The courts have recently reminded landlords and their advisors that landlords can inadvertently grant their consent even if their correspondence with the tenant (or their advisor) contained the warning that "this correspondence does not constitute the provision of consent by our client" and that " such consent will only be provided on the completion and delivery of a formal licence executed as a deed".
The case
The contract for the sale of a leasehold property incorporated a condition that if the landlord's consent to the assignment was not provided three working days prior to the completion date or consent had been given subject to conditions which the buyer reasonably objected to, either party could rescind the contract. As the facts would have it, the buyer sought to rescind the contract on grounds which included that the landlord's consent had not been given by the completion date. Although a formal licence had not been completed, the court ruled that the correspondence from the landlord's advisor had amounted to clear consent. This is despite a number of their letters being headed "subject to licence" and coupled with a statement of conditions attached to their consent ie a condition that an undertaking for their fees was to be given. The landlord's advisors had also written various letters confirming their client's consent in principle to the assignment "subject to licence".
The court referred to a previous case which had determined that the words "subject to licence" added little and could not qualify the unambiguous consent the body of their letters contained. This was on the basis that the terms of the lease did not require consent to be given as a deed but simply in "writing".
The lessons
The court stressed that by heading a letter "subject to licence" the landlord would, at most, emphasise the degree of formality should the terms of the lease require a full blown licence which is executed as a deed (which was different to the case which has recently been decided). So if the landlord states their consent is granted in principle subject to formal completion as a deed, that statement may not be seen as granting consent if the lease requires that consent must be given by deed.
Therefore, if it is not intended that any correspondence should amount to a consent, great care needs to be taken in its drafting. In correspondence with the tenant or its advisors, the landlord or those advising him should not state that consent is given in principle but should emphasise that nothing other than completion of a formal licence executed as a deed is to be taken as constituting consent.
Why this matters for landlords
The downsides to the landlord of accidentally granting a consent can be serious and materially adversely affect the value of its reversion. First of all the landlord might end up with a tenant whose covenant strength is not what they might have wished for – why would the new "consented" tenant subsequently pay over a rent deposit? Secondly, for leases granted on or after January 1996 the landlord will have lost the opportunity of obtaining an authorised guarantee agreement from the previous tenant and therefore will have no ability to claim against the previous tenant should the new one default.
