We have seen an increase in applications by tenants for consent from their landlords to assign their leases, often in the context of the tenant undergoing insolvency proceedings. It is important for landlords to remember their duties to the tenants if they are to avoid tenants assigning leases without their consent, and / or resist claims for damages. These obligations have been in place for over 20 years, but we still find that landlords can spend far too long considering them! This article is a reminder of the duties on landlords and will touch on some common issues.
Often an application for consent to assign is joined with an application for consent to carry out works at the property or change the use. A landlord's position is usually more straightforward for these applications, as opposed to applications for consent to assign where there are increased duties conferred by statute and tenants can claim damages if landlords breach their obligations.
Applications for consent to assign or underlet
If the lease states that the landlord's consent is required, the landlord has statutory duties to give consent within a reasonable time, and not to unreasonably withhold consent. The time for the landlord's response is calculated from when the landlord receives the complete application from the tenant. If a decision is not given within a reasonable time, it is treated as a refusal of consent by the landlord.
So what is a reasonable time?
Unhelpfully, it depends on all the circumstances of the case. Holiday periods may be taken into account, together with the complexity of the case, and previous exchanges between the landlord and the tenant. Guidance from the court is that a reasonable time should be measured in 'weeks not months'.
If a landlord refuses consent, it must give reasons. If conditions are attached to the granting of consent, these must also be justified by reasons.
When can a landlord refuse consent?
A refusal or any conditions to consent must relate to the relationship of landlord and tenant, for example, if the landlord's existing rights are prejudiced. It is normally unreasonable for landlords to impose conditions which would give them a collateral advantage over the property or the tenant.
Some common areas:
- often, consent is refused or conditions are imposed if the landlord is not satisfied that the tenant has sufficient means to pay the rent to comply with the lease covenants;
- if the tenant is in breach of the terms of the lease at the time it makes the application, it does not automatically entitle the landlord to withhold consent. However, if the landlord believes that the assignee will commit substantial breaches of covenant, then consent may be withheld;
- where the nature of the proposed assignee's business does not fit with the landlord's tenant / mix policy, the landlord may reasonably withhold consent, so long as the landlord's policy is known to the tenant and is rational;
- if there is no foreseeable prospect of the landlord wishing to sell or mortgage its interest, then a 'paper loss' in the value of the reversion will not entitle the landlord to refuse consent;
- it is important to note that if a superior landlord unreasonably refuses consent, this does not entitle the landlord to justifiably refuse consent. Intermediate landlords must be very careful, and have a duty to pass on to a superior landlord a request for consent within a reasonable time of it being received.
Some helpful tips
- check what the lease says about the wording of the covenant;
- if you are the tenant, ensure that the request is served on the landlord and gives comprehensive information in support of the application. Be ready to take action if the landlord delays or withholds consent;
- landlords should evaluate promptly what information is needed from the tenant and make a full request as quickly and as clearly as possible;
- if you are concerned that a reasonable time is close to elapsing, it may be prudent to grant consent with conditions;
- in granting consent, subject to conditions, ensure that all conditions are lifted, as a landlord cannot add further conditions after granting consent.
Applications for alterations to the premises
Alterations must affect the formal structure of the building. A landlord's consent is required if stated in the lease. There is no time limit for a landlord to respond, unless it is given in the lease.
A landlord should request information in relation to the works promptly from the tenant, if it is not provided with the application.
A landlord can require the tenant to pay its costs in relation to an application, to reinstate the works, and to pay compensation for any diminution in the value of the reversion. However, the landlord cannot force the tenant to pay a premium in order to carry out the works.
What steps can a tenant take if a landlord does not respond?
- the tenant can carry out the works, although we recommend first a letter before action to the landlord seeking consent and asking it to confirm that it will not peaceably re-enter the premises. There is a risk that the landlord can require the tenant to reinstate the works;
- the tenant can issue court proceedings for a declaration that the landlord has unreasonably withheld consent and / or no further active consent is required from the landlord.
Applications for change of use
These relate to a change in the use of the premises to something not permitted by the lease.
Again, there is no obligation on the landlord to respond within a reasonable time. In some cases, depending on what the lease says, the landlord can refuse or impose unreasonable conditions. However, the landlord cannot impose a fine or an increase of rent as a condition, but it can require the tenant to pay its costs of the application.
As with applications for alterations, a tenant faced with a refusal of consent can change the use without consent (writing to the landlord first, asking it to confirm that it will not peaceably re-enter). The tenant may be required by the landlord to revert to the permitted use. Alternatively, the tenant can issue court proceedings for a declaration.
It is helpful, on the receipt of a request by the tenant for consent by the landlord, to separate the applications, and consider the issues arising in each area. Applications for consent to assign or underlet should be given priority and dealt with expeditiously and at the earliest sensible moment, if landlords are to minimise the risk of the tenant proceeding without consent, applying to court, or claiming damages. Where multiple properties are involved, review the terms of each lease separately, and make sure your agents, your solicitors or you make a full and early request of the tenant for all relevant information.