Singh v Dhanji

The Court of Appeal has recently awarded GBP 214,000 (GBP 183,000 damages plus interest of GBP 31,000) for the unreasonable refusal to consent to assign a tenancy, basing the sum  on the net loss caused to the tenant.

Facts

From 2000, Mrs Dhanji held a 15 year term lease on premises housing a dental practice run by her  husband. There had been a history of disputes between the landlord, Mr Buddha (Singh) and the  Dhanjis including those about rent payments into a closed account and Mr Buddha’s re-entry of the premises when he changed the locks and cut off the electricity.

In this case, the Court considered whether extensive refurbishments made by the Dhanjis without  notice to  Mr Buddha were a breach of covenant. Additionally, the Court discussed whether Mr Buddha  was unreasonable in refusing to consent to an assignment of the lease in 2007 on this basis.

The lease contained the usual covenant prohibiting assignment without the landlord’s consent.  Consent could not to be unreasonably withheld and the burden of proof rested on Mr Buddha to  demonstrate that he had not unreasonably withheld consent.

The County Court judge found that none of the allegations of breach were proved and declined the  requested order for possession. Moreover, Mr Buddha was held to have breached his statutory duty to give consent to the proposed assignment in 2007 and the Dhanjis were  awarded  damages for their net loss totalling GBP 183,000 (and an additional GBP 31,000 interest).

Mr Buddha appealed on the grounds that he had reasonably believed that there had been structural  alterations to the property and this meant it was reasonable for him to refuse consent to the  proposed assignment. Further, that the Judge had erred in not viewing the matter from the point of  view of a reasonable landlord. He also requested reassessment of the damages on two grounds:

The 2007 valuation of the dental practice was based on a condition that the profit derivable from  the practice was GBP 140,000 which he alleged was inconsistent with the judge’s calculations – The Dhanjis had plans to relocate the practice elsewhere

Court of Appeal decision

The Court of Appeal upheld the County Court decision that the landlord’s refusal to consent to the  assignment of a lease was unreasonable. Mr Buddha had failed to provide sufficient evidence of a  breach and, regardless, the alleged breach would have been minor in nature and not capable of  prejudicing Mr Buddha if left without remedy until the end of the term.

Mr Buddha’s appeal for the reassessment of damages  was rejected as insufficient evidence was  forthcoming. The Court of Appeal relied on CPR 52.8.2 in declaring that failure to properly run  this point in the lower courts, and the necessity of additional evidence and disclosure, meant that it was too late to run the argument then.

When considering if refusing consent was reasonable, the question to be answered is whether the breach of covenant is of such a nature as to justify the  refusal of consent to assignment (considering the nature and gravity of the breach).

For damages in calculating the net loss, the Judge considered:

  • The agreed sale price (with consideration of two other offers made for the property in 2007)
  • Less capital gains tax
  • Less the benefit from profit earned by the tenant from the delayed sale
  • Less the uncertainty of sale at the agreed sale price (5%)
  • The value at the date of judgment

Conclusion

Unreasonable conduct on the part of the landlord in refusing to assign a tenancy under s.1 Landlord  and Tenant Act 1988 based on minor breaches of tenant covenants could result in substantial damages  being awarded in relation to the net loss suffered by the tenant. Any landlord who wants to refuse an assignment  should have sufficient evidence to substantiate their claim that the tenant’s breaches are  significant and also likely to result in significant damages.