Where a lease prohibits assignments without the landlord’s consent, section 19(1) of the Landlord and Tenant Act 1927 implies a provision that that consent must not be unreasonably withheld. This will apply despite any express provision to the contrary in the lease.
Was a clause in a business lease, granted before 1 January 1996, that provided that a licence to assign was not to be unreasonably withheld “subject to compliance with the following requirements” contrary to section 19(1)? Unusually, in Level Properties Ltd v Balls Brothers Ltd [2007] EWHC 744 (Ch); [2007] 15 EG 146 (CS), the landlord asserted that it was, and that the provision was invalid because it attempted to restrict the operation of the statutory implied term. There were good commercial reasons for the landlord’s arguments. The dispute arose in the context of a rent review, where onerous lease clauses can result in discounted rents.
The landlord argued that the clause set out conditions that it could impose when giving consent, or set out circumstances in which it could refuse consent to an assignment, without being regarded as having acted unreasonably. It argued that this curtailed the operation of section 19(1) by stipulating what was “reasonable”. The landlord contrasted section 19(1) with the provisions in section 19(1A) of the 1927 Act. Section 19(1A) was inserted into the 1927 Act by section 22 of the Landlord and Tenant (Covenants) Act 1995. The new section expressly permits landlords to insert provisions in business leases granted on or after 1 January 1996 that specify conditions or circumstances that must be satisfied before consent to an assignment forthcoming. Such conditions or circumstances will (if framed in accordance with the requirements laid down in the 1995 Act) fall outside the reasonableness test in section 19.
The tenant maintained that the requirement (to provide a surety for any assignee with limited liability) was simply a precondition with which it would have to comply before making any application for a licence to assign. The tenant relied on Bocardo SA v S&M Hotels Ltd (1979) 252 EG 59, and argued that the clause was valid and enforceable against it. The judge agreed. He decided that the clause recorded the types of dealings that were prohibited by the lease and the types of dealings that could be made with landlord’s consent. He ruled that the clause laid down conditions to be fulfilled before, and restricted the circumstances in which, the tenant could make any application for a licence to assign. Numerous cases have recognised the validity of such preconditions in pre-1996 leases, and the clause was valid.
Landlords that adopt the 2007 Code for Leasing Business Premises will not encounter this problem. The code encourages landlords not to impose conditions that would enable them to refuse consent to an assignment in specified circumstances (although they are permitted to require covenants of equivalent financial strength in the case of assignments to group companies).
Allyson Colby is a property law consultant
