Consent not to be unreasonably withheld or delayed…

Please note this decision was overturned on appeal - a summary of the Court of Appeal judgment can be found here.

The duties imposed on a landlord when considering an application for consent to assign are found in the Landlord and Tenant Act 1988. It applies in any case where a tenancy includes a covenant on the part of the tenant not to assign, underlet, charge, or part with the possession of the premises or any part of the premises without the consent of the landlord or some other person and the consent is not to be unreasonably withheld. In short:

• the landlord is under a duty to consent to the application unless it is reasonable for them not to do so
• a landlord must give written notice of his decision to the tenant and the notice must specify any conditions attached to the consent or if consent is refused the notice must specify why
• the landlord’s time for considering the application will not start running until a written application has been served on the landlord - it is then under a duty to respond with a "reasonable" period
• what constitutes a reasonable period will depend on the circumstances of the application but generally speaking it should be days or weeks rather than months
• if the landlord refuses consent, the onus is on the landlord to show the refusal is reasonable, and
• various remedies are available to the tenant if consent is found to have been unreasonably withheld, including a damages claim against the landlord (and as it will be a breach of statutory duty exemplary damages may be available).

In No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd ([2016] EWHC 2438 Ch), East Tower Apartments Limited (ETAL) owned some 42 apartments in a residential block where West India Quay (Residential) Limited (West India Quay) was the landlord. Following a long running dispute over the service charge for the block and an uneasy relations between the parties ETAL had decided to sell its apartments. The case focuses on ETALs application for consent to assign in relation to three of its apartments. While each case is fact specific the judgment serves as a useful reminder of some of the issues in play.

Background

ETAL had already assigned eight of its apartments by the time the applications for the three flats in question were made. While on the eight previous applications ETAL was unhappy with the level of administration fees charged by West India Quay for considering these applications, it had nevertheless provided the undertakings requested in order to progress matters. However, a further increase in the fees requested and additional conditions attached to the consent caused ETAL to seek a declaration that West India Quay had either unreasonably withheld or delayed its consent in relation to three of its apartments.

Apartment 28.08 - Was consent unreasonably delayed?

Issue: In July 2014 West India Quay had provided a "sales pack" to ETAL specifying an address to which applications for written consent should be made. On 27 March 2015 ETAL made a written request for consent to the assignment of apartment 28.08 to this address, rather that West India Quay’s registered office which was required pursuant to the lease. Receipt of this request was acknowledged by West India Quay on 30 March 2015. A completion date was set for 17 April 2015 and ETAL chased for the licence. There was correspondence between the parties as to the conditions to be attached to the licence. On 29 April 2015, ETAL served a further request for consent at the landlord’s registered office, which was granted on 13 May 2015, 47 days after the request of 27 March 2015, 14 days after the request of 29 April 2015.

Outcome: The High Court upheld a previous County Court decision that the landlord had granted consent within a reasonable time as service of a formal valid request pursuant to the lease had not been made until 29 April 2015 and consent was granted 14 days later, which was held to be reasonable.

The court found that the alternative address provided by West India Quay did not waive the formal requirement for service specified in the underlease. It was held that this alternative address may be viewed as a way of opening correspondence in the first instance with a view that the application may be resolved by agreement and/or discussed informally. Formal notice then triggered the process under which the landlord was under a statutory duty to respond in a reasonable period.

Apartments 27.02 and 27.09 - Were the conditions reasonable?

Issue: Requests for consent to assign were then made in relation to two further underleases (apartments 27.02 and 27.09). The landlord sought to impose the following conditions in relation to each consent:

• a bank reference for the assignee to allow the landlord to assess the prospective assignee's covenant strength.
• a condition requiring inspection of the apartments to see if there had been any breach of the underleases plus payment of the surveyors fees for this in the sum of £350 plus VAT.
• an undertaking for West India Quay’s administration fees of £1,250 plus VAT.

The landlord refused consent as the tenant resisted payment of the fees and provision of the reference.

Outcome: The High Court held that it was reasonable for the landlord to require a bank reference so that it could be satisfied that the assignee would be able to meet the underlease covenants which included financial expenditure, and this was a simple and inexpensive means of doing so. The court reasoned that paying a substantial premium did not demonstrate financial substance as the money could have been gifted or borrowed and it was not relevant that this condition was not required in the underlease alienation provisions. The fact the landlord had various options available to in in the event of default was also not relevant.

The High Court also held that the requirement for a surveyor to inspect at a charge of £350 plus VAT was reasonable as this would allow the landlord to ascertain whether there were any breaches of the lease which was part of a reasonable information gathering exercise informing its decision as to whether to consent (eg the incoming tenant may not have the same covenant strength as the assignor when it came to making good any breaches/there may have been a once and for all breach in relation to alterations).

However, the High Court held that the administration charge of £1,250 plus VAT was unreasonable and should be assessed by reference to what would need to be done and should not be used as a source of profit. In this case the High Court agreed that a reasonable charge was £350 plus VAT (and the landlord was allowed to retain this) but noted each case will be fact specific

The court held that the landlord’s unreasonable condition in relation to the fees vitiated the two reasonable conditions for a bank reference and inspection as the correspondence between the parties suggested that even if ETAL had agreed to the bank reference and inspection fees consent would still have been refused because of the refusal to pay the administration charge. Consent had therefore been unreasonably withheld. However, it will depend on the facts of the matter and it may well be the case that the good reasons for refusing consent outweigh a bad reason.

Comment

The case is a useful reminder of some of the issues in play when a request for consent to dealing under a lease is received. Both landlords and tenants need to ensure that the formalities of the statutory regime are closely observed and of the need to ensure matters are dealt with promptly and reasonably. The commentary in relation to the provision of bank references and inspection of the property prior to assignment offers some useful guidance for those landlords looking to include similar provisions as a condition of consent.