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Refusing Consent To Assign – When Is It Reasonable Or Unreasonable?

In the case of No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd which ventured to the Court of Appeal in February, it was decided that good reasons for refusing a licence to assign are not invalidated by other reasons given that are unreasonable, provided those good reasons stand on their own. Although this case concerned residential apartments, it contained practical lessons for landlords generally who are under a duty not to unreasonably refuse consent to assign.

The landlord’s duty

A landlord owes a statutory duty (under Section 1 of the Landlord and Tenant Act 1988) to the tenant to give consent within a reasonable time, except in a case where it is not reasonable to give consent. Where consent is refused, the landlord owes a statutory duty to give its reasons for refusing consent, also within a reasonable time.

Reasons vs Conditions

A landlord can refuse consent and give its reasons for doing so in accordance with its statutory duty set out above. However, alternatively a landlord may choose to grant consent subject to multiple conditions.

The discrete differences between these two approaches taken by landlords are considered as part of the decision in the case of No.1 West India Quay.

No.1 West India Quay – the case

The Landlord in this case had given reasons for refusing consent on three grounds:

  1. A failure by the tenant to give an undertaking to cover the landlord’s and surveyor’s costs of £1,600 plus VAT;

  2. A refusal by the tenant to pay for a pre-assignment inspection fee to ascertain if any breaches of covenant had occurred;

  3. A refusal by the tenant to provide bank references in respect of the proposed assignee.

The decision by the High Court was that although grounds 2 and 3 were reasonable, ground 1 was unreasonable because the level of fees quoted were unreasonably high (note: the fees were deemed to be an unreasonable administration charge in a residential context) and therefore the High Court’s verdict was that the landlord’s decision to refuse the licence to assign was unreasonable.

The decision was appealed and the Court of Appeal held the incorrect approach had been applied by the High Court and that the question was whether the decision to refuse consent was reasonable, not whether all of the reasons for the decision were reasonable.

Lewison LJ said in his judgment “Where, as here, the reasons were free-standing reasons, each of which had causative effect and two of them were reasonable, the decision itself was reasonable.”

It could not realistically be said that the bad reason had tainted the good reasons, making them no longer valid. The bad and the good reasons were freestanding; there was no connection between them. If the landlord’s decision would have been the same had it not attempted to rely on the bad reason, the decision to refuse consent would be reasonable.

The judgment above supports the statutory position that where consent is refused, the landlord must provide its reasons in accordance with its statutory duty, but the No.1 West India case adds that to the position, in that if just one of those reasons is reasonable and stands on its own, the landlord may reasonably refuse consent.

However, the intricacy to be aware of here, is if the landlord takes the alternative approach of granting consent subject to multiple conditions, if any of those conditions are unreasonable, it is likely the landlord will be taken to have withheld consent unreasonably, however reasonable the other conditions may be.

Practical Points

  • If a landlord has a good and a bad reason for refusing consent, the good reason is likely to be sufficient to refuse consent, so long as it is an independent, reasonable ground unconnected with the bad reason and not vitiated by the bad reason.

  • Note the discrete difference between providing reasons for refusing consent and granting consent subject to multiple conditions and consider carefully which approach to take.

Landlords may be comforted by this decision but must still be cautious in refusing consent to an assignment. It is still important to abide by the statutory duty regarding reasonable timescales and provide reasons for your decision where necessary. The decision as to whether to grant consent to an assignment, or not, and how this consent or refusal is communicated to the tenant should be carefully considered.

 

by Anya James-Weller
Solicitor

Pierre Vannerem