Landlords tread carefully when dealing with tenant alienation applications

Posted: 10/12/2014

The recent Court of Appeal decision in Singh v Dhanji [2014] highlights that it may not be reasonable to ask a tenant to remedy breaches as a condition of giving consent to an assignment. The nature and gravity of the breach must be considered. Breaches that can be easily remedied at the end of the term, or which can be taken up with the incoming tenant, are unlikely to be serious enough to justify refusal of consent.

It is particularly important to deal with consent applications carefully; specifying unreasonable conditions or unreasonably withholding consent can leave landlords open to a damages claim for breach of the statutory duties imposed by the Landlord and Tenant Act 1988.

Key points

• Not all breaches entitle the landlord to withhold consent. It is essential that the nature and gravity of the breach is considered. Ask the following key questions:
• Are the landlord’s contractual rights under the lease prejudiced?
• Is the value of the reversion affected?
• Can the breaches be remedied easily?
• Each case will turn on its own particular facts
• A landlord does not need to show that his conclusions are right or justifiable; he just needs to show that they are conclusions which a reasonable person might reach in the circumstances (Ashworth Frazer Ltd v Gloucester City Council [2001]).
• The burden of showing that 1988 Act duties have been met falls upon the landlord. It is essential, therefore, that consent applications are dealt with in a considered and timely fashion. 

Commentary

Despite the 1988 Act having been around for over 25 years, time and money is still wasted where consent applications are not handled correctly. Both landlords and tenants might like to consider the recently published Protocol for Applications for Consent to Assign or Sublet. It has British Property Federation endorsement and aims to avoid disputes (suggesting that the parties consider ADR instead of litigation) and improve communication. Anything that streamlines the process and helps the parties avoid the traps associated with consent applications should be welcomed. 

Facts

The landlord let a dental surgery to the tenant. Like many leases, there was the usual covenant requiring the tenant to obtain landlord’s consent to an assignment, such consent not to be unreasonably withheld. 

The tenant spent £140,000 modifying the premises. The works included moving two partition walls and replacing dental chairs, sinks and flooring. The tenant did not inform the landlord of the alterations. 

In 2007, the tenant wrote to the landlord seeking consent to an assignment of the lease. The landlord wrote back consenting to the assignment subject to conditions, the relevant one being that the tenant rectify a number of breaches relating to the tenant’s modifications to the premises (including breaches of fire precautions, decorating covenants and signage restrictions). Such breaches were specified in a number of s.146 notices served by the landlord. The landlord then sought possession of the premises, based on the s.146 notices, and the tenant applied to the court for a declaration that she was entitled to damages for unreasonable refusal of consent. 

The tenant denied the breaches. She also argued that, even if the breaches complained of were genuine, they were of such a minor nature that they would not adversely affect the value of the landlord’s reversion. Accordingly, the landlord’s condition requiring the breaches to be remedied prior to the assignment was unreasonable. 

Decision

The judge at first instance agreed with the tenant. He declared that the condition was unreasonable and awarded the tenant damages of £183,000 plus interest of £31,000. The Court of Appeal agreed and dismissed the landlord’s appeal. Two questions had to be answered:

• In the light of the circumstances known to the landlord when he gave conditional consent, did the landlord have reasonable grounds to believe that the tenant was in breach of the lease covenants; and
• were the breaches so serious or so grave that a reasonable landlord could refuse consent to the assignment on the basis of them? 

As the statutory duties in the 1988 Act applied, it was for the landlord to show that the condition was reasonable. The judge at first instance had concluded that the landlord had "completely failed to prove the breaches on which he relied". He went on to say that, even if the breaches had been proved they "were not serious enough to have provided [the landlord] with a reasonable ground for imposing a condition". Whether a breach is serious enough or not is a question of fact. The Court of Appeal was not willing to interfere with the lower court’s finding in this regard. The Court of Appeal held that "the breaches were of a minor nature and were of a kind which would not prejudice the landlord if not remedied until the end of the term … Most of the alleged breaches were ones which, even if they were proved, a landlord could take up with the new tenant if concerned to do so. Other breaches were of a trivial and minor nature". 

The law

Section 1 of the 1988 Act imposes additional duties upon landlords where the lease contains a qualified alienation covenant:

• it requires the tenant to obtain landlord’s consent (or the consent of another person) to assign, underlet, part with possession or charge the premises; and
• it states that the landlord cannot unreasonably withhold that consent.

It is noteworthy, however, that the 1988 Act duties do not apply to applications for consent to change use or to carry out works.

In addition, the 1988 Act duties are only triggered where the tenant’s request for consent is in the correct form. In this connection, the request must be in writing and must be correctly served in accordance with the service provisions in the lease. The 1988 Act duties include:

• Duty to give consent - a landlord must give consent:
• except where it is reasonable not to do so; and
• within a reasonable time. It is a question of fact what amounts to a "reasonable" period of time, but it is likely to be measured in "weeks rather than months" (Go West Ltd v Spigarolo [2003]).
• Duty to give written notice of decision - Landlords must respond to written requests for consent to assign, etc, in writing and within a reasonable time. The response must do one of the following:
• give unconditional consent;
• give conditional consent, in which case the conditions themselves must be reasonable and must be specified; or
• refuse consent, in which case the reasons for refusal must be specified.

Failure to comply with the 1988 Act may result in damages being awarded: see the 1988 Act s.4.

This article was published in the Landlord and Tenant Review in November 2014.

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