Key points

  • An undertenant wishing to assign, underlet or make alterations may require consent, not just from its immediate landlord, but also from a superior landlord
  • If the superior landlord has an absolute discretion as to whether or not to grant consent, then it may be reasonable for the intermediate landlord to withhold consent
  • If both landlords must act reasonably, then the intermediate landlord will not be justified in refusing consent on the ground that the superior landlord is unreasonably withholding its consent

Background

In the case of many leasehold management applications, such as an application to assign or alter the premises, the landlord is under a duty to act reasonably (either expressly in the lease, or implied by statute). Complications can arise where consent is required from not just one, but a chain of landlords. The terms of each lease in the chain must be reviewed to see what is permitted, and whether the landlord must act reasonably, or has an absolute discretion.

Where there is an absolute discretion

In some circumstances, a landlord may have an absolute discretion as to whether or not to consent, for example in relation to a dealing with part of the property.

In Eaton Mansions (Westminster) Ltd v Stinger Compania de Inversion S.A. (2011), the tenant of a flat applied for consent to install air-conditioning equipment on the roof of the block. Since the roof was outside the area demised to the tenant, the lease did not require the landlord to act reasonably. However, as a result of a course of dealings between them, the tenant argued (and the landlord accepted) that the landlord was not entitled to withhold consent unreasonably.

Notwithstanding this concession, the Court of Appeal ruled that it would be "artificial, inappropriate and unjust" to determine the position as if there had been a right in the lease for the tenant to install the equipment on the roof, subject to landlord's consent. It refused to apply by analogy the case law which applies to a usual qualified covenant which governs alterations carried out to the demised premises themselves. One of the consequences of this was that the landlord could rely on grounds for refusal other than those which had been communicated to the tenant at the time of refusal.

The landlord was itself a tenant, and consent was also required from the freeholder, who also had an absolute discretion to refuse consent under the headlease. The landlord argued that it was entitled to refuse consent, because the tenant's proposals would put the landlord in breach of the headlease, and the freeholder had not agreed to it.

The court held that the landlord was "entitled to take a cautious line" as regards the attitude of the freeholder. The landlord could not be expected to "force the issue" with the freeholder or to put itself at risk by giving consent to something that might expose it to a claim for breach of covenant. It was not necessary for the landlord categorically to show that the proposed works would give rise to a breach of the headlease.

It was, therefore, necessary to consider what the attitude of the freeholder to the proposals would have been at the relevant time. If the freeholder would have confirmed that the proposal would not amount to a breach of the headlease, or, that the freeholder would waive any breach that did occur, then it would be unreasonable for the landlord to refuse consent. In any other situation it would not be unreasonable for the landlord to withhold consent.

Where there is a requirement to act reasonably

The situation described above should be contrasted with the position where both the immediate landlord and the freeholder are under a duty in the lease not to unreasonably withhold consent. In Vienit Ltd v W Williams & Son (Bread Street) Ltd (1958), an underlease contained a covenant by the undertenant not to assign without the consent of its immediate landlord and the superior landlord, which in each case was not to be unreasonably withheld.

The superior landlord refused consent. The immediate landlord was happy to give consent, but was concerned that this would put it in breach of its own lease, given the attitude of the superior landlord.

The court stated that the first thing to consider was whether the superior landlord was acting reasonably or unreasonably. On the facts of the case it was clear that the superior landlord's refusal to give consent was unreasonable, as it was attempting to secure a collateral advantage.

Given that the superior landlord was acting unreasonably, the court ruled that the immediate landlord could not withhold consent in reliance on the superior landlord's refusal. The immediate landlord's position under its own lease would not be in peril if it gave its consent, because the superior landlord was unreasonable in refusing consent.

Things to consider

A landlord which is itself a tenant cannot necessarily hide behind its own landlord's refusal of consent. What, then, should you do if you find yourself in this delicate position?

If, as an intermediate tenant, you receive an application to consent and are under a contractual obligation to act reasonably, then the position of your superior landlord will be relevant. If your superior landlord is willing to consent, you are not obliged to consent, but you remain obliged to act reasonably in determining the application. If your superior landlord is obliged to act reasonably and refuses consent unreasonably, then this will not allow you to refuse consent per se. You must still determine the application on its merits and decide whether your superior landlord has acted reasonably or unreasonably in withholding its consent. If your superior landlord reasonably refuses its consent and you believe that to consent would put you in breach of your own lease covenants, then you will be entitled to refuse consent.

The difficulty arises where you believe that your landlord is contractually obliged to act reasonably but has refused consent and you are not clear as to whether that refusal is unreasonable. This can cause problems in terms of timing (you will not have time to obtain a court declaration as to reasonableness before your own deadline to respond expires). In those circumstances, it would be wise to obtain professional advice on the prospects of successfully arguing that your superior landlord has unreasonably withheld its consent before confirming whether you are willing to consent.