Landlord’s Consent to Assignment of Commercial Leases

Tenants often ask the question “Can I assign my lease?”

There are 3 possible scenarios:

1. The lease is silent. There is no written condition preventing assignment. In this case the tenant can assign or underlet to whoever he pleases and does not need the consent of the landlord.

2. The lease contains an absolute condition preventing the tenant from assigning or under-letting or parting with possession. In this case the tenant cannot assign or underlet without the express consent of the landlord. The landlord can refuse, even on unreasonable grounds, in which case the tenant has no remedy.

3. The lease contains a condition that the tenant may assign but only with the consent of the landlord. The condition often states that the consent must not be unreasonably refused, but even if it does not, such a requirement is implied by law.

Since the Landlord & Tenant Act 1988 (the 1988 Act) where the landlord’s consent is expressly required the burden has been on the landlord to show that any refusal was reasonable.

The landlord’s statutory duties

These are set out in the 1988 Act. Breach of these duties can result in an award of damages in favour of the tenant. So let us look on what duties are imposed on a landlord where a request for consent to assign or underlet has been made.

A. The landlord has a duty to give consent, or refuse consent where reasonable, within a reasonable time of receipt of the tenant’s written request for licence to assign
B. The landlord is also under a duty to give written notice of it’s decision within a reasonable time whether or not to give consent, specifying any reasonable conditions or reasons for refusing consent

It is important to note:

• the landlord may have good reason to refuse consent, but unless he responds in writing to the tenant’s request within a reasonable time, he will in any event be in breach of statutory duty and liable to the tenant for damages, which could be substantial. Subsequent consent or refusal on reasonable grounds will not let the landlord off the hook. If the tenant has lost his proposed assignee, then the landlord could be liable for any premium lost, the extra rent the tenant would not otherwise have had to pay, loss of goodwill, and the tenant’s cost thrown away.
• If the landlord refuses consent within a reasonable time, he cannot raise issues which he failed to raise in the written notice refusing consent or stipulating conditions. He must nail his colours to the mast at an early stage.

It is usual for the landlord to specify that a condition of his consent is an undertaking to pay his reasonable costs. That is reasonable. He is not entitled to demand an undertaking to indemnify his costs, which would in effect be a blank cheque.

It would also be unreasonable for the landlord to try to obtain some collateral advantage, for example by requiring a condition for formal consent that the lease is varied in some way to his advantage, or that an outstanding rent review is resolved.

It is possible that a request for guarantors could be reasonable, particularly where the proposed assignee is not an established business and with a doubtful financial basis.

What is a reasonable time?

So how long does the landlord have to respond to the tenant’s written request? There is no statutory definition. It will depend on the circumstances, and complexity, of each case. In straight forward cases it could be between 21 and 28 days. In other cases it could be 2 months or more.

The landlord could raise legitimate questions, and this may lengthen the period of the “reasonable time”, but at some point the landlord has to give a decision or risk a claim for failing to do so within a reasonable time. The landlord must demonstrate an active involvement with the decision making process, notably with communication with the tenant.

The landlord faces a potential claim for substantial compensation from the tenant if he refuses consent unreasonably, or fails to comply with his statutory duties to give timely notice.

The formalities of obtaining consent to assignment can often turn into a tactical game between landlord and tenant, and it is always advisable to consider the situation in detail with expert legal advice at the earliest possible stage.

Nigel Musgrove
Business and Litigation Solicitor
Tel: 0845 003 5639

For free advice on this topic please call us on 0845 003 5639.