Landlord and tenant - consent to assignment
A lease granted in 1969 contained the following covenant:
"Not to assign the demised premises ... without the written consent of the landlord. Such consent however not to be unreasonably withheld in the case of a respectable and responsible assignee..."
The landlord withheld consent to assign on the ground that the proposed assignee was a company which had only been incorporated two months previously. The tenant sought summary judgment of its application for a declaration that consent had been unreasonably withheld.
The tenant conceded that the proposed assignee was not "respectable and responsible" within the meaning of the lease, since it was newly incorporated with no track record and could not demonstrate that it could meet the £400,000 per annum rental. The landlord argued that, under the terms of the assignment provision in the lease, it had an absolute right to refuse consent to an assignment if the proposed assignee was not a respectable and responsible assignee.
The tenant's case was that the landlord was under an overriding duty not to unreasonably withhold consent, by virtue of section 19(1) of the Landlord and Tenant Act 1927. This provides that a covenant prohibiting assignment without consent shall, notwithstanding any express provision to the contrary, be deemed to be subject to a proviso that consent is not to be unreasonably withheld.
The High Court held that the landlord's attempt to restrict the circumstances in which consent could not be unreasonably refused to cases in which the proposed assignee was a respectable and responsible tenant was an "express provision to the contrary" within the meaning of section 19. It therefore held that section 19(1) applied, with the result that the landlord was under a duty not to withhold consent unreasonably.
This being the case, the landlord was also under a duty to communicate its decision to the tenant within a reasonable time (section 1 Landlord & Tenant Act 1988). This duty applies where the tenant applies in writing for consent to assign.
The landlord argued that the tenant's original letter in relation to the assignment was not an application for consent to assign because it contemplated the provision of further information by way of references for the directors of the proposed assignee. The landlord contended that no application had been made until that information had been received. The court pointed out that there is no prescribed form for the making of an application. On reviewing the letter, which invited the landlord to "treat this letter as the tenant's formal application", it was clear that it was intended to be an application.
The landlord then argued that, even if the letter was an application, time did not begin to run until the further information had been received. However, the landlord had communicated its refusal of consent to the tenant a week after the letter had been sent. The landlord's actions indicated that it had had sufficient time to consider the application.
In refusing consent, the landlord had cited as its reason the fact that the proposed assignee was a newly incorporated company. The tenant argued that, rather than refusing consent outright, as part of its duty to act reasonably the landlord should have asked the tenant what further concessions it might be prepared to make in order to overcome the landlord's reservations. For example, the landlord ought to have explored with the tenant the possibility of offering personal guarantees by the directors, or the payment of a larger rent deposit.
The High Court disagreed. The landlord was entitled to make a decision on the basis of the application as presented by the tenant. If the tenant wished to make alternative proposals in order to overcome the landlord's reasons for objection, it was up to the tenant to do so. There is no bar on the making of multiple applications for consent to assign. The Landlord and Tenant Act 1988 did not impose a duty to facilitate the tenant overcoming the landlord's reservations.
Things to consider
This was only a summary judgment application, which the tenant lost as the court thought that the landlord could make out a case at trial that it had acted reasonably.
However, the landlord was clearly under the impression that it had an unfettered discretion whether or not to grant consent, in cases where the assignee was not a respectable and responsible person. By holding that section 19(1) of the 1927 Act applied, the court imposed on the landlord not just a duty not to withhold consent unreasonably, but also the other duties under section 1 of the Landlord & Tenant Act 1988. These include a duty to respond in writing within a reasonable time, a duty to give reasons if consent is refused and, if consent is granted, a requirement that any conditions imposed on that consent be reasonable. The burden of proof is on the landlord to show that he has acted reasonably.
Landlords must ensure that they deal with tenants' applications for consent to assign or underlet in a timely way, and if they wish to withhold consent that they are entitled to do so under the terms of the lease. The Landlord & Tenant (Covenants) Act 1995 enables the landlord of a "new" lease (broadly, a lease granted on or after 1 January 1996, unless granted pursuant to an agreement for lease prior to that date) to set out in the lease circumstances in which it will be deemed reasonable for consent to be withheld. The landlord's intention in the present case could be realised in a new lease by providing that it will be reasonable for the landlord to refuse consent where, in the landlord's opinion, the assignee is not a respectable and responsible person. However, since this is not a factual condition which is objectively ascertainable, the lease must either require the landlord to act reasonably in deciding whether an assignee fits these criteria, or provide for the matter to be determined by an independent third party.
Royal Bank of Scotland plc v Victoria Street (No 3) Ltd
This analysis was written by Sarah Allen, associate in Wragge & Co's Real Estate group.
This may contain information of general interest about current legal issues, but does not give legal advice.