Dellah Gilbert reviews case law relating to the often contentious topic of landlords granting consent to a prospective tenant when an existing tenant wishes to move on.
Controlling tenant mix, particularly in retail developments, is usually of utmost importance to landlords. The need for this control can run counter to the tenant’s need to dispose of its premises easily and quickly if those premises prove surplus to requirements. The restrictions on disposals which are agreed between landlord and tenant are to be found in the alienation provisions of a lease which typically provide that the tenant has to apply to the landlord for consent before it can dispose of the lease. The law on how landlords should respond to tenants’ applications for consent has evolved over many years. Parliament has stepped in three times1 to superimpose a statutory framework but this particular interface between landlords and tenants continues to be fodder for litigation.
The focus of this article is to clarify what procedural obligations are imposed on a landlord upon receipt of an application for consent, in particular, ones where insufficient information is provided by the tenant to allow the landlord to make a decision.
The statutory framework
First, the basics. Where a landlord is required to consent to a sale (by way of an assignment) or underletting, statute2 implies a proviso that such consent is not to be unreasonably withheld. This concept was expanded in 19953 to provide that parties to post‑1995 leases could agree objective circumstances and conditions for reasonably withholding consent. However the proviso that consent is not to be unreasonably withheld was limited. It did not impose any duty on the landlord to act reasonably, the breach of which would sound in damages. Rather, if a court agreed with a tenant’s contention that consent had been unreasonably withheld, the tenant could complete the assignment or subletting. However if the assignee or subtenant had walked away from the deal, it was a pyrrhic victory. This proved to be quite a problem as many landlords were slow to respond to applications for consent which in turn caused substantial and irrecoverable financial damage to their tenants.
The Landlord and Tenant Act 1988 was intended to remedy these failings. It imposes on a landlord in receipt of an application for consent a statutory duty to the tenant within a reasonable time to give written notice to the tenant of the landlord’s decision to:
- give consent, specifying whether the same is subject to reasonable conditions and, if so, what those conditions are; or
- refuse consent, where it is reasonable to do so, specifying the reasonable grounds relied upon.4
The burden of proving that this section of the Act has been complied with rests with the landlord. If the duty is breached, the tenant is entitled to be compensated in damages.
Case Law
The implementation of the 1988 Act certainly levelled the playing field to a significant extent but it also left open a number of questions which the courts have, piece by piece, been answering ever since. One of the principal questions was: “what is a reasonable period of time in which a landlord is to respond to a tenant’s application?” As each case must be judged on its own facts, there could not be and there is not, a decisive period to apply in all cases. The rule of thumb, when advising tenants, was that they were unlikely to be able to threaten the landlord with proceedings (or pressing ahead with the transaction) before the expiry of a month on a straightforward application. But in the last decade the trend of the judgments appears to be that a landlord has an ever decreasing amount of time in which to respond with their decision.
In Go West v Spigarolo 5 Munby J was of the view that the reasonable time must be measured in weeks rather than days but even in complicated cases it should be measured in weeks rather than months. More recently, in the Court of Appeal decision in NCR v Riverland Portfolio No 1,6 Carnwath LJ said:
“In the absence of special exceptional circumstances a period of less than three weeks, particularly in the holiday period, cannot in my view be categorised as inherently unreasonable for that process.”
At its most extreme, in Blockbuster Entertainment Ltd v Barnsdale Properties Limited,7 the High Court concluded that consent ought to have been given seven days from receipt of all information. In that case, the tenant’s application for consent to underlet omitted to include some financial information about the proposed subtenant. The landlord requested further information, such as bank and character references, two weeks after the application was received, was provided with the information 19 days later, but did not give its consent in principle for almost another three weeks. Whilst seven days may sound harsh, the judge concluded that time started to run from the date the application was made (despite its inadequacies) and was unimpressed with the landlord’s dilatory response, saying “Of course, the landlord was entitled to ask for [the further information] in response to the [application] but it was under a duty to act in that respect with reasonable speed.”
On analysis, the total periods of time that the application was with the landlord effectively amounted to three weeks, which is in line with the later NCR case. Even so, three weeks is not a long period of time particularly if information is drip-fed following an incomplete application.
The impression most landlords took from the Blockbuster case was that the onus lay on them to point out to the tenant in a timely fashion any inadequacies in the tenant’s application and to specify the relevant information they required. Only then did the clock pause, beginning again when information was received. To be on the safe side, that information had to be processed by the landlord as and when it was received.
The current position
The case of The Royal Bank of Scotland v Victoria Street (No 3) Limited 8 (where Hogan Lovells acted for the successful landlord) will be of some comfort to landlords. The tenant made an application for consent to assign to a newly incorporated company. A few days later the landlord’s agent requested “relevant financial” information regarding the proposed assignee. However, the day after that and before receiving the requested information, the landlord sent a letter refusing consent. The refusal was upheld by the court. Of more relevance to this article, Lewison J dismissed the suggestion that the 1988 Act duty extended to requiring the landlord to make enquiries of the tenant in order to meet any concerns which it may have had. He opined that the extent of the landlord’s duty was simply to consider the application before it. If there was insufficient information for it reasonably to decide the application one way or the other, then the landlord would be entitled to refuse consent provided it stated its reasons in writing and promptly. But those reasons need not include setting out what information it would need in order to complete the process. This is a commonsense approach: after all, as the judge noted, a tenant can make any number of applications providing as much or as little information as it likes until it gets it right, whereas a landlord is under a duty to act reasonably in response.
There are advantages and disadvantages associated with this clarification. On the plus side for landlords, the clock stops completely as opposed to being paused until more information is provided by the tenant. When the tenant re‑applies, the clock is reset and time begins afresh. On the downside, it is unclear whether a court would conclude that a shorter period was reasonable to consider documents where there have been a number of earlier failed incomplete applications for the same transaction, on the basis that the landlord will have had some of the documentation for a longer period. Further, there is a danger that a landlord will lose track of the multiple applications as they may well look similar and so a revised complete application may slip through the net.
There will always be landlords who will exploit this situation to the full and refuse all applications unless it is blatantly clear that sufficient information has been provided. For the many who embrace the Lease Code their treatment of consent applications may not change and they may still continue to issue a standard response seeking further information to allow them to complete their consideration of the application and be as helpful to the tenant as possible. But at least the Victoria Street case can give landlords comfort that, in an appropriate case, they are entitled to say no immediately.
