Licence to Assign – Can Consent be Refused?
Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. Taxation and property law are complex subjects and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.
What is a Licence to Assign?
A very common provision found in both residential and commercial leases, is a requirement for the Tenant to obtain the Landlord’s prior consent to any transfer (assignment) of the Lease.
This is usually qualified by stating that the Landlord cannot withhold or delay their consent unreasonably. The Landlord and Tenant Act 1988 also requires Landlords give consent within a reasonable time (except where it is unreasonable to do so).
The consent itself is referred to as the Licence to Assign.
How is ‘reasonable’ consent defined?
This has been recently considered in the case of No. 1 West India Quay (Residential) Ltd vs East Tower Apartments Ltd, 2018. The Landlord was No.1 West India Quay, and the Tenant East Tower Apartments.
The Tenant had 42 apartments on underleases, which it was selling, with the (superior) Landlord’s consent required for these to be sold.
The Landlord in this case imposed three conditions upon its consent;
- That bank references be provided for the proposed assignee
- That the property be inspected by a surveyor, with the Tenant to cover the costs (£350 + VAT per property)
- That the Tenant covered the Landlord’s legal costs of £1250 + VAT per property.
The Tenant started proceedings against the Landlord, claiming these conditions were unreasonable and that consent had therefore been unreasonably withheld.
The courts in the first instance found all three conditions to be unreasonable.
On appeal, the High Court found only condition 3) was unreasonable. Yet they decided that that this single unreasonable condition made the Landlord’s overall refusal of consent unreasonable, even though 1) and 2) were reasonable conditions.
Finally, the Court of Appeal, when presented with a situation where two conditions were reasonable and one condition was unreasonable, were asked to decide whether the Landlord had lawfully refused consent on the mixture of conditions.
Their conclusion was that the Landlord’s decision to refuse consent was reasonable. They considered condition 3) and found that the amount a reasonable legal cost would have been, was not sufficiently lower than the Landlord requested to have been reason enough to force the Landlord to take on a possibly financially precarious new Tenant.
The fact one of the conditions was bad, did not outweigh the two good conditions in the overall context.
The case highlighted the difficulties facing Landlords, but showed a rational approach from the courts, whereby when multiple reasons are given for withheld consent, the overall decision will be considered, even where some individual reasons may be invalid.
Points for Landlords to consider
Before giving a written decision on a Licence to Assign, a Landlord should carefully review the terms of the lease and consider what conditions they would like a tenant to satisfy before they will agree to the sale of the property. They should ensure that each condition is justifiable and evaluate whether the overall all the conditions imposed would be viewed positively by the courts.
It is reasonable for a Landlord to request bank references in order to ascertain whether a proposed assignee will be able to perform its obligations under the lease. If you are concerned about a new tenant being in a position to pay service charges and ground rent, then this would be an advisable request to make of new tenants.
A Landlord can reasonably require inspections of a property prior to giving consent, and it is also reasonable for this to be done by a surveyor, with the Tenant to reimburse the Landlord for any surveyor’s fees. This is recommended to ensure that the existing tenant has not breached any terms of the lease, for example making alterations to the property which may not be permitted.
Landlords should be cautious regarding professional and administrative fees. Any fees should be justifiable and relate to actual work being undertaken, and the Landlord should be able to produce specific breakdowns if required.
Landlords should also consider requests for a Licence to Assign in a timely manner so as not to be seen to be unreasonably delaying the process.
Please get in touch if you would like us to review your current procedure and the conditions attached to providing Licences to Assign to ensure that you are reasonably vetting new tenants.