Most commercial leases include a provision requiring the tenant to pay any legal and other costs the landlord incurs when dealing with applications from the tenant. What is the position where the lease is silent? Is the landlord entitled to charge the tenant in the absence of a costs clause?
Where a lease contains a covenant not to assign, underlet, charge or part with possession of premises without the landlord’s consent, s19(1)(a) of the Landlord and Tenant Act 1927 stipulates that such consent shall not be unreasonably withheld. The section goes on to provide that this does not preclude the landlord from requiring payment of a reasonable sum in connection with its legal and other expenses incurred in connection with such consent. What precisely does this mean?
Does the provision empower a landlord to charge the tenant in the absence of a covenant to pay the landlord’s costs, or was it enacted solely to legitimise costs clauses that have actually been inserted into leases? This issue cropped up in Holding & Management (Solitaire) Ltd v Norton [2012] UKUT 1 (LC) and in Bradmoss Ltd, Re 10 Meadow Court [2012] UKUT 3 (LC), which was decided a few days later. Both cases concerned applications for licences to underlet pursuant to leases of newly constructed houses.
The tribunal held that s19(1)(a) does not confer a positive right to make a charge. However, it does recognise that it may be reasonable for the landlord to recover its costs. The section provides that, if it is not unreasonable for the landlord to seek a payment for the costs that it incurs in consenting to an application, then it will not be unreasonable for it to withhold consent if payment is refused.
The question is whether the charge that the landlord is seeking to make is reasonable – and the fact that the lease makes no provision for the payment of costs would not make a condition requiring the tenant to pay such costs unreasonable. A slightly different emphasis perhaps, but landlords will welcome the decision.
Schedule 11 of the Commonhold and Leasehold Reform Act 2002 protects tenants of dwellings who are liable to pay variable administration charges in connection with the grant of approvals under their leases. The legislation defines a variable administration charge as a charge that is neither quantified nor calculated in accordance with a formula specified in the tenant’s lease and provides that such charges are payable only to the extent that the amount of the charge is reasonable. Consequently, the tribunal invited submissions to enable it to consider whether the landlords’ charges – in the sums of £105 and £135 respectively – were reasonable.
The decision in Holding & Management (Solitaire) Ltd also provides rare guidance on the meaning of s19(1)(b) of the 1927 Act. The tribunal rejected the suggestion that the tenants were entitled to grant underleases of their dwellings without the landlord’s consent because their leases were “building leases” for the purposes of the legislation. S19(1)(b) applies where a tenant is responsible for erecting, substantially improving, adding to or altering a building – and not where a tenant takes a lease of a new or improved or altered building.
Allyson Colby, property law consultant
