Consent or not consent - that is the question
CONSENT OR NOT CONSENT - THAT IS THE QUESTION
The recent High Court decision in Alchemy Estates Limited v Astor and Another [2008] (”Alchemy”) which considered the Court of Appeal’s decision in Aubergine Enterprises Ltd v Lakewood International Ltd [2002] (”Aubergine”) serves as a timely reminder that great care needs to be taken by landlords and their solicitors/agents, when responding to requests for consent from tenants. The case itself related to a request for consent to assign. That said the same issues are also relevant when considering other types of request, e.g. to carry out alterations
EXECUTIVE SUMMARY FOR LANDLORDS
We recommend the following key actions:
· Be mindful that delay in moving matters forward could result in a breach of statutory duty and the best practice principles in the Code;
· Carefully word any initial response to a tenant’s request for consent;
· Forward all relevant paperwork to Freeth Cartwright LLP.
Background
Alchemy related to the proposed assignment of residential leasehold premises at 27 Walton Street, London. The lease required the landlord’s consent to an assignment. Shortly before the contractual completion date consent to assign was applied for. After considering relevant documentation solicitors acting for the landlord sent an e-mail to the seller’s solicitors on 25 April 2008. Salient extracts of that e-mail read:
“Our client in principle is prepared to grant its consent to enable the Lease of 30 June 1977 to be assigned to Alchemy Estates Limited….
Please note that this correspondence does not constitute the provision of consent by our client. Such consent will only be provided on the completion and delivery of a formal Licence executed as a Deed.
Please also note that our client reserves the right to change the form of the draft Licence submitted herewith and to impose new conditions to the grant of their licence in light of any further information received in relation to this matter….”
On 19 May 2008, the buyers sought to rescind the contract on the basis that landlord’s consent had not been obtained within the agreed time period set out in the contract.
In reaching his decision, and finding in favour of the sellers, Mr Justice Sales was of the view that although the consent was expressed to be given “in principle” and was subject to certain conditions, e.g. payment of reasonable costs, it was sufficient to satisfy the requirements for consent laid down by the Court of Appeal in Aubergine.
In Aubergine, which again related to a licence to assign, the landlord’s solicitors confirmed, in a letter headed “SUBJECT TO LICENCE”, “consent in principle, to the proposed assignment”. The court was of the view that the heading of that letter and the inclusion in it of several conditions did not qualify the plain indication of consent given in the body of the letter so as to render it equivocal. The court suggested any consent viewed as being given in correspondence should:
· record consent as required by the contract;
· be unconditional or subject only to reasonable conditions; and
· be unequivocal.
That case followed the reasoning in Mount Eden Land Limited v Prudential Assurance Company Limited [1997] albeit in a different context. In that case the issue was whether a letter so headed, together with a condition that a landlord should give a “formal licence” to a tenant to make structural alterations was sufficient to amount to consent. The court concluded that it did. The court drew a distinction between the term “subject to licence” which related to a unilateral act and “subject to contract” which is often used in the context of bilateral negotiations.
Practical Implications
· The lease - this should prescribe the form of consent reasonably required by the landlord.
· Applications for consent - mindful of a landlord’s obligations under the Landlord and Tenant Act 1988 (”1988 Act”), when applications are received for consent to assign, underlet, charge or part with possession, it is imperative that any tenant’s application for consent is dealt with expeditiously to avoid action being taken against the landlord for unreasonable delay in giving consent.
By imposing a statutory duty on the landlord, under the 1988 Act a tenant can seek remedies in tort for breach of that duty. These remedies are damages and, in appropriate cases, an injunction. The 2004 case of Design Progression Ltd v Thurloe Properties Ltd, where exemplary damages were awarded against the landlord for failure to comply with this duty, evidences the fact that courts will penalise non-compliant landlords.
A landlord’s delay may also result in a tenant assigning without formal consent, using the landlord’s failures as a defence in any subsequent action by the landlord for an apparent breach of covenant.
The Code for Leasing Business Premises in England and Wales 2007 (”Code”), although not legally binding, enshrines principles of good practice in the conduct of lease negotiations, the terms to be included in the lease and the conduct of the parties during the term of the lease. It requires landlords to:
- request any necessary additional information from the tenant within 5 working days of receiving a consent application;
- apply early for any other consents which may be required;
- make a decision on a consent for alterations application within 15 working days of receiving full information from the tenant.
· Correspondence with tenants - prior to the finding in Alchemy many would have viewed the wording used in that case by the landlord’s solicitors as being sufficient to protect a landlord and prevent any inference being drawn that their consent was given at that stage.
From now on, if a request for consent is received any response should be carefully worded. Ironically, the safest way forward may be for any initial response to a tenant to indicate that the request has been received and is being considered and not to give details of any views a landlord may have about the likelihood of it giving consent.
It is then advisable to send all relevant documentation to a solicitors’ firm as soon as possible. At Freeth Cartwright, we can then ensure that any additional salient documentation is obtained from the tenant and/or its proposed assignee. Once that information is received the landlord will be able to reach an informed decision as to whether or not to provide consent. In addition, if the landlord is minded to give consent, by proceeding in this way a formal licence document could be put in place - this may not be possible where consent is inadvertently given in earlier correspondence!
For further information please contact Shama Gupta in our Support Team at our Nottingham Office:
Freeth Cartwright LLP, Cumberland Court, Mount Street
Nottingham NG1 6HH
Tel: 0115 9369 369 Fax: 0115 8599 641
Email: shama.gupta@freethcartwright.co.uk
The information contained in this document is a general summary and commentary on recent legal developments and does not constitute advice. You must always take specific legal advice in relation to any of the issues raised in this document in terms of the impact they may have upon any matter in which you are involved.
ends - 12 March 2009