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A costly lesson in consent

When a tenant wants to assign its lease but needs the landlord’s consent, the law (if not the lease) prevents the landlord from acting unreasonably.  The landlord may want to withhold consent or impose conditions, but how does it know whether that is considered reasonable?

Earlier this month the High Court considered this question in No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd.   The landlord refused consent to assign unless:

  1. the proposed assignee provided bank references;
  2. the landlord was permitted to inspect the premises and recover its costs of doing so (£350 plus VAT); and
  3. the tenant provided an undertaking to pay the landlord’s costs of dealing with the application in the sum of £1,600 plus VAT.

The Court said that if the landlord had imposed only the first two conditions, then the tenant’s failure to agree them would have provided reasonable grounds for refusing consent.  A landlord is entitled to see whether a proposed assignee is going to be able to meet its obligations under the lease.  Landlords should also be able to examine the premises to ascertain whether the tenant has breached any of its lease covenants.

However, the Court found that the landlord’s decision really turned on the third condition, which was unreasonable because the sum of £1,600 was excessive in the circumstances.  Furthermore, the unreasonableness of that condition cancelled out the other two reasonable conditions.  The tenant was therefore free to assign without consent.

The landlord in the case may have fared better if it had followed the Alienation Protocol, which offers practical tips for landlords and tenants on how to manage the process of applying for and either giving or withholding consent.  Every case will turn on its facts, of course, but following the best practice and helpful guidelines set out in the protocol should help minimise the risk of landlords and tenants falling foul of needless and avoidable disputes in future.