Headlease — Proposed underlease — Consent of landlord — Statutory duty to give consent within reasonable time — Whether landlord unreasonably withholding or delaying consent — Claim allowed
The claimant was the tenant of an office building under a lease granted by the defendant’s predecessor in title. In April 2004, the High Court (Peter Smith J) declared that a proposed underlease, the terms of which the claimant had submitted to the defendant for its consent, constituted an underletting authorised by the headlease. The claimant subsequently sought declarations that: (i) the defendant owed it a duty, pursuant to section 1(3) of the Landlord and Tenant Act 1988, to give consent to the proposed underletting within a reasonable time, unless there were reasonable grounds for withholding such consent; and (ii) the defendant had unreasonably withheld and/or delayed its consent to the proposed underletting.
It was accepted that the defendant owed the statutory duty in question. Accordingly, only the second claim was in issue before the court.
Held: The claim was allowed.
The claimant was entitled to a declaration that the defendant had unreasonably withheld its consent to the proposed underletting, since no landlord, acting reasonably, would or could have refused consent.
What amounted to a reasonable time would depend upon the circumstances of the particular case, and the burden was on the landlord to show that it was reasonable to refuse consent. A landlord would discharge that burden if it could demonstrate that some landlords, acting reasonably, might have refused consent, even though others might have given consent. A failure to give a decision within a reasonable time would be treated as being equivalent to a refusal of consent without reasons. It followed that a failure to communicate a decision within a reasonable time would also make a landlord liable to pay damages to a tenant. This would not be avoided or mitigated even if a landlord could subsequently establish that there were reasonable grounds for withholding consent: Norwich Union Life Insurance Society v Shopmoor Ltd [1999] 1 WLR 531; [1998] 2 EGLR 167 and Go West Ltd v Spigarolo [2003] EWCA Civ 17; [2003] QB 1140; [2003] 1 EGLR 133 applied.
In the present case, the effect of Peter Smith J’s declaration was that, if the claimant had satisfied the conditions for underletting set out in the headlease, the defendant could not contend that consent could be reasonably withheld because a reverse premium was being paid for the underlease. Nor could it assert that the reverse premium was to be construed as being, in reality, a reduction in the rent so that the lease was not being granted at the best rent obtainable in the open market or at the rent then payable by the claimant.
Since this transaction was not complicated and since the defendant had experience of considering such applications, a period of two weeks from the date upon which the claimant had submitted its full case should have sufficed for the defendant to reach a decision. It followed that the defendant had not made a decision within a reasonable time and this was to be treated as a refusal.
Furthermore, the reasons given by the defendant for withholding consent were not adequate. The payment of the reverse premium had been declared as not amounting to a reduction in rent and, because the claimant was to remain liable to the defendant, the covenant strength of the proposed underlessee was not of sufficient significance to justify the withholding of consent.
Derek Wood QC (instructed by Herbert Smith) appeared for the claimant; Jonathan Seitler QC (instructed by Berwin Leighton Paisner) appeared for the defendant.
Eileen O’Grady, barrister
