In this month’s potted guide, Jonathan Seitler QC guides practitioners through the basics of the law relating to a landlord’s consent to a tenant’s alterations
Consent to alterations checklist
- What is the default position if there are no restrictions in a lease on the tenant carrying out alterations?
- How do alterations clauses commonly restrict the tenant?
- How are alterations clauses construed?
- What is implied into an alterations clause?
- How can a tenant sidestep a restriction in its lease on alterations?
- On what grounds can a landlord reasonably refuse consent to a tenant’s request to carry out alterations?
- On what grounds can a landlord reasonably impose conditions on its grant of consent to a tenant’s request to carry out alterations?
What is the default position if there are no restrictions in a lease on the tenant carrying out alterations?
In the absence of provisions to the contrary and subject to:
• the (rather obscure) tortious liability for waste;
• certain public sector residential tenancies (section 97(1) of the Housing Act 1985); and
• most protected and statutory private sector tenancies under the Rent Act 1977 by reason of section 81 of the Housing Act 1980 (in each case there being implied into such tenancy a term that the tenant will not make any improvement without the landlord’s written consent),
a tenant is entirely free to alter the demised premises in any way that it seeks.
How do alterations clauses commonly restrict the tenant?
Under most leases the tenant’s basic freedom to effect alterations is restricted in various ways and to varying degrees depending on the length of the term and the type of premises.
Covenants commonly refer to alterations and additions to the demised premises and to cutting or maiming the walls or timbers. In the case of a residential let at a modest rent, a total restriction might be appropriate, whereas in the case of a commercial lease, perhaps for a significant term (and rent), the ability to adapt the premises to the changing needs of the tenant’s business will be an important requirement of the tenant.
How are alterations clauses construed?
Restrictions on alterations are liable to be construed against the landlord (per Lindley MR in Gresham Life Assurance Society Ltd v Ranger [1899] 15 TLR 454 CA). Additionally, in construing the scope of any such covenant, the court will have regard to what the parties would have contemplated when the lease was granted.
In Bickmore v Dimmer [1903] 1 Ch 158, the alterations clause was held to apply only to alterations “which would affect the form and structure of the premises” (Vaughan Williams LJ at 167). The holes in the wall made by the tenant were not regarded as a change in form or structure (though the position would have been different if the alterations covenant had been against cutting or maiming any of the walls). It was also treated, in that case, as wrong to construe the covenant so as “to prevent a tenant doing those acts which are convenient and usual for a tradesman to do in the ordinary conduct of his business” (Vaughan Williams LJ at 167).
The obvious corollary is that if the alterations are not in the ordinary conduct of the tenant’s business, the court may well conclude that they are of a sort intended to be restricted: see, for instance, London County Council v Hutter [1925] Ch 626.
What is implied into an alterations clause?
Under section 19(2) of the Landlord and Tenant Act 1927, in relation to restrictions on “improvements” which, while referring to the landlord’s consent, do not go on to express the fully qualifying phrase “such consent not to be unreasonably withheld”, those words are statutorily implied.
It has been clear since Ball Bros v Sinclair [1931] 2 Ch 325 that as a matter of statutory construction, whether an item is an improvement has to be viewed largely from the tenant’s point of view: see also FW Woolworth & Co Ltd v Lambert [1937] Ch 37 and Lambert v FW Woolworth & Co Ltd (No 2) [1938] 1 Ch 883. The demised premises may be improved by alterations which enable it to be used in conjunction with other premises, but this will not be so where the alterations involve trespass or where the works are destructive of the subject matter of the lease. Whether the works are so destructive is a question both of construction of the lease and of the degree of interference.
However, unless the fully qualified alteration covenant is drafted in the form of a covenant by the landlord not to unreasonably withhold his consent (which is unusual), the tenant will have no remedy in damages for an unreasonable refusal. In the usual form of a covenant restricting alterations, the fully qualifying phrase simply limits the scope of the restriction accepted by the tenant. The position is therefore (because the Landlord and Tenant Act 1988 does not apply to alterations) fundamentally different to the position as regards alienation.
How can a tenant sidestep a restriction in its lease on alterations?
There are three statutory routes:
• The first is to seek to vary or modify the restriction under section 84 of the Law of Property Act 1925 (referred to in detail in EG, 9 January 2016, p56).
• The second, available in the case of business premises, is by seeking certification of an improvement as a “proper improvement” pursuant to the somewhat underused section 3 of the Landlord and Tenant Act 1927. This involves the tenant complying with a procedure to demonstrate that the improvement:
(i) is calculated to add to the letting value of the holding at the end of the term;
(ii) is reasonable and suitable to the character of the premises; and
(iii) will not diminish the value of any other property of the landlord or a superior landlord.
