Landlord consent to assign: the bad may vitiate the good

A recent appeal decision of the High Court considers the reasonableness of a landlord’s refusal to grant consent to an assignment. The judgment confirms that where the landlord relies upon multiple reasons for withholding consent, one unreasonable condition can render refusal unreasonable despite the existence of what would have otherwise been reasonable conditions.

The tenant proposed to sell its leasehold interest in three apartments in the same development. The leases were on the same material terms. The court considered whether landlord's consent in relation to the three applications for consent to assign had been unreasonably withheld or delayed.

Consent not actually delayed

In the case of the first lease, the tenant claimed that the landlord had unreasonably delayed in granting consent. However, the tenant's original application was made to a different address to that set out in the notice provisions in the lease. Only later was correspondence sent to the landlord's registered office as required by the lease. The court allowed the appeal on this point and held that the landlord had granted consent in sufficient time because time only started to run when the formal application was made to the landlord in accordance with the lease terms.

Reasons for consent being withheld

In the case of the other two leases, the landlord withheld consent for three reasons. On appeal, two were found to be good reasons: first the absence of a satisfactory bank reference and secondly the refusal to allow an inspection by the landlord’s surveyor and provide an undertaking to cover the surveyor’s reasonable costs. However the third reason for withholding consent was that the tenant refused to provide and undertaking to pay the landlord’s in-house legal fees of £1,250 plus VAT in connection with the matter. Even though the properties involved were high value residential apartments, the work was mainly administrative and of a repetitive nature. The court found the fee excessive. The tenant had to pay the landlord’s costs in connection with the grant of consent but only in so far as they were reasonable.

The court’s decision that it is unreasonable for a landlord to insist on an undertaking to cover more than “reasonable” costs follows previous case law which confirmed that where the landlord has requested such an undertaking, it will be unreasonable to delay consideration of the tenant’s application until the undertaking is received.

The landlord claimed that the undertaking for legal costs was distinct from the requirement to provide a bank reference. However, contemporaneous correspondence did not support this as there was no indication the landlord would progress the application or modify its position even if the tenant had provided a bank reference and paid the surveyor’s fees. The one bad reason therefore vitiated the two good ones and the refusal of consent was unreasonable.

Conclusion

The case involved residential property but it is equally applicable to the commercial context. The message for tenants is that in order to challenge delay by the landlord, applications for consent must always be served in accordance with the terms of the lease. And for landlords; care should be taken not to vitiate good reasons for withholding consent by also relying on a bad reason.

Co-author: Laura Hitchcock

References: No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2016] EWHC 2438 (Ch)