Landlord and tenant – Subletting – Consent – Residential premises – Respondent’s lease containing covenant against subletting without prior written consent of appellant landlord – Respondent subletting without obtaining prior consent – Appellant proposing charge of £95 to consider request for retrospective consent and further £95 registration fee – Whether leasehold valuation tribunal having jurisdiction to determine reasonableness of those fees as variable administration charges – Whether reasonable to charge for consent to subletting – Appeal allowed
The respondent held a long lease of a flat from the appellant landlord on terms that prohibited subletting without the prior written consent of the landlord’s manager, such consent not to be unreasonably withheld or delayed. There was also an obligation to give written notice to the manager of any assignment, transfer or other matter disposing of or affecting the demised premises, together with a certified copy of the instrument effecting the relevant transaction and payment of an appropriate registration fee in respect of the relevant transaction.
The respondent sublet the flat without first obtaining the necessary consent. The appellant’s managing agent then wrote to the respondent with details of its charges for considering an application for that consent; it specified a fee of £95 for a retrospective “standard consent” plus a £95 registration fee on receipt of the written notice required by the lease. In the alternative, it offered a “global licence” to sublet for a period of five years in return for a fee of £330.
The respondent considered that the fees were unreasonable and tendered a cheque for half the amount, namely £95. He applied to the leasehold valuation tribunal (LVT) for a determination of his liability to pay the sum demanded. The appellant asserted that the hourly rate for dealing with consent requests, based on its costs, was £55 per hour, and that it had already spent nearly 2 hours dealing with the respondent’s request for consent.
The LVT held that the appellant was not entitled to charge £95 or any other amount for considering the request for consent since there was no provision in the lease permitting the recovery of such fees. It took the view that section 19(1)(a) of the Landlord and Tenant Act 1927, providing that the obligation not to withhold consent unreasonably did not preclude the right of the landlord to require payment of a reasonable sum in respect of its expenses incurred in connection with such consent, applied only where the terms of the lease allowed for the recovery of fees. With regard to the £95 registration fee, the LVT held that it had no jurisdiction to determine the reasonableness of that fee since it was not an “administration charge” within para 1(1)(a) of Schedule 11 to the Commonhold and Leasehold Reform Act 2002 or any other category of administration charge. The appellant appealed.
Held: The appeal was allowed.
(1) The LVT had correctly held that the £95 registration fee was not an “administration charge” within para 1(1)(a) of Schedule 11 to the 2002 Act. That fee was not an amount payable “directly or indirectly for or in connection with the grant of approvals under [the] lease, or applications for such approvals” within the meaning of para 1(1)(a). The written notice of the subletting that the respondent was obliged to give under the relevant clause of his lease was not a request for an approval of any sort; likewise, the charge that the appellant was entitled to make under that clause, as a fee for registering the transaction, was not a charge for the grant of, or in connection with an application for, such approval.
(2) By contrast, the proposed £95 charge for considering the request for consent was an administration charge under para 1(1), since it was an amount payable by the respondent tenant in addition to the rent in connection with the grant of an approval under the lease. Since it was a variable administration charge, with neither the amount payable nor a formula for its calculation specified in the lease, it was payable only to the extent that the amount was reasonable.
The LVT had erred in its view that no such fee was chargeable. Section 19(1) of the 1927 Act applied notwithstanding that the covenant against subletting without consent in the respondent’s lease made no reference to the payment of a fee in connection with the grant of consent. The effect of section 19(1)(a) was not simply to preserve any right conferred by the lease to make a charge. The statutory language of section 19(1)(a) was general and applied to “all leases” that contained a covenant against underletting without licence or consent. It made clear that the obligation not to withhold consent unreasonably did not preclude a landlord from requiring payment of a reasonable sum in respect of legal or other expenses incurred in connection with a consent. The effect was that a landlord would not be taken to have withheld consent unreasonably just because it made such consent conditional on the payment of a reasonable sum to cover its expenses: Holding & Management (Solitaire) Ltd v Norton [2012] UKUT 1 (LC); [2012] 2 EGLR 53; [2012] 26 EG 98 applied. If the tenant refused to comply with the condition and proceeded to sublet without consent, it would be in breach of covenant. If, on the other hand, the condition imposed by the landlord was unreasonable, the tenant would not be obliged to pay that sum and could proceed with the proposed subletting without the landlord’s consent: Lambert v Woolworth & Co [1937] Ch 37 applied.
(3) The burden was on the landlord to prove the reasonableness of a fee claimed as a condition of granting consent. While many applications for consent to subletting residential property would be routine, some would give rise to more work than others. Although most landlords, like the appellant, charged a standard fee, care should be taken to ensure that it was not an inflated or unreasonable amount for a routine and unobjectionable application. It was necessary to consider the work required to deal with a particular application. The purpose of a covenant against subletting without consent was to protect the landlord from having its premises occupied in an undesirable way or by an undesirable tenant and such a covenant could not be used as a source of profit for the landlord or its agent: Ashworth Frazer Ltd v Gloucester City Council (No 2) [2001] UKHL 59; [2001] 1 WLR 2180; [2002] 1 EGLR 15; [2002] 05 EG 133 applied. It would therefore be unreasonable to charge a fee that was unrelated to the landlord’s reasonable expenses of considering the consent request.
Where a landlord received a new request for consent to sublet, it was entitled to satisfy itself that the terms of the proposed subletting were in accordance with the terms of the lease and to issue a written permission. In a routine case where the tenant provided the proposed underlease at the time when consent was requested and did not dispute the landlord’s entitlement to charge a fee for considering the request, and where no other complications arose, it would difficult to justify a fee of £95, including VAT, as being reasonable for the minimal administrative tasks involved, especially where a further fee could be charged for receiving notice of the completed transaction and registering it. However, in the instant case, involving a retrospective application and a demand by the tenant for an explanation of the charge sought to be levied, the application was not routine and the fee of £95 was reasonable fee in all the circumstances.
Per curiam: A “global licence” for a term of five years, such as the appellant had offered as an alternative in the instant case, was better regarded not as a charge for the grant of an approval but as a fee payable for a release from the covenant against underletting without consent for a defined period, with the terms of any such release being a matter for negotiation between the landlord and tenant. It was debatable whether such a fee would be an administration charge falling within para 1(1)(a) of Schedule 11 to the 2002 Act.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
