Our Commercial Property department look at leases which require landlord’s consent and their implications.
Most leases restrict tenants from carrying out the following without the landlord’s consent:
- Assigning a lease
- Taking a charge over a lease
- Subletting
- Altering the property
- Obtaining planning permission
The list above is not an exhaustive list but it shows how a landlord is able to retain some control over its property during the lease term. This limits the tenant’s flexibility, as it can be cumbersome for the tenant to regularly apply to the landlord for consent.
Can a landlord just say no to a tenant?
Landlords considering a tenant’s applications for consent to assign, sublet or charge are subject to duties under the law. If a landlord refuses a tenant’s application then they can only do so if such refusal is reasonable. Landlords are also under a duty to respond to a request within a reasonable time, which case law has said could be just a few weeks. Although this may seem short, these limitations are designed to avoid delaying the tenant’s application unnecessarily.
Can a landlord place conditions when providing consent?
It is reasonable for a landlord to place some restrictions on assignments or sublettings. What is fair depends on the property but generally what is agreed is reliant on the parties’ negotiating strengths.
An example of a common condition that landlords impose when providing consent to assign a lease is to require an authorised guarantee agreement (AGA) from the outgoing tenant. A tenant may be able to resist such a condition if the incoming tenant is not of lower financial standing than the outgoing tenant at the date of the assignment.
There are typically circumstances where an application for consent will be refused immediately without reasonable justification by the landlord, for example if any rent is outstanding or there is a breach of the tenant covenants. A compromise may be to include limitations on the ability to refuse consent as a result of non-payment of the annual rent and not other sums due (such as service charge and interest).
Ideally, a tenant would want to remove the landlord’s ability to withhold consent for any breach of the tenant covenants as it is almost impossible for a tenant to be 100% compliant with the lease. If this is not agreeable to the landlord, a tenant could try limiting this to a “material” breach but materiality may be difficult to determine.
What if a tenant does not obtain landlord’s consent?
If consent is not obtained but the tenant proceeds with the action the landlord may have grounds to forfeit the lease.
If the tenant does not agree with the landlord’s decision to refuse consent then an option for the tenant would be to make an application to Court for a declaration that consent has been unreasonably withheld and to seek damages. A tenant should be aware that this is a lengthy and expensive process. It might be better to negotiate with the landlord and come to an agreement.
To discuss any of the issues raised above or any other commercial property requirements, please contact the Commercial Property Team. For more information on Commercial Property please click here.