In No. 1 West India Quay and East Tower Apartments 2018 the Court of Appeal held that a landlord acted reasonably when he refused to consent to an assignment. This issue of Landlord’s consent seems to be a hot topic in the courts at the moment and this case in particular is quite important. Our ‘back to basics’ post on this subject can be read here.
Background to case
A tenant requested consent for a lease assignment. The landlord was not entitled to unreasonably refuse consent but in this case, consent was refused unless 3 conditions were met. These were:
- Provision of a bank reference for the prospective assignee to ensure the prospective assignee had the financial means to meet their obligations under the lease.
- Agreement to a surveyor inspecting the property and payment of the surveyor’s fee of £350+VAT. This was requested on the basis that the landlord wished to ensure the lease had not been breached prior to consenting to any new assignment.
- An undertaking to pay a fee for the assignment estimated at £1250+VAT under a clause in the lease which entitled the landlord to recover reasonable costs.
The parties failed to resolve the issues resulting in the tenant commencing proceedings for a declaration that consent had been unreasonably refused or in the alternative that the conditions were unreasonable.
Of the 3 conditions the court held that only the administration fee of £1250+VAT was unreasonable. The courts therefore had to consider whether the landlord was entitled to rely on the other 2 reasonable grounds when the decision to refuse consent was made.
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.
Consequently, the tenant argued that under the Act the landlord was now only permitted to put forward good reasons for refusing consent and so if one reason of several was bad then the entire refusal would be unreasonable. However, the court held that the argument that the bad reason ‘infected’ the good reasons implies that the conditions were all connected which was not the case. The 3 conditions were freestanding so the bad did not ‘infect’ the good.
What the court found was that if the landlord had both good and bad reasons for withholding consent, consent may nevertheless be reasonably withheld if the good reason alone was sufficient despite the existence of a bad reason. The theme running through all the authorities considered by the court was that if the decision would have been the same without reliance on the bad reason then the decision to refuse is good.
The court further held that this decision would eliminate practical difficulties and it might help to use the example they gave in the judgment to demonstrate this.
“Imagine the case of a …. lease of valuable property where the rent is several hundred thousand pounds a year. The tenant asks for consent to assign. The landlord requires the tenant to pay his costs of, say, £1000 when a reasonable sum would be £750. However, the landlord also objects on well-reasoned and compelling grounds that the proposed assignee will be unable to pay the rent. It seems to me to be a draconian sanction if the landlord is to be saddled with a tenant of precarious financial means all for the sake of having demanded £250 too much as a fee.”
The only question the court therefore needed to consider was whether the decision to refuse consent was reasonable; not whether all the reasons for the decision were reasonable. In this case the reasons were free-standing reasons and two of them were reasonable, making the decision to refuse consent reasonable.