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Landlords: Beware of Unreasonable Demands

Tenants’ circumstances change.  Sometimes this means that a tenant will want permission to assign their lease.  When can a landlord reasonably refuse a tenant’s request?

This was the question before the court in No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2016] EWHC 2438 (Ch). The court held that one of the three conditions for assignment set by West India (the Landlord) was so unreasonable that the Landlord had breached its obligations to East Tower (the Tenant) under the Landlord and Tenant Act 1988.

Facts of the case
The Tenant was the lessee of several apartments in a building owned by the Landlord in Canary Wharf. The Tenant decided to sell its apartments. Under the terms of the lease, the Tenant was required to obtain the consent of the Landlord to any assignment. The Landlord was not to unreasonably withhold its consent.

The Landlord granted consent to a number of the Tenant’s requests for sales. However, relations between the Landlord and the Tenant soured. When the Tenant applied for consent to assign the lease of two additional apartments, the Landlord set the following three conditions for assignment, the Tenant must:

  • pay an assignment consideration fee of £1600 plus VAT;
  • pay an apartment inspection fee and allow the apartments to be inspected; and
  • provide bank references from any potential assignees.

After a failure to agree, the Landlord refused to grant consent.

PHOTO: Elizabeth Deyong, Head of Commerical Property at Barr Ellison

Elizabeth Deyong is Head of Commercial Property at Barr Ellison Solicitors

Burden is on Landlord to show refusal is reasonable
The Act requires landlords to grant consent within a reasonable period of time once requested. Crucially, the Act places the burden of proof on the landlord to show the reasonableness of any refusal to grant consent. But how reasonable does a landlord have to be?

This is not an easy question. For the court of first instance, the request for bank references was unreasonable in view of, amongst other things, the high price to be paid by the assignees for the apartments being indicative of their financial position. However, the court of appeal disagreed. The request for bank details could be justified given the level of likely service charges. The court also held that the Landlord had a right to inspect the property and the Tenant had undertaken to pay the Landlord’s fees connected to a consent application.

For the court of appeal, the main issue was the Landlord’s request for payment of a £1600 fee to even consider the application. This was so unreasonable as to override the other two, potentially reasonable, conditions. As the court of first instance had assessed, a fee of £350 might have been more accurate.

Common sense prevails
This case makes it clear that if there are expenses involved in any potential assignment and the landlord states that reimbursement is a precondition for the assignment, then these should be genuine and clearly quantifiable.  Disingenuous charges, for example, a charge set to merely consider an assignment application, will likely be considered unreasonable by the courts.  Common sense prevails.

For more information please contact Elizabeth Deyong (email: e.deyong@barrellison.co.uk) (telephone: 01223 417 267).

Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.

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