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Out-Law Analysis 4 min. read

One bad reason need not cancel out withholding of consent

ANALYSIS: A landlord which withholds its consent to a lease assignment will not necessarily be doing so unreasonably where it has multiple reasons for doing so, and only one of those reasons is itself unreasonable.

Each of the three reasons given by the landlord, No 1 West India Quay (Residential) Ltd (WIQ), was a free-standing reason, and its two good reasons were not dependent on the bad one, according to the Court of Appeal in a recent decision. Therefore, it could not realistically be said that the bad reason had vitiated or infected the two good reasons.

The decision is relevant to both landlords and tenants of commercial or residential premises. Landlords, in particular, must act quickly in response to applications to assign or underlet, and must think carefully and properly document any reasons why they might wish to refuse consent.

Usually a bad, and therefore unreasonable, reason will not make the decision to refuse invalid. However, if that bad reason is the real and primary reason for refusing consent, that will make the refusal of consent unreasonable; as will a bad reason which is linked to other reasons which are otherwise reasonable if the bad reason has the effect of tainting or vitiating the good reasons.

What is the legal background?

When a tenant applies for consent to assign a lease and the landlord's consent is not to be unreasonably withheld, the 1988 Landlord and Tenant Act imposes a statutory duty on landlords to:

  • give consent within a reasonable time, unless it was reasonable not to give consent; and
  • to serve a written notice of its decision on its tenant.

The burden of proof lies on the landlord to show that its consent was given within a reasonable time, and that any refusal of consent was reasonable.

Once it has made its decision, the landlord cannot rely upon any reasons not set out in its notice.

Were the conditions unreasonable?

The tenant in this case, East Tower Apartments Ltd (ETAL), had wanted to assign the leases of 42 flats which it had been letting out on assured shorthold tenancies. The leases of the flats required the consent of WIQ to those proposed assignments. That consent was not to be unreasonably withheld.

In response to the applications, WIQ indicated that it would grant consent subject to three conditions:

  • that ETAL paid a fee of £1,600 plus VAT for the grant of the licence to assign, which included a surveyor fee and legal costs;
  • an inspection of the flats to establish whether ETAL was in breach of covenant; and
  • a bank reference for each of the assignees to assess their covenant strength in respect of service charges of a few thousand pounds per year that each assignee would have to pay.

ETAL complained that these conditions were unreasonable.

WIQ then refused consent to the assignment, citing ETAL's failure to agree to pay the costs, allow the inspection and provide the bank reference as its reasons for doing so. ETAL applied to court for a declaration that either consent had been refused unreasonably, or the conditions WIQ sought to impose were unreasonable.

The tenant was successful in the county court. The judge there decided that all three of WIQ's conditions for the grant of consent were unreasonable, and that WIQ had therefore unreasonably withheld its consent to the assignments.

In the High Court, on appeal, the judge there held that only the condition relating to the cost of the licences to assign was unreasonable. The other two conditions, dealing with the inspection and the bank reference, were found to be reasonable. However, the judge went on to decide that the two 'good' conditions were vitiated by WIQ's insistence on ETAL paying what was considered to be an unreasonable fee for the licence to assign. As a result, WIQ had unreasonably withheld its consent to the assignments.

WIQ appealed this decision further to the Court of Appeal.

What did the Court of Appeal decide?

The issue for the Court of Appeal to decide was whether a landlord had unreasonably withheld consent where two of its reasons for doing so were reasonable but the third was unreasonable, and had the effect of tainting the two good reasons.

The Court of Appeal referred to the reasoning in an earlier case about landlord's consent which was said to have been vitiated or tainted by a bad reason given by it for refusing consent. In that earlier case the judge had said that normally, where a landlord bases its decision to refuse on a number of reasons, the fact that one reason is bad does not normally render the refusal unreasonable if the other reasons are good. However, he also said that it may be obvious that the bad reason is "by far the most important reason", and that "the purportedly good reasons were merely makeweights"; or that "the existence of the bad reason infects or vitiates what would otherwise, in the absence of the bad reason, be a good reason".

The Court of Appeal thought that this reasoning was still good. It went on to decide that the correct question that should be asked in cases where a landlord had refused consent to an assignment for several reasons, some of which were good and some bad and therefore unreasonable, was whether the landlord would "still have refused consent on the reasonable grounds if it had not put forward the unreasonable ground". Or, to put it another way, "the question is whether the decision to refuse consent was reasonable, not whether all the reasons for the decision were reasonable".

Applying the above to the facts, and considering each of the reasons for refusal given by WIQ, the Court of Appeal could not see that there was any evidence that WIQ's refusal on the ground of the failure to pay costs - the 'bad' reason - was its most important reason for having refused consent to the assignments, or that that was the cause of the refusal of consent.

Each of the three reasons given by WIQ stood on its own. The two good reasons, the inspection and the reference, were not dependent on the bad one. Therefore, it could not realistically be said that the bad reason had vitiated or infected the two good reasons. WIQ's decision to refuse consent was therefore a reasonable one, and its appeal was allowed.

Craig Downhill is a property disputes expert at Pinsent Masons, the law firm behind Out-Law.com.

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