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Reasonable doubt when applying for landlord's consent

06 June 2014
Do landlords have to act reasonably when dealing with a tenant's application for consent?  This is a surprisingly tricky question.  The starting point is always what the lease says about the landlord's obligations if the tenant seeks permission e.g. to –assign, underlet or carry out alterations.  However, the lease is not the complete picture as the impact of various statutes must also be considered.

In relation to assignment, if the lease contains an absolute prohibition then the tenant is not permitted to assign.  There is no need for the landlord even to consider consenting to a request from the tenant for consent.

If the lease permits assignment with the landlord's consent then the landlord will generally have to be reasonable in granting or refusing consent, even if the lease says nothing about the landlord being reasonable.  This is because the landlord is obliged, by statute, to act reasonably in such circumstances.  In addition, the landlord must deal with the tenant's application within a reasonable period of time.  The position in relation to underletting is essentially the same as that in relation to assignment.

For "new" leases granted on or after 1 January 1996, the parties can agree in advance the "reasonable" circumstances in which the landlord can withhold consent to assign, and the "reasonable" conditions which the landlord can impose.  Such leases usually include a requirement for the tenant to give an Authorised Guarantee Agreement (or AGA) if it assigns the lease.  An AGA is a guarantee of the assignee's performance of the tenant's covenants in the lease.  Where the parties agree in the lease that it will be reasonable for the landlord to require the tenant to give an AGA on any assignment, the landlord will be entitled to insist on one.  When the assignee in turn assigns, the original tenant will be released, and the assignee may give a further AGA to the landlord.

With respect to alterations, an absolute prohibition in the lease will be subject to the potential statutory right for tenants of commercial property to carry out  improvements upon serving the requisite notice and, if the landlord objects, making a court application.  If the lease permits alterations with landlord's consent then, if the proposed alterations amount to improvements, statute provides that the landlord cannot unreasonably withhold consent.  In determining whether or not an alteration is an "improvement" the court will look at the question from the tenant's point of view (Lambert v F.W. Woolworth and Co. Ltd [1938] Ch. 833).

If the lease is entirely silent as to whether the tenant can assign, underlet or alter then it may do so without restriction.

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