not imply any further concession that, in refusing consent on the basis of their interpretation of the sub-clause, the council had acted unreasonably for the purposes of the respondents' claim for damages for breach of duty under section 4 of the Landlord and Tenant Act 1988.

    40. I turn to the point of interpretation raised in the cross-appeal since, logically, it arises first.

    41. No-one could pretend that the lease is well drafted. It comes as no surprise to find that the rent review clause was indeed the subject of earlier proceedings between the same parties in the Court of Appeal and that the judges were divided as to the proper interpretation: Ashworth Frazer Ltd v Gloucester City Council (1997) 26 EG 150. History repeats itself, for it is my misfortune to find that I indeed differ from the majority of your Lordships as to the interpretation of the terms now in question. Because of the drafting, there is a risk that, whatever interpretation is adopted of a particular provision, there may be unsatisfactory aspects when the terms of the lease as a whole are considered. I therefore prefer to begin by concentrating on the terms of sub-clause 2(iii)(a) before considering how the sub-clause fits into the overall scheme of the lease.

    42. Sub-clause 2(iii)(a) embodies what is perhaps the principal obligation of the lessee, to complete within five years "the erection on the demised land fit for immediate occupation and use … a building development for uses within Use Classes III IV or X … together with all necessary roads amenity areas cattle grids fences drains and sewers…". If stripped down in this way the covenant is remarkably vague since it does not spell out the scale of the building development. It does not specify, for instance, how many buildings are to be constructed or how they are to be laid out on the demised land. But, of course - even though there is no evidence on the point - it can safely be said that the developers could hardly have entered into the lease unless these matters had been explored with the council so that the developers knew what their financial and other obligations under the lease would be. The sub-clause contains provisions which would in practice have resulted in these matters being clarified. First, it envisages that the development will be "in conformity with all licences permissions and consents required by bye-laws regulations planning provisions orders and statutes". In other words it must comply with all the public law requirements that apply to it. Since the council were also the local planning authority, they would be responsible, with that hat, for considering any planning applications relating to the development. And, obviously, the finalised detailed planning consent would deal with various aspects not only of the siting of the buildings making up the development but also of the design, including the height and appearance, of those buildings. The sub-clause next envisages that the development will be built to detailed plans approved by the city architect. And again that provision would mean that, through their architect, the council would have control over the design, including the detailed design, of the buildings to be erected. Taken together, these provisions would in my view constitute a more than sufficient mechanism for specifying the form of the building development that was to be erected.

    43. The contention for the respondents is, however, that when the parties agreed that the development was to be fit for immediate occupation and use "for uses within Use Classes III IV or X of the Town and Country (Use Classes) Order 1963" they were simply concerned to give some (further) indication of the type of building to be erected, rather than to specify the uses to which the buildings were to be put after completion. In other words the parties were doing no more than agreeing that the buildings comprising the development were to be of a form that would be suitable for the uses permitted under those Use Classes. So, once the buildings were up, any lessee or sublessee could immediately proceed to use them for any purpose whatever, provided only that they could obtain the necessary planning and other consents.

    44. Confining myself, for the moment, to the terms of sub-clause (iii)(a), in agreement with the deputy judge and the Court of Appeal, I find the respondents' construction unpersuasive. The covenant is concerned with the development as a whole: the lessee's obligation is to complete a building development which will be fit for immediate occupation and use for the uses in the relevant Use Classes. Given the provisions which the covenant already contains about planning permission and the city architect's consent, it is hard to see why the parties should have considered it necessary to insert yet another provision dealing with the design of the buildings. But, even supposing that they had wished to do so, a requirement that the development was to be fit "for uses" in these Use Classes would add nothing, so far as design was concerned, to the immediately preceding provisions in the same sub-clause. At best, therefore, it would be superfluous. This is only to be expected because, under the planning system, Use Classes are concerned with the use, not with the form of buildings. Their whole purpose is indeed to describe a range within which the use of premises can be changed without the need to make a fresh application for planning permission. The descriptions are couched accordingly. In the 1963 Order Class III was "use as a light industrial building for any purpose", Class IV "use as a general industrial building for any purpose" and Class X "use as a wholesale warehouse or repository for any purpose". Under the lease these broad descriptions would indicate satisfactorily the uses to which the buildings in the development were to be put. But in themselves they would tell the parties nothing about the form of the buildings to be erected and certainly nothing that would add to what would be specified by the council planning officials and the city architect. The respondents' construction therefore robs the words in question of all real practical effect. For that very reason I regard it as unsatisfactory.

