The case of Youssefi v Mussellwhite [2014] EWCA Civ 885 appears to be little more than an opposed business lease renewal dispute involving various fault grounds under section 30(1) of the Landlord and Tenant Act 1954. However, there are one or two other interesting features to the case – most notably the interpretation of the lease user covenant.
Facts.
The landlord opposed the tenant’s lease renewal application on the basis of grounds (a), (b) and (c) under section 30(1) LTA 1954. Ground (a) deals with disrepair, ground (b) deals with persistent delays in paying rent, and ground (c) deals with other substantial breaches of obligations. All three of these grounds include an element of discretion in that the court must conclude that the tenant “ought not to be granted a new tenancy” in view of its default. Opposition on the basis of rent arrears was dismissed. On disrepair, however, the trial judge had held that, although the tenant had not breached its express covenant to repair (which related to the interior only), the presence of creeper growth on the rear external wall of the building was a breach of an implied obligation to use the premises in a tenant-like manner. The Court of Appeal disagreed with this. Although the whole of the building was demised to the tenant, the lease contained an express covenant on the part of the landlord to maintain the exterior. Accordingly, creeper-growth was not a responsibility of the tenant. In any event, the cost of attending to the creeper growth was stated to be £350 which would not have amounted to a breach of covenant such that the tenant “ought not” to be granted a new lease. However, the Court of Appeal agreed with the trial judge that the tenant was in breach of a covenant to allow the landlord access for inspection, and in breach of the user covenant (for not using the premises for one of the permitted use classes under the lease). The court confirmed that the judge was entitled to find that these breaches were sufficiently serious so that the tenant ought not to be granted a new lease.
Features of the case.
The two interesting features of this case are (1) the analysis by the Court of Appeal of what was meant in section 30(1) by the words “ought not”, and (2) the interpretation of the user covenant in the lease.
(1) “Ought not”.
The words “ought not to be granted a new tenancy” appear in relation to grounds (a), (b) and (c) (and also ground (e)) and provide the court with a discretion so that, once the relevant factual position relating to the ground of opposition has been established, (for example, once it is shown that there have been persistent delays in paying rent) the court then decides whether, on account of those facts, the tenant ought not to be granted a new lease. What test should the court apply? Does it assess the relevant hardship to the parties and establish who would suffer the greater hardship by the court’s decision? Or does it decide whether it is unfair and prejudicial to the landlord to foist upon it a defaulting tenant for a new term? The court adopted a combined approach, stating, in relation to alleged disrepair, that it should ask itself “whether, looking forward to the hypothetical new term, “the proper interests of the landlord would be prejudiced”, by continuing in a landlord/tenant relationship with this particular tenant (as per the formulation in John Kay Ltd v Kay [1952] 2 QB 258); or, put another way, whether it “would be unfair to the landlord” (as per the formulation of Morris LJ in Lyons v Central Commercial Properties London Ltd [1958] 1 WLR 869), having regard to the tenant’s past performances and behaviour in relation to its obligation to repair and maintain the holding, if the tenant were to be “foisted on the landlord for a new term” (as per the formulation of Harman J in Lyons v Central Commercial Properties London Ltd).”
(2) The user covenant.
Of particular interest in this case is the finding that the user covenant in the lease was a positive user covenant, so that the tenant was able to breach it by inactivity. The covenant read as follows: “[At] all times during the said term to use the Premises for the purposes of any retail trade within Classes A1 and A3 of the Town & Country Planning (Use Classes) Order 1987 and not to use the Premises or any part thereof for any other purpose without the written consent of the Landlord (such consent not to be unreasonably withheld)…” The language used in the covenant appears, in the first part, to be positive, but then, in the second part, appears to turn into a restriction on user. However, despite the negative effect conveyed by the second part of the covenant, the Court of Appeal held that the covenant was a positive obligation to use the premises for one of the stipulated purposes, and not merely a negative obligation not to use the premises for some other purpose. Lady Justice Gloster noted that the positive obligation preceded the negative obligation “which in my judgment serves to underline the positive nature of the first obligation”. She noted that the change of language between the positive and negative obligation was marked, which she presumed to have been intentional. Although there was no express “keep open” covenant in the lease, this did not detract from the conclusion that the covenant imposed a positive obligation which could be breached by inactivity.
The case of Montross Associates Investments SA v Moussaieff [1990] 2 EGLR 61 is often cited as an example of the use of the “emphatic negative” in the drafting of user covenants such as the covenant in this case. In Montross, a positively framed covenant prohibited the lessee from carrying on a number of undesirable uses but stated that the tenant “will use the demised premises either for the business of high class retailers of jewellery and/or antiques and/or luxury goods and/or travel agency…” The deputy judge’s view was that the words in the covenant were “emphatic negative” rather than positive in effect. However, in Youssefi v Mussellwhite, the Court of Appeal downplays the significance of the Montross case. The case went to the Court of Appeal ([1992] 1 EGLR 55), and the appeal was dismissed, but no decision was made as to whether the deputy judge’s conclusions were correct, as it was held that there had been no breach of the covenant whether it was positive or negative. Yet statements made by two of the appeal judges appear to suggest some doubt over the finding that the covenant was negative.