Warborough Investments Limited v Lunar Office SARL [2018] EWCA Civ 427

The Court of Appeal has held that, contrary to the decision at first instance, the sub-clauses of a lease setting out the terms for permitting underletting should be read cumulatively rather than as separate individual covenants.

One sub-clause prohibited underlettings of part other than complete floors or shop units for terms over ten years. Another sub-clause prohibited underlettings at less than the best rent obtainable. The tenant’s predecessor had granted a sublease of less than a whole floor and for less than ten years and the tenant argued – and at first instance won – that the two sub-clauses were individual covenants and that the sublease was permissible as it satisfied the restriction in the second sub-clause and was for the best rent obtainable.

Unsurprisingly the Court of Appeal held differently saying that there was a danger in approaching the construction of the document with preconceived ideas about what the parties, acting commercially, were likely to have intended and to allow those ideas to subvert the clear language of the document. The proper approach was to recognise that the sub-clauses were a series of negative covenants by the tenant which required to be complied with according to their terms.

Key points

  • Consider lease obligations as a whole, or if it is intended that covenants should be complied with as an either/or, draft very carefully to make that so.
  • If a proposed underletting doesn’t fulfil all the criteria set out in the lease all is not lost. A landlord might still consent to the underlease but whether to do so or not would be in its absolute discretion.