Who knew Meat Loaf knew so much about real estate law? In a recent decision the Court of Appeal confirmed that when it comes to providing good reasons for refusing consent to assign, "two out of three ain't bad". As such the decision in No. 1 West India Quay (Residential) Limited v. East Tower Apartments Limited [2018] EWCA Civ 250 will come as a relief to landlords of both residential and commercial property.

Background

East Tower Apartments Limited (Tenant) held a number of long leases of flats in a residential tower block in West India Quay. In 2015 the Tenant applied to No. 1 West India Quay (Residential) Limited (Landlord) for consent to assign some of the leases. Under the terms of the leases the Landlord's consent could not be unreasonably withheld and the provisions of s.1 of the Landlord and Tenant Act 1988 (1988 Act) applied.

Section 1 of the 1988 Act applies (with some exceptions) to both commercial and residential property where landlord's consent is required to an assignment, underletting, charging or parting with possession of premises and that consent cannot be unreasonably withheld. It requires, among other things, that a landlord must, within a reasonable time, grant consent to the application unless it is reasonable not to and further that, where consent is withheld, the landlord must state its reasons for withholding it.

The Landlord refused consent to assign and, in accordance with s.1 of the 1988 Act, gave three reasons, namely that the Tenant had refused to:

  • provide an undertaking to cover the Landlord's fees for dealing with the application;
  • allow an inspection of the properties; and
  • provide a bank reference for the proposed assignee.

The Tenant applied to court for a declaration that the Landlord had unreasonably refused its consent to the assignment.

High Court decision

In 2016 we reported on the High Court decision in this case (see update).

The High Court held (among other things) that only two of the three reasons for refusal were reasonable, namely the request for an inspection and the request for a bank reference. The request for the undertaking for costs was unreasonable because of the amount sought.

The court formed the view that the Landlord would not proceed to grant the consent unless and until it received the undertaking for costs, irrespective of whether or not the Tenant provided the reference and allowed access for an inspection. Consequently, the refusal of consent was held to be unreasonable.

The Landlord appealed to the Court of Appeal. The question was whether or not, if a landlord refuses consent and gives three reasons for that refusal of which only two are good reasons, the third bad reason invalidates the two good reasons.

Court of Appeal decision

The Court of Appeal endorsed the following test: "if a landlord has a good and a bad reason for withholding consent, consent may nevertheless have been reasonably withheld if the good reason is a sufficient reason and is not otherwise vitiated by the bad reason". The key, therefore, is to consider whether the decision would have been the same without reliance on the bad reason.

The question was not "would the landlord have maintained the unreasonable reason if the reasonable conditions had been complied with?". Rather, the question was "would the landlord have still refused consent on the reasonable grounds if it had not put forward the unreasonable ground?". The answer to that question was yes. Consequently the Court of Appeal held that the Landlord had not unreasonably withheld its consent.

The decision in this case will come as a relief to landlords.

Had the Tenant's arguments prevailed, landlords would have effectively been required to only give good reasons for refusing consent to applications to which s.1 of the 1988 Act applies. Given how difficult it can be to identify good and bad reasons for withholding consent, this would have placed landlords in an incredibly difficult position.

The Court of Appeal's approach, however, does not mean that landlords can act with impunity when refusing consent. As is shown by the test endorsed by the Court of Appeal, there is still a possibility that a bad reason for refusing consent will be deemed to vitiate the good reasons for refusing consent. This is most likely to happen where there is some connection between the reasons or an attempt to dress up bad reasons with good ones. Each case will have to be judged on its own facts.