Landlord and tenant – Underletting – Consent – Section 19(1)(a) and (b) of Landlord and Tenant Act 1927 – Long leases of new properties granted by developers in return for premium – Leases requiring consent of landlord for any underletting – Appellant landlords seeking payment of fee by respondent tenants for such consent – Whether leases made in consideration of erection of building so as to negate requirement for consent on application of section 19(1)(b) – Whether charging of fee permitted under section 19(1)(a) where no express provision for it in lease – Appeals allowed The respondent in each of the four appeals held a long leasehold interest in a property, under a lease that had originally been granted by a developer, when the property was new, in return for a premium. Each lease contained a covenant against underletting without the consent of the landlord, not to be unreasonably withheld. In each case, the appellant landlord sought to charge a fee in excess of £100 for giving its consent to a proposed underletting. In the first appeal only, the lease contained a further covenant by the respondent to pay all reasonable costs and expenses of the landlord incurred in granting any consent under the lease. On applications by the respondents, under para 5 of Schedule 11 to the Commonhold and Leasehold Reform Act 2002, the leasehold valuation tribunal (LVT) determined that none of the appellants was entitled to charge a fee for its consent to the underlettings. The LVT found that section 19(1)(b) of the Landlord and Tenant Act 1927 applied to preclude any requirement for the appellants’ consent to underletting, notwithstanding the covenants in the leases, since each lease had been “made in consideration wholly or partly of the erection …of buildings” within the meaning of that section. In that regard, the LVT found that the consideration paid by the lessee in each case had partly been for the new building. In two of the cases, the LVT further found that there was no provision in the relevant lease entitling the landlord to charge a fee for the grant of consent to underletting. It held that the provisions of section 19(1)(a), to the effect that the statutory proviso against unreasonably withholding consent to underletting did not preclude landlords from requiring payment of a reasonable sum in respect of any legal or other expenses incurred in connection with the grant of consent, did not apply where the lease itself made no provision for such payment. The appellants appealed. Held: The appeals were allowed. The appeals were determined on the written representations of the parties. Sally Dobson, barrister
(1) The consideration with which section 19(1)(b) was concerned was consideration moving from the tenant to the landlord for the grant of the lease. It applied where the tenant was required, as the whole or part of the consideration for the lease, to erect or substantially improve or add to or alter a building, as would typically be the case under a building lease within section 205(1)(iii) of the Law of Property Act 1925. The rationale for section 19(1)(b) was that the lessee under the building lease, having carried out the work that formed all or part of the consideration for the grant of that lease, should not be inhibited in assigning the lease or creating an underlease; having created the new or improved building as required by the lease, he should be allowed to assign or underlet without restriction. By contrast, in the instant appeals the respondents had paid a premium in return for receiving a lease in a building newly erected by the landlord; in those circumstances the fact that the building was newly erected was of no relevance to the application of section 19(1)(b). Where the tenant was not required to carry out building works as part of the consideration for the lease, there was no reason for conferring carte blanche to underlet simply because the lease was a lease of a new or improved or altered building. Accordingly, section 19(1)(b) did not apply to prevent the appellants from charging for the grant of consent.
(2) In the first appeal, where there was express provision in the lease for charging a fee for consents, the appellant was entitled to make a charge under that covenant. In the other appeals, the absence of an express provision did not necessarily preclude the charging of a fee. Section 19(1)(a) was not restricted to preserving any right conferred by the lease to make a charge; instead it provided that such a charge was not precluded by the requirement not to withhold consent unreasonably. Accordingly, where it was reasonable for the landlord to seek a payment for the costs that it incurred in consenting to an underletting, it could withhold consent if the tenant refused to pay a reasonable charge. Such a charge, provided it was reasonable, would be an “administration charge” within para 1(1) of Schedule 11 to the 2002 Act. Accordingly, it remained to be determined whether the charges that the appellants sought to make were reasonable and further submissions were invited on that issue.
