Section 1 of Landlord and Tenant Act 1988 — Tenant applying for landlord’s licence to assign — Tenant providing further information on financial status of assignee — Landlord not commenting upon information — Landlord imposing condition requiring provision of surety — Whether landlord had shown surety condition to be reasonable — Tenant’s claim allowed
The defendant landlord was the freehold owner of a largely commercial property in London W1, which was occupied by a company (WPC) on a 125-year lease that had been granted to a predecessor of WPC in 1981. The lease contained a covenant against assigning the lease without the lessor’s consent, such consent not to be unreasonably withheld.
In November 2001, WPC entered into a conditional contract for the sale of the lease to the claimant (LAD), which agreed, inter alia, to supply all financial information, plus any security reasonably required by the landlord. On 20 November 2001, WPC applied to the landlord’s agent for a licence to assign the lease to LAD, enclosing with its application LAD’s accounts for the previous three years, together with references. By way of a letter dated 27 November 2001, the agent indicated that the landlord might give its consent if it were furnished with “further information or satisfactory proposals”. By way of letters dated December 2001, WPC provided: (i) details of LAD’s undertakings under the sale agreement; (ii) an explanation of LAD’s sources of finance for the purchase; and (iii) valuations of properties owned by LAD.
In January 2002, the landlord called for the provision of a surety. This was resisted by WPC, but the landlord insisted that the requirement was reasonable. In February 2002, WPC gave further details of LAD’s financing arrangements, but the landlord declared that it was still not satisfied with the strength of LAD’s proposed covenants. In March 2002, WPC and LAD completed the sale agreement.
In May 2002, the landlord, contemplating forfeiture of the lease for breach of the covenant against assignment, served a notice under section 146 of the Law of Property Act 1925. In June 2002, LAD, relying upon section 1 of the Landlord and Tenant Act 1988, sought a declaration that the landlord’s insistence upon a surety was unreasonable. The matter was ordered to be tried as a preliminary issue.
Held: The claim was allowed.
Applying the reasoning in Footwear Corporation Ltd v Amplight Properties Ltd [1998] 2 EGLR 38 (a case of outright refusal of consent), a landlord that sought to discharge the statutory burden of showing that a condition was reasonable could rely only upon written reasons given by him within a reasonable time of receiving the tenant’s application, and within a reasonable time of imposing the condition. The reasonableness of the condition was to be judged by reference to the information available to the landlord when he imposed it: Straudley Investments Ltd v Mount Eden Land Ltd (No 1) (1997) 74 P&CR 306 considered.
The main factors that made it unreasonable for the landlord to impose the surety condition were: (i) the low level of the rent reserved by the lease; (ii) the landlord’s acceptance of the accuracy of the information initially given by, or on behalf of, LAD; and (iii) the failure to comment upon, or seek further clarification of, the further information provided.
Mark Warwick (instructed by Ingram Winter Green) appeared for the claimant; Alan Steynor (instructed by Hamlins) appeared for the defendant.
Alan Cooklin, barrister
