10/12/2018

Landlord’s consent – are you being reasonable?

When a tenant wants to assign or sublet its lease, the landlord will want to know more about the potential new tenant, primarily to ensure they can pay the rent and comply with the terms and conditions of the lease.  After all, no landlord wants to end up with an unreliable tenant in place of a perfectly good one.

Most leases contain a provision allowing the tenant to assign or sublet with the landlord’s consent usually with the proviso that the landlord must not unreasonably withhold its consent.  In this situation, landlords are under a statutory duty under the Landlord and Tenant Act 1988 to:

  • give consent within a reasonable time; and
  • where consent is conditional, those conditions must be reasonable (with the onus on the landlord to prove that they are).

But what happens when some of the landlord’s conditions for giving consent are reasonable and some are not?  This question has been answered by the Court of Appeal in No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2018].  Although this case involved residential apartments, the same principles apply to commercial leases.

East Tower Apartments (ET) was the tenant of 42 apartments held under 999 year underleases with No.1 West India Quay (Residential) Ltd (WIQ) as landlord.  ET wanted to sell the apartments but had to apply to WIQ for consent to do so.  WIQ imposed three conditions before it would give consent on each assignment:

  • the payment of £350 + VAT for a surveyor’s inspection
  • bank reference for the proposed assignee
  • an undertaking for payment of £1250 + VAT on account of WIQ’s legal fees

The High Court held that the first two conditions were reasonable, but the third one, requiring payment as a condition to considering the application was unreasonable as the sum claimed was too high.  They found that this one bad condition trumped the two good ones and therefore WIQ’s conditions for consent were unreasonable.

WIQ appealed to the Court of Appeal for a ruling on a single point: whether WIQ had unreasonably refused consent based on one condition when there were two acceptable conditions.  The appeal succeeded, the Court of Appeal held that WIQ was reasonable in refusing consent – the fact that one of the conditions was “bad” did not outweigh the other two “good” ones, so overall, the decision to refuse consent was reasonable.

So what lessons can be learnt by landlords from the conditions in this case?

  • Surveyor’s fees – generally acceptable, provided an inspection is actually needed i.e. the property has not been recently inspected, plus the fees must be reasonable.
  • Bank reference – probably reasonable to request in the majority of cases.
  • Landlord’s fees – must reflect the amount of work undertaken and not be used as an opportunity to make a profit. In this case, the sum of £350 + VAT was assessed as reasonable as standard documentation was used multiple times - bespoke drafting may have justified higher fees.

This case shows that landlords must consider conditions for consent carefully as some conditions may pose a greater risk of being challenged as unreasonable than others.  Bevan Brittan’s property team has considerable experience in lease drafting and estate management issues, especially where advice is needed on subsequent dealings with a leasehold property.

The landlord in this case was lucky – as Meatloaf would say – “two out of three ain’t bad”!