Can you say no to your tenant?
Yes, if you're reasonable.
There will be occasions when a landlord will be overjoyed to receive an application for a Licence to Assign (for example from the concert pianist who angered the rest of the block by practising at two in the morning or "Rabbitwoman" who shares her flat with any rabbit in need of a home). But imposing conditions or refusing consent in the interest of stopping such tenants coming in is not at all straightforward.
There have been many cases on refusal to consent (whether to assignment or underlet) all turning on the question of what is considered "reasonable".
It is down to the landlord to show that he is acting reasonably in refusing consent to an assignment (Landlord and Tenant Act 1988). But exactly what is and what is not reasonable has had to be decided by the courts.
Two recent cases have established two new and helpful principles.
The first is that the landlord is not to use the threat of refusal to improve his position under the lease.
This was the point argued (unsuccessfully by the landlord) in Landlord Protect v Anselm Development Company. Here the landlord had imposed the reasonable condition that a director of the tenant company (a new company with no trading record) provide extra security by acting as personal guarantor for the rent and obligations under the lease. The tenant argued that it was not reasonable however to seek to keep the director liable after his company had assigned the lease to another, only being released from his liability when someone replaced him as guarantor.
Since a tenant (of a post Landlord and Tenant Act 1995 tenancy) is only liable for the period it remains the tenant, a condition such as this had the potential to leave the director liable even after his company was not. As such it enhanced the landlord's rights and the Court held that it was unreasonable.
The judge made the point that a landlord can always refuse consent if a proposed tenant is not considered sufficiently able to meets its liabilities and won't give extra security by way of guarantee or rent deposit. The landlord should not need any further protection.
There is better news for landlords however in the Royal Bank of Scotland v Victoria Street (No 3) Ltd.
Here the lease contained a covenant on the part of the tenant not to assign to anyone other than "a respectable and responsible" assignee!
The tenant (another new company with no track record) was not considered respectable and responsible by virtue of its recent incorporation. Three months rent deposit (but no guarantee) was not enough to persuade the landlord otherwise. The landlord refused consent.
The tenant believing the landlord was being unreasonable applied to the Court. But the Court decided the landlord's view was justifiable, and that he was not being unreasonable.
It is also worth noting that here, the original tenant did remain on the hook bound by the lease covenants even though no longer in occupation – the lease was a pre 1995 Act lease. However, that did not impact on the Court's decision. It would seem therefore, that each tenant or assignment/subletting is looked at in isolation and one tenant cannot rely on the respectability or responsibilty of another.
This is good news for landlords who in the present market have justifiable concerns over tenant covenant strength and maintaining their income generally. Perhaps not so good for a tenant whether coming in bright eyed and bushy tailed looking for a base from which to launch their business, or care worn and desperate to assign to save themselves from growing financial hardship.
So what can a tenant do if the landlord does refuse consent? Before rushing off to court remember that a tenant can always make a further application with further information and/or offers of collateral security to make themselves more attractive to the landlord.
If that proves unsuccessful perhaps it is time to find a landlord more in need of a tenant.
Only as a last resort is it worth putting the question to the Court where you must hope for a reasonable judge! The definition of 'reasonable' is in the eye of the beholder and there will doubtless be further cases brought, but each new case helps illuminate the way for both landlords and tenants to avoid disputes in the future.
Karen Albany, Legal Executive
Residential Estate Property Practice
email k.albany@pglaw.co.uk
tel 020 7591 3390