plainlaw briefing “Applications
for consent – recent cases reiterate
the need for urgency when dealing with applications – An update for
Landlords” explains the basic duties of a landlord under the Landlord
and Tenant Act 1988 which was introduced to force landlords to respond quickly
to applications by tenants for consent to assign, underlet, charge or part
with possession of their premises.
Where a landlord is subject to a duty under a lease not to refuse consent
unreasonably, it will be liable to indemnify the tenant for damages it suffers
where consent is unreasonably delayed or refused.
The courts’ attitude
The courts have not been sympathetic to landlords who fail to deal with
tenants’ applications for consent quickly. A Court of Appeal (CA) decision
in March this year, however, may prevent landlords being railroaded into
hasty action when dealing with applications for consent to underlet.
The case: NCR Ltd v Riverland
On 21 March 2005 the CA overturned the decision made last year in which
a defendant landlord was held to have unreasonably delayed and refused to
give consent to the claimant tenant to underlet premises.
The court held that it was wrong of the judge when the case was first heard
to have decided that the covenant strength of the proposed under tenant was
of little relevance because the tenant remained liable to pay the rent for
the remainder of the lease term.
The facts: In June 2003 the tenant's solicitor wrote to the landlord asking
for consent to underlet. Further correspondence passed between the parties
and the tenant’s solicitors provided more information on 28 July 2003
demanding a reply by 11 August 2003. The terms of the proposed underletting
included the payment of £3m by way of reverse premium. On 20 August
2003 the landlord refused consent to underlet. The reason the landlord gave
for refusal was that it objected to the payment of the reverse premium and
it also considered that the financial covenant of the proposed undertenant
was unsatisfactory.
In separate proceedings it had been decided that the landlord could not
object to the reverse premium.
At the initial hearing the judge had decided that the landlord had unreasonably
delayed consent and that the application for consent should have been determined
by 11 August 2003. The judge also decided that it was unreasonable to refuse
consent anyway as the financial status of the tenant was not of great significance
since the tenant remained liable to pay the rent and perform the covenants
under the lease.
The CA, however, noted that the head tenant was claiming £3m in damages
for the
refusal and it thought that any landlord needed adequate time to consider
the application made to it for approval very carefully, given the serious
consequences of its decision.
The CA did not think that it was in any party’s interest for a decision
to be rushed and given that the proposed undertenant was prepared to wait
until 20 August for a decision it was not unreasonable for the landlord not
to have made a decision before that date.
Most importantly the court did consider
that the covenant strength of the tenant and its proposed guarantor was
material. Furthermore, unlike the trial judge the CA did not consider the
landlords opinion that the underletting would reduce the value of the landlord’s
interest at the end of the lease term as speculative.
The CA held that consent was not unreasonably witheld.
It is sufficient ground for refusal if the landlord has genuine and not
unfounded concerns on matters relevant to its interest in the property, even
if there is a reasonable prospect that those concerns will not be realised
in due course.
Conclusions
Landlords: This decision should not be seen by landlords as a licence to
delay applications for consent. It should, however, allow them adequate opportunity
to fully consider the implications of a tenant’s proposal.
Tenants: Tenants should ensure that landlords are provided with all necessary
information to consider applications for consent as quickly as possible and
that any commercial deadline is communicated to the landlord again as soon
as possible. Tenants must also give full consideration to the covenant strength
of proposed undertenants as this may be a legitimate reason for refusal.
Who can help?
If you would like further advice about dealing with tenants' applications
for consent and whether any reason relied on when considering a refusal is
likely to be considered unreasonable, please contact Philip Horn on 01865
240202 or e-mail him on philip.horn@plainlaw.co.uk.
This edition of "The law made plain" is written to provide you
with general information. It is recommended that you seek specific professional
advice before taking any action.
© Copyright plainlaw 2005
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