    45. Looking at the covenant in sub-clause 2(iii)(a) in isolation, therefore, I prefer what I regard as, in any event, the more natural construction of the wording. On that approach the words "fit for immediate occupation and use … for uses within Use Classes III IV or X" are intended to set out the uses to which the building development - which is ex hypothesi designed to meet the council's planning requirements and based on plans approved by the city architect - is to be put. The buildings can be used for light industry or general industry or as warehouses or repositories - and, therefore, for no other purpose. While Mr Pymont did not argue that the words in sub-clause (iii)(a) imposed a positive covenant on the lessee to occupy the buildings for the specified uses, he did submit that the covenant against other uses was an express covenant. In my view, however, any covenant against other uses must be derived by implication from the positive specification of the uses for which the development is to be fit.

    46. So far I have proceeded simply on the basis of the words in sub-clause 2(iii)(a). But the sub-clause has, of course, to be considered within the wider context of the lease as a whole. As Mr Lewison QC emphasised, sub-clause (iii)(a) is found in that part of clause 2 which is concerned with the lessee's obligations in relation to the erection of the building development "together with all necessary roads amenity areas cattle grids fences drains and sewers" - taken together, they are called "the works". The remaining sub-clauses of clause 2(iii) all deal with matters, of a somewhat physical nature, which may arise while the works are being carried out within the five-year period allowed for their completion. The only exception is the obligation in sub-clause (f) "as soon as practicable to erect construct and thereafter maintain on the boundaries of the demised land good and sufficient stock proof fences in all respects to the reasonable satisfaction of the city architect" where the obligation to "maintain" the fences would continue beyond the five year period. Even allowing for that limited exception, clause 2(iii) as a whole is concerned with the lessee's obligations to carry out the development within the five-year period.

    47. If the developers completed the development within five years by constructing the various buildings as specified in the planning and other consents and in the plans approved by the city architect, then they would have complied with the covenant in sub-clause 2(iii)(a). It is apparent, however, that the parties recognised that buildings other than those to be built under sub-clause 2(iii)(a) might be erected on the demised land. This emerges, for instance, from clause 2(ix) with its obligation to repair and keep in good tenantable repair "the demised land and every part thereof and all additions thereto and all other buildings now or hereafter to be erected thereon" (emphasis added), as well as from the differing words to the same effect to be found in clause 2(x), (xi) and (xii). Similarly, by clause 2(xiii) the lessee undertakes inter alia

"as often as all or any buildings erection or structure of any part of the same now or hereafter erected on the demised land shall be destroyed or damaged by fire forthwith to rebuild and reinstate the same under the surveillance and to the reasonable satisfaction of the City Architect and in all respects in accordance with the provisions of Clause 2(iii) of this Lease as if those requirements had mutatis mutandis been herein repeated in full…" (emphasis added)."

    48. Although it is impossible on the evidence to tell what scope there would actually have been for further building, the fact that the parties specifically envisage that the lessee may erect other buildings at some future date has two related consequences for the construction of the lease. First, since those other buildings will not be erected in terms of the lessee's obligation under sub-clause 2(iii)(a), the provisions of that sub-clause will not apply to them. As Mr Pymont accepted, this means that, even on his construction, the lessee may erect buildings on the demised land that will not be subject to any user restriction contained in sub-clause (iii)(a). Secondly and conversely, the covenants of general application in the other sub-clauses of clause 2 will apply not only to the buildings erected under sub-clause 2(iii)(a) but to any other building that the lessee may put up on the demised land. Indeed, clause 2(v), for instance, has an even wider effect since the lessee's obligation not to create or permit a nuisance must apply to things done anywhere on the demised land and not simply to operations carried out in any buildings erected on it.

