Financial Consequences of Delaying Consent To Assign Or Sub-Let Commercial Leases
Most commercial property leases state that a Tenant may not assign or underlet his lease without the Landlord's consent. Section 19 Landlord and Tenant Act 1927 provides that the Landlord must not withhold that consent unreasonably. Section 1(3) Landlord and Tenant Act 1988 provides that the Landlord must, within a reasonable time, give consent unless it is reasonable not to do so. If the Landlord refuses consent he must give his reasons in writing and if he wishes to impose conditions for the giving of his consent then he must set those out in writing also.
If a Landlord fails to give consent (or proper reasons for his refusal to do so) within reasonable time then he may be deemed to have given an unreasonable refusal and thus will lose the opportunity of relying upon any other reason for refusal later on. So, if the Landlord ignores his statutory duty to deal with his Tenant's request in a reasonable time it will not matter that he may have good reason to refuse that request, his Tenant may then assign or sublet regardless.
In the case of Design Progression v Thurloe Properties (2004) the Landlord not only failed to deal with the Tenant's request in a reasonable time but the judge also found that it had acted improperly and with blatant and cynical disregard of its duties under the relevant legislation. As a result, the court awarded the Tenant usual compensatory damages but in addition awarded exemplary damages of £25,000.
Although Design Progression may be seen as an exceptional case, it does show that the courts are adopting a more rigorous approach to cases where Landlords, for whatever reason, fail to discharge their statutory duty to their Tenants.
It is quite reasonable, and to be expected, that a Landlord will want financial information and references for a proposed assignee and this may take some time to provide. However, once all the necessary information has been provided to the Landlord, he has but a short time to consider and communicate his decision to the Tenant.
In the case of Blockbuster v Barnsdale (unreported 2004 – Source: Denton Wilde Sapte) the court found that all necessary information had been given to the Landlord by mid June following a request that had been made by the Tenant in April. By the time the Landlord had given his consent at the end of July, the proposed sub-tenant had pulled out of the deal. As a result, the Tenant suffered inevitable losses and the court awarded damages of over £70,000. No exemplary damages were awarded on this occasion, presumably because it was found that the proposed sub-tenant might well have pulled out notwithstanding the Landlord's delay.
So what is a reasonable time for Landlords to both consider and then communicate their decision to the Tenant? Time will start to run against Landlords from the moment they receive their Tenant's application for consent but this will be extended to cover the time it takes the Tenant to provide all reasonable and necessary information about the assignee or sub-lessee. If an application is straightforward, Landlords may consider themselves at risk if they have not communicated their decision within two weeks (and possibly less) from the time that all that information has been given.
Tenants would be well advised to anticipate their Landlord's request for financial information concerning the proposed assignee or sub lessee e.g. obtain previous two or three years set of business accounts and references (bank, previous landlord and trade) and submit with their formal written request. If the proposed assignee or sub lessee has not been in business before or has not been in business for any appreciable time, then it may not be unreasonable for a Landlord to request the payment of a rent deposit or (if the assignment is to a limited company) the provision of guarantees from directors. Tenants should take professional advice on these issues before making their approach to the Landlord.
This article gives a general overview only and the legal position at the time of writing this article. It cannot be relied upon in any particular case. Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print. For further information and advice, please contact Martin Evans, Nial Ledingham or David Halfhead on 01793 527141 or alternatively by email on Martin.Evans@lemon-co.co.uk, Nial.Ledingham@lemon-co.co.uk or David.Halfhead@lemon-co.co.uk.
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<p><strong><a href="http://www.lemon-co.co.uk/article_financial-consequences.php">Financial Consequences of Delaying Consent To Assign Or Sub-Let Commercial Leases</a></strong><br />
If a Landlord fails to give consent (or proper reasons for his refusal to do so) within reasonable time then he may be deemed to have given an unreasonable refusal and thus will lose the opportunity of relying upon any other reason for refusal later on. So, if the Landlord ignores his statutory duty to deal with his Tenant's request in a reasonable time it will not matter that he may have good reason to refuse that request, his Tenant may then assign or sublet regardless...</p>
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