The end result of that process, as well as the possibility of compensation at the end of the lease, is the tenant’s entitlement to execute the improvement, “anything in any lease of the premises to the contrary notwithstanding”. The landlord can trump the intention to effect the improvement by offering to carry it out in return for a rental increase.
• The third is available if and when a tenant wishes to install telecommunications apparatus at the premises: in that event, statutory rights for the telecoms provider under Schedule 2 of the Telecommunications Act 1984 may apply to override the lease provisions. Furthermore, in leases of more than one year, a restriction on alterations is treated as subject to a landlord’s consent not to be withheld having regard to all the circumstances. This includes the principle that no person should unreasonably be denied access to an electronic communications network or services.
On what grounds can a landlord reasonably refuse consent to a tenant’s request to carry out alterations?
The propositions relating to when a landlord can refuse consent to an assignment or sub-letting, which Balcombe LJ distilled in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 All ER 321; [1986] 1 EGLR 39, were adapted by Peter Gibson LJ for the purposes of a covenant against alterations in Iqbal v Thakrar [2004] EWCA Civ 592; [2004] 3 EGLR 21.
The key principles are sevenfold:
(i) The purpose of a covenant restricting the tenant carrying out alterations is to protect the landlord from alterations and additions which damage the landlord’s property interests. While a landlord need usually only consider his own property interests, there may be cases where it would be disproportionate for a landlord to refuse consent having regard to the effects on itself and on the tenant respectively. In addition, section 19(2) indicates that damage to, or diminution of the value of, the premises or any neighbouring premises of the landlord does not justify an absolute refusal of consent – it only justifies attaching an appropriate condition to the consent;
(ii) A landlord is not entitled to refuse consent on grounds which have nothing to do with its property interests. Trading interests are not necessarily the same as property interests: Sargeant v Macepark (Whittlebury) Ltd [2004] 4 All ER 662; [2004] 3 EGLR 26;
(iii) It is for the tenant to show that the landlord has unreasonably withheld his consent to the proposals which the tenant has put forward. Implicit in that is the necessity for the tenant to make sufficiently clear what his proposals are, so that the landlord knows whether he should refuse or give consent to the alterations or additions;
(iv) It is not necessary for the landlord to prove that the conclusions which led him to refuse consent were justified, if they were conclusions which might be reached by a reasonable landlord in the particular circumstances;
(v) Consent cannot be refused on grounds of pecuniary loss alone. The proper course for the landlord to adopt in such circumstances is to ask for a compensatory payment;
(vi) In each case it is a question of fact depending on all the circumstances whether the landlord, having regard to the actual reasons which impelled him to refuse consent, acted unreasonably;
(vii) The reasons upon which the landlord relies must have affected his mind when withholding consent or imposing conditions on his consent, though they need not necessarily have been communicated to the tenant at that time (again, in contrast to the position in relation to alienation by reason of the operation of the Landlord and Tenant Act 1988).
On what grounds can a landlord reasonably impose conditions on its grant of consent to a tenant’s request to carry out alterations?
If the landlord attaches conditions to its consent, whether this amounts to an unreasonable withholding will depend on whether the conditions are reasonable. However, section 19(2) itself specifies that certain types of condition will, in principle, be considered reasonable. They are:
(i) the payment of a reasonable sum in respect of damage to, or diminution in the value of, the premises or any neighbouring premises;
(ii) the payment of a reasonable sum in respect of any legal or other expenses properly incurred in connection with the licence;
(iii) where the improvement does not add to the letting value of the premises and such a requirement would be reasonable, an undertaking to reinstate the premises in the condition in which they were before the improvement was executed.
In (i) & (ii), it is for the tenant to establish that the sum demanded is unreasonable: see FW Woolworth.
Leading authorities
Gresham Life Assurance Society Ltd v Ranger [1899] 15 TLR 454 CA
Bickmore v Dimmer [1903] 1 Ch 158
F W Woolworth & Co Ltd v Lambert [1937] Ch 37
Lambert v F W Woolworth & Co Ltd (No 2) [1938] 1 Ch 883
Iqbal v Thakrar [2004] EWCA Civ 592; [2004] 3 EGLR
Useful resources
Landlord and Tenant Act 1927, section 19(2)
Woodfall 11.254-11.265
Hill & Redman A3385-3424
The Alterations Protocol www.propertyprotocols.co.uk
Seitler’s leading practitioners
Leona Briggs, Osborne Clarke
Thekla Fellas, Fladgate
Stephen Goldie, Brodies
John Kittle, DLA Piper
David Marsden, Charles Russell Speeechlys
Sophie Schultz, Stephenson Harwood