Tenant’s that seek to assign, underlet or share possession of a rented property will often need to obtain the landlord’s consent for such a change. However, consent cannot usually be made subject to certain conditions where those conditions will enhance the landlord’s rights under the lease even where there is a contractual provision in the lease permitting a condition. This is the rule against uncovenanted advantage and the leading authority is still the case of Mount Eden Land Ltd v Straudley Investments Ltd 1997.
Background to case
Mount Eden is the owner of a block of flats and Straudley Investments the long leaseholder of those flats who sublet them to tenants under assured shorthold tenancies. Under the provisions of the lease Straudley agreed “not [to] underlet or part with or share the possession or occupation of the Premises or any part or parts thereof without the previous consent in writing of the Lessor (Mount Eden) such consent not to be unreasonably withheld or delayed.”
Straudley obtained possession of one of their flats due to rent arrears and sought Mount Eden’s consent for a new tenant. Mount Eden offered to give consent subject to a condition which Straudley refused to accept. In response Straudley issued proceedings for a court declaration that the condition was unreasonable.
The condition that Mount Eden sought to impose was an agreement that the deposit paid by the prospective tenant would be held in a bank account jointly by them and Straudley.
Section 1(3) of the Landlord and Tenant Act 1988 provides that a landlord who receives a tenant’s request for consent….owes a duty to the tenant within a reasonable time —
(a) to give consent except in a case where it is reasonable not to give consent.
However, where consent is given subject to any unreasonable condition it will be in breach of the above provision (s.1(4)). Furthermore, under subsection (6) (b) it is for the landlord to demonstrate that the consent given subject to a condition was a reasonable condition.
Mount Eden’s legal arguments
Mount Eden claimed that the condition they were seeking would let them make use of the deposit if the prospective tenant breached their lease or if Straudley did. The condition would also ensure that Mount Eden would have early warning of any arrears or other tenancy breach by the sub-tenant so that they could then police Straudley’s performance under their lease.
Court of Appeal’s decision
Upon examining previous cases the court made 2 pronouncements:
- It will normally be reasonable for a landlord to refuse consent or impose a condition if this is necessary to prevent his contractual rights under the headlease from being prejudiced by the proposed assignment or sublease.
- It will not normally be reasonable for a landlord to seek to impose a condition which is designed to increase or enhance the rights that he enjoys under the headlease.
The court found that Mount Eden’s headlease had no right to an early warning of a breach by the sub-tenant and even if there had been such a right it was unreasonable to attempt to achieve it by demanding the deposit was held jointly. The new condition was designed to ensure that Mount Eden retained an interest in the deposit which was an illegitimate attempt to improve their position under the headlease making the condition unreasonable.
Cases will be dealt with by courts on a case by case basis but with this authority and others like it in mind. Conditions are not necessarily a problem but where they are not part of the lease care should be taken prior to any attempt to impose them. However, where conditions are included in the lease landlords should not take them for granted and assume that they are automatically legitimate. In essence conditions are acceptable where they simply echo the lease but where there is an effort to improve the landlord’s position by imposing conditions they are likely to be unreasonable.