Ireland's High Court supports Landlord's refusal of consent on the grounds of good estate management

(12 min read)

In its recent decision in the case of Cambervale Limited v Westside Shopping Centre [2024] IEHC 61, the High Court of Ireland ruled that a landlord had acted reasonably in withholding its consent to the assignment of a 500-year commercial lease based on the principles of good estate management.

The case concerned a unit in a shopping centre that had operated as a pub for twenty years, but had been vacant and in a dilapidated condition since 2018.

The tenant sought to sell its interest in the lease to a company known as the Western Islamic Cultural Centre Ltd who intended to use the unit as a community centre.

The Landlord withheld its consent to the proposed assignment on the grounds of good estate management. In particular, the Landlord argued that the proposed use would represent "dead frontage" and, as such, was an unsuitable use in the context of a small-scale multi-unit shopping centre.

The 2015 case of Perfect Pies Limited v Chupn Limited provides that when assessing the reasonableness of withholding consent, the onus is on the tenant to show that no reasonable landlord would have refused consent in the same circumstances.

Westside Shopping Centre (the "Landlord") and Cambervale Limited (the "Tenant") were generally in agreement as to these principles but disagreed as to the significance, if any, of the length of the term of the lease. The Tenant's position was that a leasehold interest of 500 years is akin to a freehold interest, and that a person with a freehold title is entitled, under Section 50 of the Land and Conveyancing Law Reform Act 2009, to apply to have a freehold covenant discharged.

The High Court rejected this submission, and adopted the position taken in Wanze Properties (Ireland) Ltd v. Mastertron Ltd. In that case, the High Court held that the extent of neither the landlord’s equity nor financial interest in a demised premises is relevant to the question of the reasonableness or otherwise of the withholding of consent to an assignment.

The High Court's decision in Cambervale on whether consent had been reasonably withheld was based on three main considerations:

Consideration 1: The Alleged Ulterior Motive

The central argument of the Tenant's case was that the Landlord's refusal to grant consent for the assignment was driven by an ulterior motive, specifically to gain possession of the premises through a lease surrender at a lower value.

A witness for the Tenant gave evidence that the Landlord had approached the Tenant in September 2020 to express an interest in purchasing the premises and to inquire as to the purchase price.

This testimony did not convince the court that an ulterior motive existed.

Simons J. referred to the case of Dunnes Stores (Ilac Centre) Ltd v. Irish Life Assurance plc which established that a landlord is not necessarily precluded, while an application for consent is pending, from entering into negotiations with the Tenant.

Simons J. recognised that it would not be permissible for the Landlord to threaten to refuse consent to an assignment as “leverage” to acquire the premises at a lower value, nor would it be permissible for the Landlord to refuse consent in an attempt to acquire the property at an undervalue. However, he pointed out that the Tenant had publicly advertised the premises for sale, and there could therefore be no valid objection to the Landlord expressing a potential interest in acquiring the premises by surrender.

Another factor which undermined the Tenant’s theory was that the Landlord had indicated a willingness to consider any commercial use that complements the shopping centre. The Landlord had not, as it would in theory have been entitled to do, sought to hold the Tenant to the use prescribed under the Lease which was for a licensed premises (public house).

The Tenant could not produce any documents evidencing an ulterior motive on the part of the Landlord, though it is worth noting that the Tenant had not sought discovery.

Consideration 2: Good Estate Management

The Landlord's position was that the proposed use was unsuitable for a multi-unit shopping centre. The Landlord and Tenant relied on the expert testimony of estate agents to elaborate on the issue.

Simons J. preferred the evidence of the Landlord's more highly qualified witness whom he noted had extensive experience in relation to the letting of shopping centres. Simons J. was satisfied that the expert evidence established that it is important that there be a good mix of retail uses in a multi-unit shopping centre and that dead frontage is to be avoided. The court found that no contrary expert evidence was put forward by the Tenant.

The court noted that a striking feature of the case was that the Tenant failed, at any point, to provide any detail to the Landlord as to what might be involved in the community centre use, still less to adduce evidence as to relevant factors such as operating hours, footfall, dwell times and car parking demand.

Consideration 3: Conflict of Interest with regard to the Tenant's Expert Witness

The court also expressed concern about a potential conflict of interest, as the Tenant's expert witness was also the estate agent responsible for the proposed sale of the premises. His fee for marketing the premises (1% of the purchase price) was contingent on a successful conclusion of the sale, which depended on a successful outcome to the legal proceedings.

The expert witness for the Tenant had failed to disclose his financial interest in his expert report. Simons J. suggested that in future, any such interests should be stated in express terms, and it should not be left to the court to infer the existence of a financial interest.

Simons J. highlighted in his judgment that the question of "reasonableness" is fact specific, and the answer will depend on the circumstances of the individual case.

As a statement of general principle, it will be reasonable for a landlord to withhold consent to an assignment in circumstances where there would be reasonable grounds for withholding consent to the change in use which the proposed assignee intends to make. A landlord is not required to go through the formal step of granting consent to the assignment when it is clear that it would subsequently be entitled to refuse consent to the intended change in use.

In summary, the court held that the Tenant had failed to discharge the onus upon it to establish that the Landlord had acted unreasonably in withholding its consent to the proposed assignment. An order was made allowing the appeal and setting aside the order of the Circuit Court.

Given the limited number of written decisions on this issue, this High Court decision serves as an important reminder to commercial landlords and tenants of the factors the court will consider when assessing the reasonableness of withholding consent.