As the economic downturn takes effect, many tenants are looking to reduce their costs. Assigning or sub-letting a lease may seem an ideal solution, albeit that the landlord’s consent will generally be required. It is important that a landlord responds to a tenant’s request for consent to assign or sub-let appropriately to ensure the landlord complies with their statutory duties as well as reducing the risk of the tenant pressing ahead and assigning or sub-letting the lease without formal consent. Equally, a tenant needs to ensure that any request for consent is made and dealt with correctly in order to maximise the prospects of obtaining the landlord’s consent. This article sets out some key practice points for both landlords and tenants to consider when dealing with a request for consent.
Many commercial leases include a covenant whereby the tenant cannot assign (or sub-let) without the prior written consent of the landlord, such consent not to be unreasonably withheld. This is known as a qualifi ed covenant. If there is no mention of reasonableness in the lease then statute adds this qualifi cation. Where the lease contains a qualifi ed covenant, the Landlord and Tenant Act 1988 imposes certain duties on a landlord, namely:
- To give consent where it would be unreasonable to refuse
- To give written notice of their decision within a reasonable period of time specifying in addition:
- the reasons for refusal where consent is refused; and
- where consent is granted subject to conditions, to notify the tenant of those conditions in writing.
Practical tips for landlords when dealing with a request for consent
- Clarify with the tenant whether they are simply enquiring as to the likelihood of consent being given or whether it is an actual application.
- Review the lease carefully to see whether it contains any conditions precedent for granting consent (for example, a requirement for any sub-letting to be on the same terms of the lease) or any pre-agreed reasons for refusing consent (for example, breach of repairing obligations).
- Deal with any request swiftly. As regards what is a reasonable period of time, this is usually measured in weeks not months. If an application in a straightforward case is not dealt with within a period of, say, 2-3 weeks then the tenant may well be able to argue that the landlord has failed to respond within a reasonable period. A failure to give a decision within a reasonable period of time will be treated as a refusal of consent without reasons. Remember that the burden is on the landlord to “do something” rather than the tenant having to “do anything”. If necessary, tell the tenant that you need more time to make a decision and give the reasons for this.
- You are entitled to be given suffi cient information to enable you to make a fully informed decision. Therefore consider whether a request for further information (with reasons) should be made, again within a reasonable period of time. The time within which to respond to the tenant’s request will not expire until after the tenant has given satisfactory replies.
- Never give consent “in principle” or “subject to licence” as this can be construed as a binding consent upon which the tenant can rely. Instead, if you require the parties to enter into a licence, for example, to obtain a direct covenant from the assignee, then say that consent is conditional upon the agreement of a suitable document and its execution by all parties.
- When refusing consent make sure that the tenant is given careful and detailed reasons. Remember that in subsequent litigation you will only be entitled to rely on reasons given in writing and within a reasonable period of time.
- Practical tips for tenants
- Review the lease carefully to check for any conditions precedent and make sure that these are fulfi lled before making an application. Consider whether you have complied with all of the covenants in the lease and, if not, consider whether it would be worth remedying any breaches before making a request. At the same time, consider whether the nature of the incoming assignee or subtenant’s business is such that it might breach any use covenant and what, if anything, can be done about this.
- Submit a clear written request for consent, preferably by post and fax (and by email too if possible) and obtain proof of delivery and confi rmation of receipt.
- Make sure that you include as much information as possible in the initial request for consent. As a general rule, the following information should be included:
- Three years’ audited accounts for the proposed assignee or under-tenant
- Professional and trade references regarding the payment of rent and compliance with other covenants
- An offer to provide further information if required
- Also, consider whether it would be appropriate to offer additional security, for example, a rent deposit or guarantor
- Ensure that any requests by the landlord for additional information are responded to promptly. Also, make it clear that this information is being provided in connection with the existing application. This should avoid the landlord arguing that a fresh application has been made which they will need more time to consider.
- Remember to keep the proposed assignee or subtenant informed as to what is happening with the application.