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Landlords: Unreasonably refusing consent to assign

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

Elizabeth Deyong is Head of Commercial Property at Barr Ellison Solicitors

The Court of Appeal has recently provided clarification to both residential and commercial landlords as to how they can reasonably withhold their consent to the assignment of a lease.  This case, No. 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2018] EWCA Civ 250, is the first case to discuss the application of sections 1(3) and 1(4) of the Landlord and Tenant Act 1988.

The lessee tenant sought to assign its leases to 42 apartments. It applied to the landlord for consent to assign.  In accordance with section 1(3) of the Landlord and Tenant Act 1988, the landlord was under a statutory duty to provide consent unless it was unreasonable to do so.  Section 1(4) of the Act provides that the landlord should not attach an unreasonable condition to the consent.  In addition to its statutory duty, the landlord had a contractual obligation, contained in the lease, that consent was, “not to be unreasonably withheld”.

Conditions imposed by landlord
The landlord imposed three conditions on the grant of consent. The first was the payment of a fee.  The second condition was that the lessee must submit to an inspection of the properties in question to ensure that there was no breach of the terms of the lease. The third and final condition was that the prospective assignees must provide a bank reference.

At first appeal, court found that two of the conditions were reasonable and one, the payment of a fee, was unreasonable.  The question before the Court of Appeal was whether that one unreasonable reason meant that the decision to withhold consent was unreasonable.

Guidance for Landlords
The Court of Appeal’s guidance applies to both residential and commercial landlords.  The Court found that the contractual discretion and the statutory discretion must be judged in the same way. Consequently, the Court’s reasoning will apply to all landlords, even if they do not have a contractual obligation not to unreasonably withhold consent to assign.

The Court found that if a landlord has a good reason and a bad reason for withholding consent, so long as the good reason stands on its own and is not somehow negated by the bad reason, then the good reason still stands.  Consequently, if each good reason is independently causative, and as such, free standing, then a decision based on it will be reasonable.

Take heed
Landlords, both commercial and residential, will need to take heed.  A court’s decision on what are good reasons and what are bad reasons will be reached by the careful analysis of each situation and may not necessarily be obvious.  Consequently, landlords will have the highest chance of successfully refusing consent to assign if, in providing conditions on which the refusal is based, all the reasons underlying the decision are listed.  In listing the reasons, landlords must ensure that each reason would have been, of itself, enough to base the refusal on.  In short, so long as a landlord has at least one independent, reasonable reason to refuse consent, then it will not hurt to add as many reasons as possible to give the lessor the best chance of success.

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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