Landlord's reasonable refusal to consent to assignment of lease - 09/09/2008

A tenant asked its landlord for consent to assign its lease to a dormant, non-trading company - a case where the incoming tenant would clearly be of less financial standing than the outgoing tenant.

The outgoing tenant had three months to get that consent or the assignment could not take place, and it would have to return the deposit paid by the incoming tenant for the lease.

The law says that a landlord must not unreasonably withhold consent to an assignment, or impose unreasonable conditions. He will normally be acting unreasonably if he makes his consent subject to conditions that increase or enhance his rights under the lease.

The landlord asked the incoming tenant's sole director to guarantee the rent. The landlord said it would release the guarantee if the incoming tenant assigned the lease to a new tenant in the future, but only if the future tenant provided 'reasonable alternative security' when that happened.

The incoming tenant argued that the landlord's condition was unreasonable because it was creating a right to have a guarantee, and then other continuing security, throughout the rest of the term of the lease, that he did not currently have under the lease with the current tenant.

The court disagreed. It said that a 'reasonable alternative security' did not necessarily mean an equivalent security. For example, if the future tenant was of good financial standing, its covenant to pay the rent might be sufficient, without the need for any guarantee or other security.

Recommendations

• Always take advice before agreeing to assign a lease subject to a third party's consent.
• Incoming tenants of a lesser financial standing than the outgoing tenant must expect to provide a guarantor, a larger rent deposit.

Related Resources

in the Muckle LLP Resource Centre

• Case law: incoming tenant's wishes when considering outgoing tenant's repairing obligations
• Case law: cheaper to remove restrictions on development in Lands Tribunal than by negotiating
• Employees to be entitled to non-cash benefits during additional maternity leave
• Site Waste Management Plans now required for new construction projects over £300,000.