With the Alienation Protocol and the Alterations Protocol now firmly embedded in the profession, Mathew Ditchburn and Tim Cooper share their experiences of putting the protocols into practice
It has been more than two years since the Alienation Protocol was first launched (see EG 20 September 2014, p120), and nine months since the introduction of its companion document, the Alterations Protocol (see EG, 5 March 2016, p88). What differences have they made in practice, both to lawyers and to property owners?
The lawyer’s view
The Property Protocols website (www.propertyprotocols.co.uk) is a free resource offered to all stakeholders in the commercial property industry – owners, occupiers and their advisers alike. So far, it includes the Protocol for Applications for Consent to Assign or Sublet (“the Alienation Protocol”) and the Protocol for Applications for Consent to Carry out Alterations (“the Alterations Protocol”).
These protocols were designed with three things in mind. First, communication between landlords and tenants when dealing with applications for consent is not always what it should be. The result can be unnecessarily drawn out applications and, in the worst cases, full-blown disputes. Second, the parties spend too much time arguing over the process and not focusing on the substance of the application. Third, disputes are often decided by the courts a long time after the event, resulting in deals being lost and greater risk to the parties of paying costs and damages, while the premises remain under-utilised.
Using the protocols as a best practice guide for dealing with applications gives some much needed clarity and structure to the process. Where this has worked best includes, for example, tenants expressly stating in their application that it is made in accordance with the relevant protocol, which the landlord is expected to adhere to. Landlords have seen the benefit of directing their managing agents to follow the protocols and ask tenants to do the same. Others, such as Land Securities (see below), have found that an open and transparent dialogue with tenants using the protocols as a framework has led to a streamlined and less troublesome process.
Making applications
Tenants often fail to provide all (or any) of the necessary information when applying for consent; and landlords are sometimes unclear about what they want, or make unreasonable requests. The protocols have gone some way to demystifying the process and provide a baseline for what is required. Vital time can be lost waiting three weeks for the landlord’s response, only to be told to provide bank references, company accounts or detailed plans. It is far better to know what is likely to be required and provide it at the outset.
The perils of failing to adopt a reasonable approach remain apparent. The recent decision of No 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2016] EWHC 2438 (Ch); [2016] PLSCS 261 is a case in point. The court held that the landlord had acted unreasonably by refusing to deal with an application for consent to assign unless the tenant provided an undertaking to pay costs in the sum of £1,600 plus VAT. As a result, the tenant was free to assign without consent. Bluntly, if the landlord had followed the Alienation Protocol, it would have known “not [to] use costs as an excuse to defer dealing with the tenant’s application” and avoided the pitfall. At the very least, the dispute could have been resolved more quickly through alternative dispute resolution, such as mediation or arbitration, as the protocols recommend.
Mathew Ditchburn is a partner in Hogan Lovells’ real estate disputes team and co-author of the Alienation Protocol and the Alterations Protocol
The property owner’s view
Land Securities owns and manages some 18m sq ft of retail and leisure premises and over 6.5m sq ft of London office accommodation. In order to attract and retain occupiers in these sectors, we treat tenants as our customers, and invest a huge amount of time in customer services.
We immediately recognised the value in the Alienation Protocol and Alterations Protocol when they were published. Put simply, we can refer our customers to the protocols as a simple means of setting out how applications for consent should be made. That includes the information that it should contain and the anticipated timescales within which a reputable landlord such as Land Securities would expect to be providing a response. In our experience, this gives both parties more certainty that an application is valid, and of how long it should take to be processed.
Over the years, much time, money and effort have been spent arguing over whether an application had been validly made. The protocols remove that uncertainty, meaning that the parties can focus on the heart of the matter, ie whether or not the substance of those applications is reasonably acceptable. No sensible landlord or tenant wants to spend considerable amounts of time, money and effort arguing over the submission of the application itself. That should be a given.
Our aim at Land Securities has always been to ensure that applications should be dealt with promptly. Our customers would expect nothing less. The first step in that process is to make sure that all the information we need in order to make a decision has been provided. As long as we have that information, we can get on with the process.
Making decisions
That is not to say that the protocols in any way fetter how we are able to deal with any application. While it might be obvious, it is worth reiterating that ultimately the decision lies with us as landlord, subject to any contractual or statutory requirements of reasonableness. That is likely to depend on the provisions of the lease in question, and the likely impact on the landlord’s interest.
By adopting the protocols, we now stand a better chance of getting up front all the information we need in order to make a fully informed decision, rather than trying to second guess what is intended. We aren’t always going to say “yes” but, in accordance with the protocols, we will provide written details of our reasons for any refusal. On a practical level, we would expect that to begin a dialogue within which we can, for example, engage with occupiers to ensure that any proposed alterations achieve the best results not only for their premises but also for the wider asset.
Customer service is at the heart of what we do, and a key issue that was previously cited was a perceived lack of consistency – not necessarily from a particular landlord, but the property industry as a whole. “Institutionally acceptable” forms of lease, such as the Model Commercial Lease, have led to many clauses becoming standardised across the market. That is plainly a good thing. However, much of the focus has been on drafting the documents, and less attention has been paid to the practices around managing the landlord and tenant relationship after the lease is completed.
While we have the Lease Code and the Service Charge Code, the lack of a standardised method for dealing with applications for landlords’ consent has presented occupiers with difficulties, whether they have a single property or multiple premises with different landlords across various locations. The better organised landlords will use checklists and trackers to monitor the progress of applications, but this does not necessarily give occupiers the visibility and consistency they need to manage their business. The protocols help to plug these gaps in a clear, concise and unbiased manner.
Tim Cooper is a real estate counsel at Land Securities
