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> > Case law: pitfalls when tenants apply to assign a lease - 01/08/2008

Case law: pitfalls when tenants apply to assign a lease - 01/08/2008

A tenant wrote to its landlord about an assignment of the lease to a proposed new tenant. The letter referred to further information that would be supplied. The lease said the tenant could not assign the lease without the landlord's consent, although the landlord could not unreasonably withhold consent if the proposed tenant was 'respectable and responsible'.

Before receiving the further information, the landlord refused consent to the assignment. Its grounds were that the rent was £400,000 per year, yet the proposed tenant was a limited company that had only been incorporated two months before. The landlord therefore decided the company was not respectable and responsible, and it had an absolute right to refuse consent.

The tenant claimed consent had been unreasonably withheld and applied to the court for a preliminary decision in its favour, without the need for a full court case.

Arguments put forward included:

The lease could not give the landlord an absolute right to refuse to consent to an assignment, even if the tenant was not respectable and responsible, because landlord and tenant law imposed an overriding duty on landlords not to withhold consent unreasonably.
The tenant's letter to the landlord made it clear the tenant was going to supply further information about the directors of the company. The landlord should not therefore have treated the letter as the formal application to assign - it should have waited until the further information was received before deciding whether the tenant was respectable and responsible.
As part of its duty to act reasonably, the landlord should have asked the tenant to suggest ways it might overcome the landlord's doubts about the proposed new tenant, such as offering a larger deposit, or personal guarantees from the directors of the new company.

The court decided the matter should go to a full hearing, as the landlord had made out a case that it had not unreasonably withheld consent. It said:

The landlord was under a duty not to withhold consent unreasonably, whatever the lease said, but, in the circumstances, had withheld it reasonably.
The tenant's letter invited the landlord to treat it as an application to assign, so the landlord was entitled to do so. There was no obligation on the landlord to wait for the further information mentioned in the application, before refusing consent.
There was no obligation on the landlord to ask the tenant to suggest concessions - it was entitled to make its decision on the basis of the application made to it by the tenant.

Recommendations

For tenants:

An application to assign should contain all the information the landlord needs to decide whether to assign or not, as the landlord can make its decision on the basis of the application.
If there are concessions that the tenant is prepared to make, consider setting these out in the application.
Remember that further applications can be made, if one is refused.

For landlords

Review leases to ensure that they are consistent with the law prohibiting them from withholding consent unreasonably.
Take advice on other duties on an application for assignment, including duties to:
give a written response within a reasonable time;
give reasons for any refusal of consent; and
if consent is given, ensure any conditions are reasonable.

Related Resources

in the Muckle LLP Resource Centre