The Court of Appeal has held that refusal of consent for both good and bad reasons will not automatically render that refusal unreasonable.

Background

Most commercial leases require tenants to obtain the consent of their landlord prior to assigning their lease. If so, the Landlord and Tenant Act 1988 (the Act) applies to say that if the tenant serves a valid application for consent, the landlord will be subject to the following duties:

  • To give consent unless it is reasonable not to;
  • To give written notice to the tenant as to whether consent is granted or not;
  • If consent is subject to conditions, what those conditions are; and
  • If consent is withheld, the reasons for withholding it.

These duties have to be complied with within a reasonable time of the tenant's application.

The case

In No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd the landlord had let out a number of residential apartments on long leases. The tenant had taken leases of 42 apartments from the landlord, each with a 999-year term.

The tenant wanted to sell the apartments by assigning the leases. Landlord's consent was required to do so, such consent not to be unreasonably withheld.

The landlord granted consent for eight apartments to be sold, on condition that (for each) all service charges should be paid up to date and costs of £1,250 plus VAT met.

However for some of the apartments, the landlord refused consent because the tenant had refused to:

  • pay the landlord's legal costs of granting consent (£1,250 plus VAT but with an additional surveyor's inspection fee of £350 plus VAT);
  • allow a prior inspection of the apartments to check whether there were any breaches of lease;
  • provide bank references for the assignees.

The tenant argued that the landlord had unreasonably refused consent to the assignments.

At first instance, the court found that all three reasons for refusal were unreasonable. The landlord appealed.

The High Court held that two of the reasons (the inspection and bank references) were reasonable but that the requirement to pay the landlord's legal costs of granting consent was not reasonable as the costs were too high. It held that this one bad reason trumped the two good reasons so that overall, the refusal of consent was unreasonable. The landlord appealed again.

The decision

The Court of Appeal held that a mixture of good and bad reasons did not automatically invalidate the refusal where each of the reasons could stand alone.

This followed the previous case of BRS Northern Ltd v Templeheights Ltd [1998] 2 EGLR 182, in which the court had held that where a refusal of consent was based on a number of reasons, the fact that one of those reasons was bad would not normally render the refusal unreasonable, assuming that the other reasons were good.

The duty under the Act was to give consent "except in a case where it was reasonable not to give consent". That did not require that all reasons given have to be reasonable but that the landlord was restricted to relying on the reasons which it gave to the tenant. The duty to notify the tenant of the reasons for refusing consent was a duty to notify of all reasons, whether good, bad or indifferent.

Unless the good and bad reasons were connected to such an extent that the bad would destroy the good, or the good reasons were 'merely makeweights', the refusal will not be invalidated. If the decision would have been the same relying on the good reason(s) alone, then the overall decision was good.

Therefore, the question for the court was whether the decision to refuse consent was reasonable and not whether all the reasons for the decision were reasonable. Because the landlord's reasons were independent of one-another and two of them were reasonable, the landlord's decision to refuse consent was reasonable.

This decision is welcomed because it applies a common sense approach to deciding what is and is not a reasonable decision. This is a tricky and often litigated area of law.

The case serves as a useful reminder to landlords to consider carefully any reasons for refusing consent and to notify the tenant of all of them in a single response made in a reasonable time. New reasons cannot be added later.

Check that each reason is sufficient on its own and can be properly justified. If reasons are given without good cause there is a risk that, overall, a refusal of consent will be unreasonable.

No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2018] EWCA Civ 250