Key points

  • Landlord's consent may be given before a formal licence has been entered into
  • A party which is in breach of an agreement will not normally be allowed to take advantage of its own breach in order to terminate

Facts of British Telecommunications Ltd v Rail Safety and Standards Board Ltd

A tenant agreed to underlet part of its property. The agreement to underlet provided that if the consent of the superior landlord to the underletting had not been obtained by a certain date, then either party could determine the agreement.

The agreement defined what was meant by "superior landlord's consent" for this purpose:

"Superior Landlord's Consent" means the consent of the Superior Landlord to the grant of the Leases by way of the Licence to Underlet and to the Tenant's Works by way of the Licence for Alterations.

The agreement contained an obligation on the undertenant to provide all such reasonable assistance as may be necessary to facilitate the grant of the superior landlord's consent, and to join in to the licence to underlet and the licence to alter.

A draft of each of the licences was annexed to the agreement. In due course the licence to underlet was executed by all three parties. The licence to alter was executed by the superior landlord and the tenant. The only thing left in order for completion to occur was the execution of the licence to alter by the undertenant.

However, the undertenant did not do so. Instead, it served notice to terminate the agreement on the basis that the superior landlord's consent had not been obtained before the required date.

The tenant argued that the definition of "Superior Landlord's Consent" did not mean that completed licences had to be in existence. The unilateral act of consent in principle from the superior landlord was sufficient. The tenant therefore submitted that the condition had been satisfied by the relevant date.

The undertenant argued that the inclusion of the words "consent ... by way of the Licence to Underlet and ... by way of the Licence for Alterations" meant that the parties intended that the licences should have been completed.

Decision

The court agreed with the tenant. It found that all that was required was the consent of the superior landlord, and not the completion of the licences. The court thought that although the agreement clearly contemplated that there would be licences, this did not mean that the parties had contemplated that consent would not exist until there were licences. It thought that the parties would not have intended to give the other an opportunity to change its mind about the transaction. Since consent had been given, the undertenant was not entitled to terminate the agreement.

Things to consider

The decision in this case - that landlord's consent may be given prior to the entry into a formal licence - does indeed have a basis in previous case law (see for example Alchemy Estates Ltd v Astor). However, it does appear slightly at odds with the wording that the parties had chosen to use in their agreement to define when consent would be given.

It is submitted that a better route to the same conclusion might have been for the court to hold that a party which is in breach of its own obligations under an agreement cannot use that as a reason to terminate the agreement (see our earlier alert).

The undertenant was contractually obliged to enter into both licences. By failing to do so, it was in breach of the agreement. This breach led directly to the condition not being satisfied by the due date. The undertenant would therefore not have been able to rely on its own breach in order to exercise the right to terminate for non-satisfaction of the condition.