Landlord’s consent to assign

The long leaseholder of a flat applies to the landlord for consent to assign. The landlord is not entitled unreasonably to refuse consent. The landlord refuses consent on three grounds. Of those three grounds, two are reasonable; the third is unreasonable. Is the refusal of consent valid?

This was the question before the Court of Appeal in No. 1 West India Quay (Residential) Limited v East Tower Apartments Limited [2018] EWCA Civ 250.

 

Background

No. 1 West India Quay is a 33 storey building comprising a hotel and 158 residential apartments, each let on long leases by West India Quay. In August 2004, East Tower Apartments Limited became the leaseholder of 42 of those apartments.

East Tower Apartments Limited (ETAL) then decided to sell those apartments. Under the terms of those apartment leases ETAL was required to obtain the consent of West India Quay to the assignment, with “such consent not to be unreasonably withheld”.

Essentially, West India Quay sought to impose three conditions in respect of their consent, as follows:

  1. a fee for the licence to assign (estimated) at £1,600 plus VAT (including £350 plus vat for the inspection – see below)
  2. an inspection of the apartment by a surveyor to establish whether or not there were any breaches of the terms of the lease.
  3. a current UK bank reference for the prospective assignee, confirming that the prospective assignee is good for the minimum sum of £5,250. (This appears to have been based on a proposed project of major works, the costs of which were estimated at over £1 million and, therefore, it was the landlord’s argument that it was entitled to assess and consider the prospective assignee in this regard).

ETAL’s position was:

  1. that they would pay a reasonable sum relating to the application for consent, but neither £1,250 plus VAT nor £1,600 plus VAT was accepted as reasonable;
  2. there should be no requirement for inspections to take place;
  3. the requirement of a bank reference was unreasonable.

Matters reached an impasse, and, accordingly, ETAL began proceedings:

  1. for a declaration that West India Quay had unreasonably refused consent to the assignment; or, alternatively
  2. that the conditions were unreasonable.

ETAL also sought an award of damages.

 

Decision at first instance

At first instance, the court found that all three conditions were unreasonable.

Although the court agreed that it was not unreasonable in principle for West India Quay to require its costs to be paid, it had not established that those costs were any greater than £350.

 

Appeal to the High Court

Unsurprisingly, West India Quay appealed that decision.

On appeal, the High Court took a contrary view, and found that it was reasonable for West India Quay to require a bank reference. They also found that it was reasonable for West India Quay to require to have the apartment inspected by a surveyor at a cost of £350.

That left the issue of the administration fee. On that issue, the High Court held that the assessment of £350 for legal costs was an assessment open to the lower Court on the evidence.

Therefore, of the three reasons given by West India Quay for withholding consent to assign, only one was found to be unreasonable.

But what’s the impact of one out of three being unreasonable?

In other words, was West India Quay entitled to rely on its two good reasons?

No, said the High Court. It found that West India Quay had unreasonably withheld consent to the assignment by charging an unreasonable fee, despite the other conditions imposed being found to be reasonable.

Unsurprisingly, West India Quay appealed this decision to the Court of Appeal.

 

Decision of the Court of Appeal on appeal

The Court of Appeal looked at whether West India Quay was entitled to rely on its two good reasons for withholding consent.

It reminded itself of the encapsulation of the law in Woodfall on Landlord and Tenant:

“If the landlord has a good and a bad reason for withholding consent, consent may nevertheless have been reasonably withheld if the good reason is a sufficient reason and is not otherwise vitiated by the bad reason. However, there may be cases where the real reason for refusal is a bad one, and the good reasons are no more than makeweights, or where the bad reason vitiates the good one. In the absence of such factors, the landlord is entitled to rely on his good reason”.

The Court of Appeal considered whether the good reasons had been “infected” by the bad reason. For there to be this kind of “infection” there must be some connection between the reasons. If the good reasons are freestanding, and not dependent on the bad reason, then on the face of it there is no infection of the good by the bad.

Essentially, if the decision would have been the same without reliance on the bad reason, then the decision (looked at overall) is good.

The question that should be asked is: Would the landlord still have refused consent on the reasonable grounds, it had not put forward the unreasonable grounds? In other words, the question is whether the decision to refuse consent was reasonable; not whether all the reasons for the decision were reasonable.

In this case therefore the reasons were freestanding, two of them were reasonable, and therefore the decision itself to withhold consent was a reasonable one.

 

Commentary

This decision is welcome clarification.

If a decision to withhold consent would have been the same without the reliance on the bad reason, then the decision (looked at overall) is good.

This avoids what was recognised by the Court of Appeal as being “considerable practical difficulties” if a landlord is “saddled” with a tenant. The comment from Lord Justice Lewison highlights the point.

“… I consider that to hold otherwise might lead to considerable practical difficulties. The point can be tested this way. Imagine the case of a rack rented lease of valuable property where the rent is several hundred thousand pounds a year. The tenant asks for consent to assign. The landlord requires the tenant to pay his costs of, say, £1,000 when a reasonable sum would be £750. However, the landlord also objects on well reasoned and compelling grounds that the proposed assignee will be unable to pay the rent. It seems to me to be a draconian sanction if the landlord is to be saddled with a tenant of precarious financial means all for the sake of having demanded £250 too much as a fee”.

 

 

Cassandra Zanelli

Widely recognised for her expertise in the industry, and listed among the 100 most influential people in residential leasehold management, Cass heads the team at PM Legal Services. Passionate about education and sharing knowledge, she's a regular speaker at conferences, events and seminars, having worked with leading organisations in the property management industry.

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