The right to charge for consent to underlet

Posted: 19/04/2012

It has been held by the Leasehold Valuation Tribunal (LVT) in Holding and Management (Solitaire) Limited v Norton [2011] UKUT 1 (LC) and Bradmoss Limited, Re 10 Meadow Court [2012] UKUT 3 (LC) that it is not unreasonable for a landlord to withhold consent to underlet if the tenant has refused to pay the landlord's reasonable costs.

Variable administration charge

Under section 19(1)(a) of the Landlord and Tenant Act 1927 (LTA 1927), if consent is required for assignment, underletting, charging or parting with possession, that consent is not to be unreasonably withheld.

In Solitaire the LVT held that section 19(1)(a) of the LTA 1927 does not stop a landlord from requiring payment of a reasonable fee in connection with the giving of such consent, even where the lease does not contain an express clause allowing a landlord to recover its costs. The rationale was that 'if it is not unreasonable for the landlord to seek payment for the costs that it incurs in consenting to such an underletting, it will not be unreasonable for it to withhold consent if such payment is not made'. Such a charge would be a variable administration charge under Schedule 11 to the Commonhold and Leasehold Reform Act 2002.

A variable administration charge is only recoverable to the extent that it is reasonable and it is worth noting that a request for an undertaking for more than 'reasonable' costs before a draft licence is sent out is unreasonable (Dong Bang Minerva (UK) Ltd v Davina Limited).

What is a 'reasonable' charge?

In Solitaire and Re Bradmoss, the LVT was not satisfied that charging £105 and £135 respectively for consent to underletting was justified nor that consent could reasonably have been refused if the tenant refused to pay that amount. It was held in both cases that charging a fee greater than £40 plus VAT could not be justified.

The LVT did not give any further guidance on what it considered a reasonable charge to be. In the absence of any clear direction on this point, landlords will need to take a pragmatic and commercial view when deciding what to charge.

Landlord and Tenant Act 1988 (LTA 1988)

The decisions in Solitaire and Re Bradmoss are good news for landlords but it is important to remember the statutory duties imposed under the LTA 1988. Where a lease contains a fully qualified covenant against underletting, a landlord is obliged to give consent (except where it is reasonable not to give consent) within a reasonable time from the date of the application for consent (Dong Bang Minerva (UK) Ltd v Davina Limited [1996] 2 EGLR 31).

What is considered a reasonable time depends on the facts of each case but generally is measured in days or weeks, not months (Go West Ltd v Spigarolo [2003] EWCA Civ 17).

Remedies for breach of the LTA 1988

Who pays the costs of an application for consent is important, but if an undertaking is not forthcoming from the tenant's solicitor, this should not delay the giving of consent. The consequences of failing to comply with the LTA 1988 can be severe and a tenant may:

• bring a claim for damages for any loss incurred as a result of the landlord's breach;
• apply to the court for a declaration that the landlord is unreasonably refusing consent;
• proceed with the proposed underletting without consent. 

Practical considerations

On receipt of any application for consent it is important to act promptly. A conditional consent can be an effective way of complying with the statutory obligations and time limits imposed by the LTA 1988 whilst protecting the landlord's position. Consent could be conditional on:

• payment of the landlord's reasonable costs;
• receipt of satisfactory references or suitable information as to the financial stability of the undertenant; and/or
• completion of a formal licence to underlet. 

A draft licence can be issued on this basis and a landlord can reasonably refuse to complete until the conditions have been satisfied and the landlord's reasonable costs have been paid.

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