The vast majority of leases in this country allow tenants to assign or sublet with landlord’s consent, which cannot be withheld unreasonably. So far so good. Some leases spell out the circumstances in which the landlord will be entitled to withhold consent – that is to say, the circumstances in which the parties will have expressly agreed that the landlord will be deemed to be acting reasonably.
Most leases are silent on the topic, however – and even where leases attempt to legislate for the circumstances in which consent may be reasonably withheld, that tends to make life more rather than less complicated, because no draftsman is sophisticated or wise enough to cater for every contingency. And as we all know, the denser the drafting, the greater the number of loopholes that can appear.
Complicated conflicts
So, we can assume there is the potential for landlords and tenants to fall out on the occasion of proposed assignments. That potential often translates into actual conflict, because the moment the tenant approaches its landlord with a request to assign its lease, the landlord (if not positively dismayed at the loss of a good covenant) sniffs a negotiating advantage. It will appreciate that its tenant wishes to move (indeed, may already have moved), and will not therefore wish to pay rent while the premises stand vacant. Moreover, delay in obtaining consent may lead to the loss of its purchaser.
The battle lines are then drawn. The issue ought to be a simple one: is the landlord reasonable if it refuses its consent to the proposed assignment? That is a fact-sensitive question, which may be complicated to determine. It is possible that its resolution will require expert valuation evidence; and there may be a little law to wade through in order to find the right answer.
But these things are not overly complicated, and should be capable of being litigated or arbitrated with despatch, given the right pair of hands.
But it is not usually that simple. In an ideal world, if a dispute concerning consent to assignment has to be litigated, the only issue that ought to be before the tribunal is that of the refusal – is the proposed assignee up to scratch? Unfortunately, the dispute is often encumbered with satellite issues: did the landlord take too long to respond to the request by the tenant? Did the tenant provide the landlord with sufficient information to enable the landlord to have all the material it needed to consider the application? Should the tenant have provided references? What about accounts? The tribunal often has to determine a range of entwined points, all rendered more complicated by their combination.
The problems in practice
A recent example: the appeal determined by Henderson J last month in No 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2016] EWHC 2438 (Ch); [2016] PLSCS 261. What had happened was commonplace: tenant (T) applied to landlord (L) for consent to assign its 999-year leases of some Docklands flats; L imposed conditions for its consideration of the application; T considered the conditions unreasonable, and applied to court for a declaration that consent had been unreasonably withheld. So far, so vanilla.
The three conditions that L laid down were (1) an undertaking in respect of L’s legal fees of £1,600; (2) an inspection in order to check whether there had been any breaches of the terms of the leases (for which it required a further undertaking of £350 for surveying fees); and (3) a bank reference for the prospective assignees, in order to assess their covenant strength.
At first instance, the judge decided the issues in favour of T, holding that none of L’s conditions was reasonable, and that in particular a reasonable fee for considering the assignments would have been £350. As a result, L had been in breach of its statutory duty under section 3 of the Landlord and Tenant Act 1988. L was also ordered to pay T’s costs of the action, and to make a payment on account of £28,000. Ouch.
On appeal, the judge disagreed that it had been unreasonable for L either to require an inspection, or bank references. However, he was persuaded that the “robust and sceptical approach” of the judge at first instance in relation to the legal fees was amply justified. He also concluded that the requirement for T to give an undertaking in relation to fees was a prerequisite for L’s consideration of the application, such that that bad reason vitiated the two good ones, with the consequence that L’s success on those two matters was not enough to render the refusal of consent reasonable.
Avoidance tactics
So, an expensive day (actually, two days) in court for L – and in part for T too, since a chunk of its costs will have been irrecoverable. Not merely that, but the litigation took nearly a year and a half to wind its way through the courts.
Not good. How could it have been better?
Well, if the editor of this august journal will permit me and my colleagues a moment of righteousness, if not to say self-aggrandisement, regard could have been had to paragraph 3.7 of the Alienation Protocol (www.propertyprotocols.co.uk/the-alienation-protocol), which provides: “The landlord should not use costs as an excuse to defer dealing with the tenant’s application. Doing so may amount to an unreasonable delay or refusal of consent.”
Even supposing that that advice had been taken, it is possible that these parties would have remained in conflict. Using litigation for such conflicts is expensive and slow, as this case amply demonstrates. A reference to arbitration by an expert in the field, by contrast, would have been cheaper and quicker. Given the measure of self-advertisement permitted above, I suspect that it may be going too far to mention Falcon Chambers Arbitration as a suitable port of call…
Guy Fetherstonhaugh QC is a barrister at Falcon Chambers
