A common sight in most, if not all, long leases of residential property is the phrase ‘such consent not to be unreasonably withheld,’ but what does that provision actually mean? The High Court recently considered the point in relation to assigning or underletting a lease of residential premises.
The case of No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd concerned covenants within three essentially identical long underleases of residential apartments in a building in London. The leases all contained the clause preventing the lessee from assigning or underletting the whole of the demised premises without the prior written consent of the lessor, such consent not to be unreasonably withheld. The lessee of all three flats (ETAL) brought the Part 8 claim against the head lessor (West India Quay) seeking declarations that such consent had been unreasonably withheld in relation to two of the flats (27.02 and 27.09) and unreasonably delayed in relation to the third flat (28.08). At first instance the Judge found in favour of West India Quay in respect of 28.08 and in favour ETAL in respect of 27.02 and 27.09 as several conditions imposed by West India were found to be unreasonable. Both parties appealed.
West India Quay appealed on the basis that the Judge erred:
- In finding that it had been unreasonable for West India Quay to seek a bank reference from ETAL in respect of the proposed assignee;
- In finding that it was unreasonable for West India Quay to require an undertaking from ETAL in the sum of £350 plus VAT in respect of the attendance of a surveyor to inspect the demised premises;
- In finding that it was unreasonable to charge more than £350 plus VAT in payment of legal fees in considering the application for consent to assign;
- In not ordering that West India Quay should be paid legal costs of an earlier hearing, costs in the case having been ordered.
ETAL appealed on three grounds:
- The Judge had erred in finding that West India Quay had not been in breach of the Landlord and Tenant Act 1988 in relation to the assignment of apartment 28.08;
- Having found that £350 plus VAT would have been a reasonable sum to require in respect of legal fees, the Judge had been wrong to allow West India to retain that amount;
- The Judge had also erred in relation to costs at the same earlier hearing as in (iv) above, by refusing to order West India Quay to pay ETAL’s costs on an indemnity basis.
The Court upheld West India Quay’s appeal in part and dismissed that of ETAL. In respect of the grounds raised by West India Quay the court found:
- The Judge’s reasoning was open to a number of criticisms. The test the Judge had applied was whether a bank reference had been ‘necessary,’ which was not the correct test. Instead the Judge should have asked whether a reasonable landlord in the position of West India Quay might have required one before deciding whether to grant permission to assign. The fact that the assignee had been paying a substantial premium was not sufficient to demonstrate that the assignee had been a person of financial substance. The reassurance that the landlord was entitled to seek was that the relevant covenants would be complied with, thus the remedies available to the landlord if covenants are not complied with were irrelevant.
- The Judge had again erred. On the true construction of the underleases, provided that it was reasonable to require an inspection in the context of the proposed assignment, there was no breach of its duty under s1 (3) LTA 1988 provided the inspection was reasonable in both scope and cost. Nor was it unreasonable to instruct a surveyor when the issue was whether there had been compliance with the repairing and alterations covenants in the underlease. As the requirement for inspection by a surveyor had been reasonable in all the circumstances there was no dispute that the fee charged had been reasonable.
- The Judge was found to be correct in limiting the legal costs to £350 plus VAT in the circumstances.
- This ground of appeal was dismissed, the costs order having been found to be within the Judge’s wide discretion.
In relation to ETAL’s cross-appeal the court determined:
- The Judge had not erred. The fact that West India Quay had put forward an alternative address for written consent to an assignment did not undermine the terms of the LTA 1988 or the provisions of the lease.
- The Judge had not erred as West India Quay had a good contractual claim for £350 plus VAT in respect of each assignment.
- The Judge had not erred as the order was within the court’s wide discretion.
The Court found that West India Quay had been reasonably entitled to require bank references and an inspection of the premises by a surveyor for £350 plus VAT, but unreasonable in insisting on payment of its costs in the sum of £1,250, thus West India Quay was found to have had ‘good’ and ‘bad’ reasons to withhold consent. The court therefore referred to Woodfall at paragraph 11.139 as supported by Peter Gibson J in British Bakeries (Midlands) Ltd v Michael Testler & Co Ltd  1 EGLR 64 and Neuberger J in BRS Northern Ltd v Templeheights Ltd  2 EGLR 182.
The answer when weighing up ‘good’ and ‘bad’ reasons to withhold consent is therefore as follows:
‘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.’