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Reasonable refusal

General principles

There are many cases on the subject the most important of which is probably International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1985] EWCA Civ 11. The main principles as stated in that case are as follows (Balcombe J at 325):
    1. The purpose of a covenant against assignment without the consent of the landlord, such consent not to be unreasonably withheld is to protect the lessor from having his premises used or occupied in an undesirable way or by an undesirable tenant or assignee.

    2. As a corollary .. a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing to do with the relationship of landlord and tenant in regard to the subject matter of the lease.

    3. It is not necessary for the landlord to prove that the conclusions which led him to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances.

    4. If may be reasonable for the landlord to refuse his consent for an assignment on the ground of the purpose for which the proposed assignee intends to use the premises, even though that purpose is not forbidden by the lease.

    5. There is a divergence of authority on the question, in considering whether the landlord’s refusal of consent is reasonable, whether it is permissible to have regard to the consequences to the tenant if consent to the proposed assignment is withheld … A proper reconciliation of the … [authorities] can be achieved by saying that while a landlord need usually only consider his own relevant interest, there may be cases where there is such a disproportion between the benefit to the landlord and the detriment to the tenant if the landlord withholds his consent to an assignment, that it is unreasonable for the landlord to refuse consent.

    6. Subject to the propositions set out above, it is, in each case a question of fact, depending on all the circumstances, whether consent is being unreasonably withheld.
At the time of International Drilling the onus of proof was on the tenant. He had to prove that the consent had been unreasonably withheld. However, the position has been reversed by s1(6)(c) of the 1988 Act so that the burden is now on the landlord to prove that his refusal was reasonable (Norwich v Shopmoor [1997] EWHC Ch 368).


Breach of covenant as reason for refusal

Ashworth Frazer Ltd v Gloucester City Council (No.2)
[2001] UKHL 59

Landlords often think that they can refuse to give consent to an assignment on the ground that the intended use by the assignee would be a breach of covenant. They used to be wrong. The view taken by the courts was that as the landlord will have the same rights against the assignee as he has against the tenant he would not be prejudiced (Killick v Second Covent Garden Property Co. Ltd [1973] 2 All ER 237, CA). However, in this case the House of Lords overruled Killick and held that a refusal in these circumstances is not automatically unreasonable. Instead one must ask what the reasonable landlord would do in the particular circumstances of the case. The court cannot and should not formulate strict rules as to how a landlord should exercise his power of refusal.

Original tenant still liable

The Royal Bank of Scotland v Victoria Street (No. 3) Limited
[2008] EWHC 3052 (Ch)

Summary

A landlord can object to the covenant strength of the assignee where the landlord is concerned in a practical way about the payment of rent and the performance and observance of the covenants, even where the landlord has the benefit of the original tenant’s covenant.

Facts

The Royal Bank of Scotland (T) is the tenant of office premises in London. Victoria Street (No3) Ltd (L) is the landlord. The lease contains a covenant on the part of T:
    “Not to assign the demised premises or underlet or part with the possession of the demised premises or any part thereof or of this lease without the written consent of the landlord such consent however not to be unreasonably withheld in the case of a respectable and responsible assignee or sub-tenant Provided that the Landlord may require the proposed assignee to enter into direct covenants with the Landlord to perform and to preserve all covenants and conditions herein contained and on the Tenant’s part to be performed and observed.”
T applied for consent to assign to a company that had been incorporated two months previously. One week later, consent was refused by L on the basis that the proposed assignee was (by virtue of its recent incorporation) not a “respectable and responsible assignee”.

T applied to the High Court for a declaration that L had unreasonably withheld consent to the assignment of the lease.

Decision

Morgan J held that the reasons L put forward for refusing consent to the proposed assignment were ones that a reasonable landlord might put forward. A landlord considering those stated reasons would have been acting reasonably by refusing consent, even taking into account the on-going liability of T as original tenant.

Citations

Morgan J at para 36:
    "… a landlord can object to the covenant strength of the assignee where the landlord is concerned in a practical way about the payment of rent and the performance and observance of the covenants, even where the landlord has the benefit of the original tenant’s covenant. It seems to me that there ought not to be any rule of law on this question, which is essentially a question of fact, where the arguments as to the facts I have already set out point to the conclusion that a reasonable landlord can be concerned about the practical consequences of the tenant in possession not being respectable and responsible. … on the facts of this case the actual reasons which led this landlord to refuse consent were reasons that a reasonable landlord could properly put forward for withholding consent."


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