Unreasonable refusal to assign

A case appearing on my radar, though one that may not excite many readers is Landlord Protect Limited v St Anselm Development Company Limited [2009] EWCA Civ 99. A case concerning whether a landlord has imposed an unreasonable condition for a consent to assign.

The relevant covenant in the lease was as follows:

…not to assign part or parts only of the demised premises and not to underlet or part with possession or assign the whole of the demised premises without the consent in writing of the Landlord first had and obtained but such consent shall not be unreasonably withheld in the case of a respectable and responsible assignee or sub-tenant being offered. (emphasis mine).

A slightly odd clause because it would appear to permit the landlord to unreasonably refuse consent where no respectable and responsible sub-tenant was offered which would appear to be contrary to s.19 of the Landlord and Tenant Act 1927. Nevertheless, no-one seems to have worried about the wording of the clause in this case.

The parties to the case were in fact the existing tenant (St Anselm Development) and the proposed assignee (Landlord Protect Ltd). The proposed assignee was (as is often the case) a company with no assets. The landlord (not unreasonably) wanted someone to guarantee the rent and so demanded (as a condition of assignment) that a director of the assignee gave a personal guarantee.

So far, so not very surprising, but the landlord wanted to guarantee to continue even if there was a subsequent assignment unless a “reasonable alternative security is provided by the assignee pursuant to such subsequent assignment”. In other words the director would be saddled with guaranteeing a subsequent tenant’s liability unless he could come up with another guarantor (or other security) to stand in his place.

But hang on – if you have been following so far the following objection occurs – any further assignment is going to require the landlord’s consent again. The landlord could not necessarily require that the new assignee provides security if the assignee is an individual or company with reasonable credit. What the landlord is asking for is to be given more security into the future than the lease would normally permit them.

That is what the assignee thought and they refused to agree (or their director refused to agree) a guarantee in those terms.

There’s a slight (unnecessary) complexity in that the sale agreement between the parties required the assignee to use all reasonable endeavours to obtain the landlord’s consent. Since they thought that they had done so (because they thought the landlord was being unreasonable) they claimed to be unable to complete the purchase. As a result the existing tenant sued them for failure to complete.

Despite this small detour, the issue to be decided by the court was simply: was the landlord unreasonable in requiring the additional guarantee condition? The Court of Appeal thought so and agree with the assignee.

At paragraph 17 Stanley Burnton set out the following useful propositions:

1. It will normally be reasonable for a landlord to refuse consent or impose a condition if this is necessary to prevent his contractual rights under the headlease from being prejudiced by the proposed assignment or sublease.

2. It will not normally be reasonable for a landlord to seek to impose a condition which is designed to increase or enhance the rights that he enjoys under the headlease.

Neither seems particularly world-shaking but it is always useful to have things like that set out clearly.

Does this relate to housing? Not, alas, very much. I do encounter issues of consent to assign for assured shorthold tenancies from time to time, but most consents to assign I meet in residential housing cases apply to long leaseholds where the rent is usually low and guaranteeing its payment is usually not a principal concern of the landlord.

Has any reader dealt with consents to assign a shared ownership lease I wonder?

I had a small qualm about whether a covenant of the kind proposed would not actually be void by virtue of s.25 of the Landlord and Tenant (Covenants) Act 1995, but since neither eminent counsel (both QC’s) or the Court of Appeal seem to have batted an eyelid over this point, I suspect its not an issue.

Posted in Housing law - All, Leasehold and shared ownership and tagged , .

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