When a landlord refuses consent to the assignment of a lease, must all of the reasons given be reasonable? This was the question considered by the Court of Appeal in No.1 West India Quay (Residential) Limited v East Tower Apartments Limited  EWCA Civ 250.
The Landlord and Tenant Act 1988 applies where a tenant covenants in a lease not to deal with the property without the consent of the landlord and such consent is not to be unreasonably withheld.
The landlord must, within a reasonable time, give consent except where it is unreasonable to do so.
Giving consent subject to an unreasonable condition does not satisfy the landlord's statutory duty not to unreasonably withhold consent.
Unreasonable withholding of consent may lead to a claim for damages by the tenant, whether for breach of contract and/ or breach of statutory duty.
Around early 2015, East Tower Apartments Ltd decided to sell the 42 apartments that it owned at No. 1 West India Quay. Under the terms of the various leases, the consent of the landlord, West India Quay, was required.
The landlord refused consent in relation to some of the apartments on the grounds that the tenant had failed to give an undertaking for its legal fees, failed to give an undertaking for the costs of an inspection and failed to provide bank references for the proposed assignees.
The tenant applied to the County Court for a declaration that the landlord had unreasonably withheld consent, or, in the alternative, a declaration that the conditions were unreasonable.
On an appeal to the High Court, it was held that it was reasonable for the landlord to require a bank reference and an inspection at a cost of GBP 350. The GBP 1,250 legal costs demanded by the landlord, were, however, unreasonable. The court also decided that that the landlord's success on two of the reasons was not enough. The refusal of consent was unreasonable.
Court of Appeal
The Court of Appeal rejected the tenant's argument that the bad reason (the requirement of an undertaking to pay a total fee of GBP 1,600) "infected" the good reasons.
In principle, the proper approach was to consider whether the decision would have been the same without reliance on the bad reason. If so, the decision is good, looked at overall.
The court illustrated the potential difficulty of adopting the opposite approach by way of an example involving a rack rented lease of valuable property at a rent of several hundred thousand pounds per year. The landlord requires payment of his costs of GBP 1,000, when a reasonable sum would be GBP 750 and also objects on the grounds that the proposed assignee will be unable to pay the rent. If the landlord is forced to accept a financially precarious assignee for the sake of a fee found to be excessive by the small sum of GBP 250, the sanction is draconian.
In this case, the landlord's reasons were free-standing and each had causative effect. Two were reasonable, so the decision itself was reasonable. Put another way, the landlord would have refused consent on the reasonable grounds if it had not put forward the unreasonable ground.
The Court of Appeal's decision is potentially good news for landlords.
It is also a reminder that landlords should deal with applications to assign (and so on) promptly. Before giving a written decision to the tenant, the terms of the lease should be reviewed and the reasons for refusing consent carefully considered. Each reason should be justifiable.
The article first appeared in our Real Estate Bulletin - June 2018.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.