It is common for leases to contain a provision to prevent the tenant from assigning or underletting the lease to another party without the landlord’s consent. This allows the landlord to maintain control over who the tenant will be throughout the term of the lease. To give the tenant some means of protection, this provision is often subject to a qualification that the landlord shall not unreasonably withhold consent. So what does this mean?
What is unreasonable?
Where the lease requires the landlord’s consent to assign or underlet, the landlord should give consent to an assignment or underletting of lease except where it is unreasonable to do so. The landlord should give this consent within a reasonable amount of time. By unreasonably withholding consent, the landlord would be in breach of covenant under the lease. However, the test is subjective and whether a landlord is being reasonable will depend on the facts of the case. There have been a number of cases over the years looking at the types of acts which would constitute the landlord unreasonably withholding consent to an assignment of lease.
The court will decide each case on the facts. Therefore what is unreasonable in one case may not be in another. Examples include:
- A landlord with no intention to sell his freehold interest, is not entitled to withhold consent on the basis that there would be a decrease in the value of its interest (FW Woolworth v Charlwood Alliance Properties  1 EGLR 53).
- If the assignee does not show financial stability, the landlord is entitled to withhold consent (British Bakeries (Midlands) v Michael Testler & Co  1 EGLR 64)
- If the tenant has breached a covenant under the lease, this is not automatic grounds for refusing consent. The nature of the breach and the effect on the landlord must be considered in assessing whether it is reasonable to withhold consent (Singh v Dhanji & Anor  EWCA Civ 414).
- Consent may be withheld if the landlord has reason to believe that the assignee will commit substantial breaches of covenant (Ashworth Frazer Ltd v Gloucester City Council  UKHL 59). This might include an intention to use the property for purposes other than is allowed under the lease.
Considerations for tenants
Tenants concerned that their landlords have unreasonably refused consent may have claims against their landlords in contract and/or tort. This could be for a declaration that consent has been unreasonably withheld; an injunction requiring consent to be given; or a claim for damages.
Finally, as a tenant, you may be find yourself in a position where you wish to assign the lease quickly. You must also consider whether there is a requirement under your lease to provide a guarantee for the assignee. Should this be the case, your obligations under the lease will not completely terminate. You would therefore need to satisfy yourself that the assignee is trustworthy and in a good financial position.
If you wish to assign your lease to another party, our specialist commercial property team can help. Our dispute resolution team can help if you are involved in a dispute about whether consent has been unreasonably withheld. Call us today on 0800 988 7756.