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Landlord's Consent, When is it Reasonable to Say No?

Most commercial leases place an obligation on landlords to genuinely consider certain requests of the tenant, including assigning (transferring) the lease to someone else, and the landlord can only decline with a good reason. Where the lease says that Landlord's consent is required before a transfer of the lease, then even if not set in the lease, the law states that the landlord cannot "unreasonably withhold" its consent.

This is a very open phrase to say the least, so when is it reasonable to say no?

Loose terminology

The law on this position sounds very vague, and it is. However, that is the idea. The commercial environment of both the landlord and tenant is subject to change and therefore a degree of flexibility is needed, but this means it's important to know where you stand.

Clean-cut Examples

One of the situations where a landlord might not want the tenant to transfer the lease to a new tenant would be where the new tenant has little credit worthiness. If this is painfully obvious, for example, if they've recently been declared bankrupt, the landlord wouldn't have much trouble proving they have reasonably withheld their consent to the transfer of the lease.

A court would be likely to say that a landlord has been unreasonable if they want to take possession of the property, and definitely if they refuse consent on any discriminatory grounds.

The 'Greyer Area'

It is hard to predict every situation, but there are 2 general rules which give a good indication of when saying no would be reasonable or unreasonable:

  • It is likely to be reasonable, if refusal is needed to protect the landlords existing rights and retain the control they have.
  • It is likely to be unreasonable, if refusal will increase the landlord's control, and expand their rights.

Some Examples of Decided Cases

  • Where the lease is an underlease, and the superior landlord unreasonably refuses consent this does not automatically entitle the landlord to refuse consent (Vienit v Williams & Son (Bread Street) [1958] 1 WLR 1267).
  • It will not be reasonable for the landlord to refuse consent where the landlord is saying that the transfer of the lease will adversely affect the underlying value of the property if the landlord has no intention of selling its interest (Ponderosa International Development v Pengap Securities [1986] 1 EGLR 66 and FW Woolworth v Charlwood Alliance Properties [1987] 1 EGLR 53).
  • A landlord can refuse consent where it believes that the financial position of the incoming tenant (and the financial position of any proposed guarantor where this is being offered) will be insufficient to meet rental payments and comply with the lease covenants (British Bakeries (Midlands) v Michael Testler & Co [1986] 1 EGLR 64). Note here that landlord’s commonly ask that an incoming tenant produces accounts showing figures equivalent to three times the annual rent. This will not automatically be reasonable (Footwear Corporation v Amplight [1998] 25 EG 171).
  • Sometimes the proposed guarantor will be a non-UK company which means that if the guarantor won’t pay up it could make it difficult for the landlord to sue the guarantor in foreign courts and then to enforce the judgment if successful in court. The fact that a proposed guarantor is a foreign company is not a reasonable ground for refusing consent. (Kened v Connie Investments [1997] 1 EGLR 21).
  • The courts have found that the landlord can withold consent where there is reason to believe that the incoming tenant will commit substantial breaches of covenant (International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 and Ashworth Frazer Ltd v Gloucester City Council [2001] UKHL 59) or where there are substantial and long-standing breaches of covenants (Orlando Investments Ltd v Grosvenor Estate (Belgravia) [1989] 43 EG 175). However minor disputes or breaches are not enough to make a refusal unreasonable (Beale v Worth [1993] EG 135; Farr v Ginnings [1928] 44 TLR 249).
  • Refusal of consent to an assignment on the ground that the incoming tenant intends to use the property in breach of the user covenant is capable of being a reasonable refusal of consent (Ashworth Frazer).
  • A landlord of a shopping centre may reasonably withhold consent where the nature of the proposed incoming tenant’s business does not accord with the landlord's tenant-mix policy, as long as that policy is known to the tenants and is a rational one (Moss Bros v CSC Properties [1999] EGCS 47).

A Quick Note About Pre-conditions

Many leases state that the tenant cannot assign the lease unless certain pre-conditions are met first. The pre-conditions are valid as long as they are not an attempt by the parties to state what will be a reasonable refusal of consent, in which case the pre-conditions will be regarded as unreasonable.

Where there is a valid pre-condition and the pre-condition is not satisfied, the tenant has no right to assign or underlet. The issue of whether the landlord is reasonably or unreasonably withholding consent does not arise.

What Happens if a Landlord is Unreasonable?

If a court sides with the tenant, the landlord will be legally responsible for any loss the tenant suffers because of the refusal. The landlord will have to pay damages for equivalent to these losses.

The court may also grant an injunction against the landlord ordering them to accept the tenant's request.

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Dated: 09/07/2014

Author: Greg Cox

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