    49. Among the covenants which apply to all buildings, whether forming part of the original development or built later, is clause 2(xiii) which deals with the situation where a building is burned down or damaged by fire. It is to be rebuilt and reinstated under the surveillance of the city architect and "in all respects in accordance with the provisions of clause 2(iii) of this Lease as if those requirements had mutatis mutandis been herein repeated in full". While it is difficult to work out precisely what the parties intended should happen in some situations, it seems clear that, in the case of a building which had been constructed as part of the original development, it would have to be rebuilt so as to be fit for immediate occupation and use for uses within the Use Classes specified in sub-clause (iii)(a). Like the Court of Appeal, I find it hard to see why that obligation should have been imposed on the lessee if, before the fire, the building could have been used for any purpose whatever. While I would not attach great weight to it, that consideration tends to confirm the interpretation of sub-clause (iii)(a) which I prefer.

    50. Mr Lewison argued, however, that this interpretation was incompatible with the overall structure of the lease. His first and more general submission was that you would not expect to find a continuing restriction on the use of the premises in sub-clause 2(iii)(a) which deals with the lessee's obligation to build and complete the development within five years. As a general observation that may well be true. But, in any given case, the content of the obligations to be found in any part of a lease depends on what the draftsman has provided. In this case it depends on the wording of sub-clause 2(iii)(a). For the reasons that I have given, I consider that, despite its position, the wording of that provision is apt to impose a continuing restriction on the use of the premises.

    51. Mr Lewison went on to reinforce his general submission by pointing out that the lease does in fact contain express provisions which impose restrictions on the use of the premises. These are to be found in clause 2(v) and (vi):

"(v) not to do or permit to be done any act or thing which in the reasonable opinion of the Corporation may be or become a nuisance or annoyance or cause damage or inconvenience to the Corporation or any lessees tenants or occupiers of any adjoining or neighbouring land or premises

(vi) not to use the demised land for the purposes of a garage and filling station café restaurant public house abattoir the storage of meat except as a small part of a cash and carry or wholesale grocers or the sale of fuel oils lubricants or inflammable liquids provided that nothing in this clause shall prohibit the storage of fuel oils lubricants or inflammable liquids in properly constructed containers for the lessee[']s or its sublessee's own use".

He argued that these provisions constituted the only restrictions on the permissible use of the premises and that, where the parties had dealt with the matter expressly, a court should be slow to read an implied use restriction into sub-clause 2(iii)(a), especially when the lease made perfectly good business sense without it. In particular, it seemed unlikely that, when drawing up a lease to run for 114 years, the parties would have wanted to limit the possible use of the premises by reference to Use Classes which might have been appropriate in planning terms in 1969 but which, as the city developed and commerce changed, would almost inevitably become outmoded long before the lease expired.

    52. The argument - that the parties would have been unlikely to include a negative user covenant in sub-clause (iii)(a), when they had inserted specific provisions restricting use in clause 2(vi) - would obviously be extremely powerful if the only buildings to which clause 2(vi) could apply were buildings erected under sub-clause (iii)(a). The argument appears to me to lose all or much of its force, however, once it is realised that the restrictions in clause 2(vi) apply more widely. There is nothing particularly surprising in the idea that the parties may have agreed a special restriction on the use of the buildings comprising the original development. The purpose may have been, for instance, to encourage the growth of industry as the core of the development. However that may be, a special restriction of this kind is quite consistent with the imposition of other restrictions that will apply to all the buildings erected on the demised land - whether comprising the original development or not. In these circumstances I do not regard the existence of the non-user provisions in clause 2(vi) as a reason in itself to conclude that no restriction on the use of premises would be found in sub-clause 2(iii)(a).

