Burgerking Limited v. Castlebrook Holdings Limited, 25 February 2014 –whether landlord unreasonably withholds consent re subletting to new company
Outer House case concerning the lease of a fast food restaurant and car parking spaces at Queens Drive Leisure Park, Kilmarnock.
The lease contained a prohibition on subletting but stated that the landlord could not unreasonably withhold or delay consent to a subletting to a subtenant who was “respectable and responsible”. Burger King were the tenants under the lease and wished to sublet the premises to Caspian Food Retailers Limited. Burger King’s solicitors wrote to Castlebrook requesting consent for the subletting and providing some information on Caspian. Castlebrook’s agents replied seeking further information (including 3 years audited accounts and references from at least two previous landlords). Burger said that they had no accounts or references for Caspian as it was a new company.
Castlebrook argued that, as Caspian had no track record, they had no idea whether the company was “respectable and responsible” but indicated that, if the main company in the group were to grant a guarantee or take the sublease itself, consent would be granted. Burger King argued that, when taken with the fact that Castlebrook could continue to rely on Burger King’s covenant as tenant, there were no reasonable grounds to refuse the subletting. Castlebrook acknowledged the excellent track record of other companies in the group but contrasted that with Caspian itself which had no track record and refused to grant consent. Burger King sought declarator from the court that Castlebrook had refused consent unreasonably and a decree ordaining Castlebrook to issue the consent.
Lord Tyre found merit in Castlebrook’s argument to the effect that the landlord should first consider whether the proposed subtenant was respectable and responsible and then, if it found that it was not, the landlord was entitled to refuse consent without justifying that refusal by reference to any reason other than the non-respectability and/or non-responsibility of the sub-tenant. Lord Tyre referred to support for this approach in Bates v Donaldson:
“It will be seen that it is only when a respectable and responsible person is proposed as assignee or undertenant that this clause (as to the permission not being unreasonably withheld) comes into play. If the person proposed be not a respectable and responsible person, the lessor has an absolute right to refuse permission; if, however, the person proposed be respectable and responsible, then the lessor cannot unreasonably withhold his permission.”
With regard to the meaning of “respectable and responsible”, Lord Tyre noted that “respectability” had been held to refer to the manner in which the company in question conducted its business and to its reputation and that “responsibility” had been held to refer to financial capacity. In each case he found that supporting evidence should relate to the proposed subtenant itself and not to other group companies or other entities that could provide assistance to the proposed subtenant:
“In my opinion a landlord who stipulates that a proposed sub-tenant must be responsible is reserving to himself the right to be satisfied as to the financial soundness of the sub-tenant itself and not as to the soundness of individuals or entities who might or might not provide assistance in the event of financial difficulty. So far as respectability is concerned, it may be that little should be required to satisfy the landlord, but once again I consider that evidence of respectability should relate to the proposed sub-tenant itself. A company does not acquire respectability automatically along with its certificate of incorporation, although it may not be long before its mode of carrying on business affords sufficient indication that it could not reasonably be regarded as anything other than respectable. That is not, in my view, the same as an assessment of the respectability of the company’s owners or of other companies in common ownership.”
Lord Tyre dismissed Burger King’s action but noted that if Burger King had provided material demonstrating even a successful first few months’ initial trading by Caspian, including landlords’ references, it might have been difficult for Castlebrook to justify a refusal of consent.
The full judgement is available from Scottish Courts here.
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  2 QB 241 at 246-7.