Applications for Consent to Assign Leases

Most commercial property leases state that tenants may not assign or underlet lease agreements without written consent from the landlord. However Section 19 of the Landlord and Tennant Act 1927 states that landlords must not withhold consent unreasonably.

Some commercial leases go even further, stating that such consent must not be unreasonably withheld or delayed, thus ensuring that landlords respond to any such applications in a reasonable timeframe.

From the landlord’s point of view, this requirement for consent helps to protect him/her from having their property used in an undesirable way by an unattractive tenant. However there are many issues for landlords to consider before making a decision for or against consent, including:

• Does the lease set out the circumstances whereby consent can be withheld?
• Does the lease set out the conditions subject to which consent can be granted?
• What are the likely consequences of refusal on the tenant?
• What are the likely consequences of the assignment on the landlord?
• What facts are known to the landlord to support his/her decision?
• Are the grounds by which the landlord is seeking to withhold consent reasonable?
• Do the grounds by which the landlord us seeking to use to withhold consent relate only to the lease, the tenant or the proposed assignee?

A landlord must consider all the circumstances relating to an application for consent to assign a lease and if consent is withheld (or indeed any conditions on consent are imposed), reasons for doing so must be supplied in writing.

But just what is a reasonable timeframe for landlords to consider and inform tenants as to their decisions? If an application is straight-forward this could be as little as two weeks (possibly even less) from the time all relevant information has been supplied. It is crucial therefore that both landlords and tenants are as aware as possible as to the type of information that may be required to support an application for consent to assign a lease.

Case Study – EON UK Plc v Gilesports Limited [2012] EWH 2172

The case of EON UK Plc v Gilesports Limited [2012] EWH 2172 considered the application of these provisions and the impact of the Landlord and Tenant Act 1988 on the same. It also looked at the mechanics of the application for consent process and whether the Landlord and the Tenant had acted reasonably.

EON (the landlord) let premises to Gilesports. In May 2008 Gilesports contacted EON by email for consent to assign the lease. At this time the email did not contain the relevant financial information of the proposed assignee, however this information was supplied the following week.

Less than three weeks later, and without formal consent, Gilesports went ahead and assigned the lease. Less than one year later the assignee entered administration, however it was not until seven months later that EON was informed that the assignment had occurred in the absence of its formal consent.

During this period rent arrears had accrued and the court was asked to consider whether EON as Landlord had failed to provide its consent to the assignment within a reasonable time.

Keys points for consideration

The lease to Gilesports did not contain any express provision that the consent to any proposed assignment of the lease should not be unreasonably withheld.  Accordingly Gilesports relied on the provisions of the 1988 Act which states that the Landlord must give its consent within a reasonable time unless it is reasonable not to do so.

• In writing:

Pursuant to the 1988 Act, the obligations of the Landlord only begin once an application is made in writing.  The Judge held in the Gilesports case that email constituted writing.

• Service:

The application must be served on the Landlord as Section 5(2) of the Act states that an application is correctly served if served in the manner provided pursuant to the Lease or if the Lease is silent then in the manner provided for by Section 23 of the Landlord and Tenant Act 1927.  The Gilesports lease incorporated the provisions of Section 196 of the Law of Property Act 1925 which states that any notice shall be sufficiently served if left at or sent by registered post to the last known place of business of the Landlord.  Accordingly given that Section 196 requires physical delivery, an email would be insufficient for this purpose, as would service by email (as Gilesports did) on EON’s Managing Agent.  The Judge in the EON v Gilesports case was persuaded by this argument.

• Reasonable Time:

The obligation to respond within a reasonable time only kicks in once the provisions as to correct service of the application have been met.  Whilst Counsel for Gilesports conceded that this timeframe can only have begun once all financial information of the proposed assignee had been sent to the Landlord, there has been case law considering what in fact constitutes a “reasonable time”.

The Judgement in Go West Limited v Spigarolo [2003] stated that a reasonable time is weeks rather than months, nevertheless, what constitutes “reasonable time” will depend on the complexity of the matter, the covenant strength of the proposed assignee and the time of year (when the application for consent is submitted).

If you require any further information or guidance, please contact Graham Wallwork on 0844 984 6113.