Holding & Management (Solitaire) Ltd v Norton and three similar appeals
Landlord and tenant – Underletting – Consent – Section 19(1)(a) and (b) of Landlord and Tenant Act 1927 – Long leases of new properties granted by developers in return for premium – Leases requiring consent of landlord for any underletting – Appellant landlords seeking payment of fee by respondent tenants for such consent – Whether leases made in consideration of erection of building so as to negate requirement for consent on application of section 19(1)(b) – Whether charging of fee permitted under section 19(1)(a) where no express provision for it in lease – Appeals allowed
The respondent in each of the four appeals held a long leasehold interest in a property, under a lease that had originally been granted by a developer, when the property was new, in return for a premium. Each lease contained a covenant against underletting without the consent of the landlord, not to be unreasonably withheld. In each case, the appellant landlord sought to charge a fee in excess of £100 for giving its consent to a proposed underletting. In the first appeal only, the lease contained a further covenant by the respondent to pay all reasonable costs and expenses of the landlord incurred in granting any consent under the lease.
On applications by the respondents, under para 5 of Schedule 11 to the Commonhold and Leasehold Reform Act 2002, the leasehold valuation tribunal (LVT) determined that none of the appellants was entitled to charge a fee for its consent to the underlettings. The LVT found that section 19(1)(b) of the Landlord and Tenant Act 1927 applied to preclude any requirement for the appellants’ consent to underletting, notwithstanding the covenants in the leases, since each lease had been “made in consideration wholly or partly of the erection …of buildings” within the meaning of that section. In that regard, the LVT found that the consideration paid by the lessee in each case had partly been for the new building.
In two of the cases, the LVT further found that there was no provision in the relevant lease entitling the landlord to charge a fee for the grant of consent to underletting. It held that the provisions of section 19(1)(a), to the effect that the statutory proviso against unreasonably withholding consent to underletting did not preclude landlords from requiring payment of a reasonable sum in respect of any legal or other expenses incurred in connection with the grant of consent, did not apply where the lease itself made no provision for such payment. The appellants appealed.
Held: The appeals were allowed.(1) The consideration with which section 19(1)(b) was concerned was consideration moving from the tenant to the landlord for the grant of the lease. It applied where the tenant was required, as the whole or part of the consideration for the lease, to erect or substantially improve or add to or alter a building, as would typically be the case under a building lease within section 205(1)(iii) of the Law of Property Act 1925. The rationale for section 19(1)(b) was that the lessee under the building lease, having carried out the work that formed all or part of the consideration for the grant of that lease, should not be inhibited in assigning the lease or creating an underlease; having created the new or improved building as required by the lease, he should be allowed to assign or underlet without restriction. By contrast, in the instant appeals the respondents had paid a premium in return for receiving a lease in a building newly erected by the landlord; in those circumstances the fact that the building was newly erected was of no relevance to the application of section 19(1)(b). Where the tenant was not required to carry out building works as part of the consideration for the lease, there was no reason for conferring carte blanche to underlet simply because the lease was a lease of a new or improved or altered building. Accordingly, section 19(1)(b) did not apply to prevent the appellants from charging for the grant of consent.(2) In the first appeal, where there was express provision in the lease for charging a fee for consents, the appellant was entitled to make a charge under that covenant. In the other appeals, the absence of an express provision did not necessarily preclude the charging of a fee. Section 19(1)(a) was not restricted to preserving any right conferred by the lease to make a charge; instead it provided that such a charge was not precluded by the requirement not to withhold consent unreasonably. Accordingly, where it was reasonable for the landlord to seek a payment for the costs that it incurred in consenting to an underletting, it could withhold consent if the tenant refused to pay a reasonable charge. Such a charge, provided it was reasonable, would be an “administration charge” within para 1(1) of Schedule 11 to the 2002 Act. Accordingly, it remained to be determined whether the charges that the appellants sought to make were reasonable and further submissions were invited on that issue.
The appeals were determined on the written representations of the parties.
Sally Dobson, barrister