    53. I therefore find nothing in the mere existence of the use restriction in clause 2(vi) which would affect my interpretation of sub-clause 2(iii)(a).

    54. The respondents go further, however. They draw attention not merely to the existence of clause 2(vi) but to the express provisions which it contains. It spells out what appear to be a ragbag of uses to which the demised land is not to be put. These include use as a café, restaurant or public house and use for the storage of meat "except as a small part of a cash and carry or wholesale grocers". The argument is that use as a café or restaurant, for instance, would in any event fall outside the scope of Use Classes III, IV or X and so there would have been no need to exclude those uses specifically in clause 2(vi) if sub-clause (iii)(a) had been intended to prevent the buildings being used for any purpose outside those Use Classes. The respondents back this argument up with a slightly different point. Use as a cash and carry, it is said, would not have fallen within any of the relevant Use Classes (LTSS Print and Supply Services Ltd v Hackney London Borough Council [1976] QB 663) and so would not have been permissible if sub-clause (iii)(a) contained a restriction. Therefore, since clause 2(vi) envisages that premises could be used for storing meat as a small part of a cash and carry or wholesale grocers, the parties cannot have intended, by referring to the Use Classes in sub-clause (iii)(a), to prevent the buildings being used as a cash and carry or wholesale grocers. It follows, so runs the argument, that sub-clause (iii)(a) contains no bar on the use of the buildings for a purpose that would fall outside the relevant Use Classes.

    55. It may well be, as the council submit, that the somewhat eclectic list of forbidden uses in clause 2(vi) is to be explained by a desire on the part of the council to give a measure of protection to other traders who had already leased premises from the council on land bordering the development. I am also prepared to assume, without deciding and without examining the LTSS case, that use as a cash and carry would not have been use in accordance with any of the relevant Use Classes.

    56. Whatever the precise position may be on these matters, the important point remains that clause 2(vi) applies not simply to the original development under sub-clause 2(iii)(a) but to the demised land as a whole. In other words clause 2(vi) applies to any buildings or structures erected during the currency of the lease. The sphere of application of the two provisions is therefore different, with clause 2(vi) being wider. That being so, it is scarcely surprising to find that clause 2(vi) bans various uses which would not have been permitted under any of the relevant Use Classes and which would therefore not have been permitted under sub-clause (iii)(a). The overlap to which the respondents point is not an indication of inconsistency between the two provisions. Nor does it show that sub-clause (iii)(a) contains no restriction on the use of the original development.

    57. The respondents' cash and carry argument is also unconvincing. Clause 2(vi) applies inter alia to buildings which are not subject to the restrictions in sub-clause 2(iii)(a). So, other things being equal, those buildings could be used as a cash and carry or wholesale grocers. An exception in clause 2(vi), allowing meat storage as a small part of a cash and carry or wholesale grocers, is therefore not inconsistent with the existence of a use restriction in sub-clause (iii)(a) applying to the original development.

    58. In these circumstances I find nothing in the specific terms of clause 2(vi) that is incompatible with the interpretation of sub-clause (iii)(a) which I prefer.

    59. Finally, as I have noted, the respondents argued that the restriction on the use of the buildings in the development to uses in accordance with the particular Use Classes would make little sense in a lease of this length. In the absence of evidence it is dangerous to travel beyond the agreed terms and to speculate as to the intentions of those who entered into this lease more than thirty years ago and as to what would have seemed sensible to them at that time. But I have already suggested that the landlord may have wanted to encourage industry in this area of Gloucester. If so, that would not be an outlandish aim, even in the long term, for a landlord which was also the local council. The respondents argued that, if the council had wished to restrict the use of the premises in this or any other way, they could have done so without having a restriction in the lease since they could have taken appropriate steps in their role as the local planning authority. But that argument proves too much. It would, after all, apply equally - or a fortiori - to the respondents' preferred construction of the relevant words in sub-clause (iii)(a) as dealing simply with the form of the development: that matter also could be dealt with by the council as planning authority when giving the permissions that are specifically mentioned in the sub-clause.