In a previous article, David Hacker, commercial property expert with Thackray Williams provided an overview of the rules governing requests from tenants for permission to assign a commercial lease. In this article, he delves a little deeper and considers when consent to such requests can reasonably be refused.
‘The law governing lease assignment is clear: consent to assign must be granted unless circumstances exist which make it reasonable for permission to be refused’, says David. ‘but what is not so clear is what sort of circumstances need to exist to meet the reasonableness requirement.’
The burden of proving that the refusal of consent is reasonable in any given case will always rest with the landlord, which makes taking legal advice at an early stage crucial.
Stipulations in the lease
Leases granted after 1 January 1996 will usually set out the circumstances in which consent to an assignment may be refused. These may include where, in the landlord’s reasonable opinion, it appears that the proposed new tenant will not be able to meet their liabilities under the terms of the lease, including where there is evidence to suggest that the new tenant will not be able to pay the rent.
It is also possible that the lease will stipulate the conditions that may be imposed where consent is given, such as the need for the outgoing tenant to enter an authorised guarantee agreement to secure the new tenant’s performance of the lease obligations, or a requirement that the new tenant pays a rent deposit.
A landlord who relies on the provisions of a lease in this way to justify the refusal of consent, or who is only willing to provide consent subject to the specified conditions, will not be in breach of the statutory duty to give consent. This is because the provisions relied on will have been agreed in advance and therefore the existing tenant will have known from the moment they signed up to the lease the hurdles they would have to overcome if they wish to assign.
Considerations outside of the lease
In addition to stipulations as to consent and conditions in the lease itself, a landlord may also be able to refuse consent on other grounds, or to impose other conditions, if in the circumstances it is reasonable to do so.
For leases entered before 1996, relying on considerations outside of the lease is the only way in which a refusal of consent, or the imposition of conditions, can be justified. This is because, prior to 1996, it was not possible for stipulations regarding these matters to be included within the lease itself. This makes it more difficult to be sure whether or not the reasonableness test is satisfied.
The main rule when seeking to rely on considerations not stipulated within the lease is that you cannot refuse consent, or seek to impose conditions, unless the reason for this has something to do with the relationship between you and the tenant and to things you expect may happen because of the proposed assignment. Examples of when this may be the case are detailed below.
In no circumstances can you use a request for consent as leverage to get any sort of advantage, for example by trying to get the existing tenant to agree to vary some aspect of the lease.
Examples of common scenarios
If the financial information provided by the proposed new tenant does not convince you that they will pay the rent due under the lease reliably, it should be reasonable to withhold consent. However, if, as part of the arrangements for assignment, provision has been made for the performance of the lease obligations by the new tenant to be guaranteed, then this is something which must be taken into account when assessing the request.
Before deciding what to do, you may want to inspect the property to check what sort of condition it is in. In a previous case which came before the courts, a landlord was held to be reasonable in refusing consent where the leased property was already in serious disrepair and they were not confident that the new tenant had the resources to deal with it. You should, however, be wary of relying on a breach of covenant as a reason for refusing consent because you will retain the right to pursue the existing tenant for this after the assignment has taken place. Minor breaches of the terms of the lease, in particular, will not be a reasonable ground for refusal.
You may be justified in taking the proposed new tenant’s intended use of the leased property into account. If you believe the intended use will breach the terms of the lease, then this should be a reasonable ground for refusing consent. Likewise, if you own a parade of shops, or the leased property is in a shopping centre, and there is a tenant mix policy in place to ensure a good range of uses, it will usually be reasonable to refuse consent to a tenant whose intended use does not fit with that policy.
Wherever reasonableness is involved, there are no hard and fast rules, which is why landlords faced with a request for consent to assignment need sound legal advice at the earliest possible opportunity. With the help of your solicitor you can ensure that you have access to all the information you need to make an informed decision and, where justifiable reasons for refusal exist, you can frame your objections appropriately and within a reasonable period.
For further advice about the assignment of a commercial lease, or for any other commercial property matter, please contact David Hacker.