When is it unreasonable to withhold consent to assign a lease?

The Court of Appeal found recently found in favour of a landlord who appealed a High Court ruling that they acted unreasonably in withholding consent to assign a lease because one of their three reasons given for refusing consent was deemed unreasonable.

Background

In No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd the tenant sought the courts to compel the landlord to grant consent allowing an assignment of their lease of residential premises as they felt the landlord was acting unreasonably in refusing consent.
The landlord refused to grant consent for the following reasons:

1. the tenant failed to give an undertaking to cover the landlord’s professional fees (£1,250 in legal fees and £350 in surveyor’s fees);
2. the tenant refused to pay for a pre-assignment inspection fee to see if any covenants under the lease had been breached; and
3. the tenant refused to give banking references in respect of the proposed assignee.

The High Court felt that reasons two and three were reasonable but reason one was not. The judge felt that the landlord’s fees were unreasonably high therefore outweighing the other two reasons, consequently ruling in favour of the tenant. As the tenancy was residential, rather than commercial, the legal and surveyor fees were deemed excessive and an unreasonable administration charge for the tenant.

However, the Court of Appeal held that the High Court judge applied the wrong approach as they should have considered the overall decision not to grant consent rather than the merit of each individual reasons. If the landlord’s decision, which was based on a mixture of good and abad reason, would have been the same had it not attempted to rely on the bad reason then the decision to refuse consent would be reasonable.

Practical Implications

If the landlord puts forward a good reason which is not impaired by the bad reason, it is independent and unconnected with the bad reason, then the landlord can rely on the good reason for refusing consent despite the existence of the bad reason. The Court of Appeal played down the effect of the landlord using multiple reasons in its decision notice for refusing consent in this particular case. The focus was on the overall decision and deciding on its reasonableness.

A landlord has a statutory duty under the Landlord and Tenant Act 1988 (applicable in England and Wales only), to give a tenant consent within a reasonable period unless it is reasonable not to give consent. Where consent is refused the landlord’s statutory obligation extends to giving reasons for its refusal within a reasonable period. If a number of reasons is given and only one of those is reasonable, which viewed independently stands as being reasonable, the landlord is acting reasonably in not granting consent. However, if the landlord gives consent subject to multiple conditions, with even one of those conditions being unreasonable, the landlord is said to have acted in a way which is unreasonable.

It is important for landlords (of either residential or commercial premises) to consider whether they are refusing consent out right, and the reasons for doing so, or granting consent subject to conditions and the reasonableness of these. Despite the above mentioned ruling and legislation dealing specifically with English related matters, the Courts in Northern Ireland are heavily influenced by rulings in the English Courts, and as such landlords in Northern Ireland must watch this space to see how similar issues are dealt with here going forward.

This article has been produced for general information purposes and further advice should be sought from a professional advisor.

If you require any further advice in respect of the content herein please contact a member of our Commercial Real Estate Team.

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