Home Page > Property Law Library > Landlord and tenant (general) > Consents > Underletting

Home Page
Contact
Editorial Team

Tenant's request
Landlord's response
Reasonable refusal
Conditions
Alterations
Underletting

Current page






Underletting

Difficult landlord

Design Progression Ltd v Thurloe Properties Ltd
[2004] EWHC 324

Let this case be a warning to any landlord who thinks he might like to make life difficult for a tenant seeking to assign or underlet. The proposed assignee was clearly suitable. After a reasonable time had passed for making a decision Ls advisors made increasingly unreasonable demands on T and even went on to write an outrageous letter in which they accused T of a long delay in furnishing replies. The reason why no decision was given was because [L] through its agents was pursuing a deliberately obstructive policy designed to prevent assignment going through. The reason for doing this was that L thought that if the assignment could be prevented it would be able to negotiate a surrender with a nil premium because of the difficult situation that T would then be in. Peter Smith J awarded £25,000 exemplary damages on top of his award for damages under the Landlord and Tenant Act 1988 (which included damages for loss of the premium of £75,000 that it would have got from the assignee, and a sum for loss of goodwill and turnover).
    "It seems to me that it is important to mark the courts disapproval by a sum which will cause the Defendant to consider seriously its future conduct. The sum should not be excessive; it should be moderate. Moderate however, is to be assessed on the overall facts of the case and in the light of the conduct and the need to mark disapproval. It is important for landlords to appreciate that they should not resort to tactics to frustrate legitimate expectation of tenants by raising long and irrelevant queries designed to avoid giving the answer to the application for a licence to assign. This is the more so when the conduct is calculated to achieve an extraneous benefit for itself at the expense of the tenant. (para 150)".

Lower rent on underlease


Homebase Ltd v Allied Dunbar Assurance plc
[2002] EWCA Civ 666

Introduction

It is a common situation. The tenant wants to sublet. His lease allows him to do so but contains a proviso that the rent must not be less than the full market rent. However, he cannot find a sub-tenant willing to pay that much so the tenant agrees to grant a sub-lease at a full rent but in a side agreement agrees to accept less. That is what was proposed in this case but the landlord, who knew of the arrangement, refused to grant consent to the sub-letting. The tenant argued that he was being unreasonable.

The key facts:
  • There were five-yearly upwards only rent reviews in the head lease.
  • The covenant not to sublet without consent was subject to provisos (i) that any underlease would not reserve a rent less than the full market rent reasonably obtainable without taking a premium and (ii) the rent payable by the underlessee would be reviewed on an upwards only basis on the same dates as the headlease to the intent that a market rent would be obtained.
  • The heads of terms in respect of the proposed underlease provided for a fixed rent after 2005.
  • In the proposed collateral deed between T and the sub-tenant, T was going to give an indemnity in respect of the difference in rent payable between the underlease and the heads of terms.

Held (CA)

The sub-lease and collateral agreement had to be considered together and that as such they did not comply with the provisos in the head lease (applying Bocardo SA v S&M Hotels Ltd [1979] 3 All ER 739). The question of reasonableness did not even arise. It made no difference that the collateral deed was expressed to be personal to L and T. There were many circumstances in which L might be affected by the underlease, e.g. the rent under the underlease would be relevant on any rent review under the headlease. An underlessee might acquire a new underlease pursuant to the provisions of Part II of the 1954 Act and if so there was a risk that the terms of that tenancy could subsequently become the terms of a tenancy arising directly between the landlord and the underlessee upon termination of the headlease.

(The House of Lords refused permission to appeal)


Clinton Cards (Essex) Ltd v Sun Alliance & London Assurance Co Ltd
[2002] EWHC 1576; [2002] 37 EG 154; [2003] L&TR 2.

Claim by T for damages under s4 of the Landlord and Tenant Act 1988. The lease reserved an annual "basic rent" of 95,000. T covenanted not to sublet at a sum below the basic rent without L's consent, which was not to be unreasonably withheld "if the proposed rent is the full rack rental reasonably available on the open market". There was also a covenant against change of user without consent, not to be unreasonably withheld. T found a potential sub-tenant, which would involve a change of use, at a rent of £75,000. L refused consent. The court held that the basic rent restriction was a qualified covenant to which the Act applied and that L had been unreasonable. The expert evidence established that £75,000 was at the relevant time the best rent reasonably obtainable in the market.

However, T lost the claim on a causation point; i.e. that L would have objected anyway to the change of user, in respect of which there could be no claim under the 1988 Act.


What is the rent on the underlease?

Service of the request

Norwich Union Linked Life Assurance Limited v Mercantile Credit Co Limited
[2003] EWHC 3064 (Ch)

Facts

Claim for damages by T against L under the Landlord and Tenant Act 1988. L had refused to consent to Ts request to consent to an underletting. T argued that the refusal had been unreasonable. The lease contained a proviso that the rent to be reserved by the underlease should be a full-rack rent. In its application for consent T had failed to tell L what the rent had been. In its defence L argued that on a true construction of the proviso this made the request for consent ineffective.

Held

The point was unarguable and this element of the defence was struck out. There was no need to imply a term into the proviso that the letter should state the rent; if L had wanted to know he could have asked.

(There was a second point: L argued that T had failed to comply with section 5(2) of the Landlord and Tenant Act 1988, as to service, because the request for consent was served on Ls solicitor. The judge refused to strike out this aspect of the defence. The point was not bound to fail).

Article: A valid application by Sandi Murdoch A comment on Norwich Union v Mercantile Credit. Picks up in particular on the point that service of the request for consent on an agent without authority (in this case a solicitor) is not sufficient for the purposes of s5(2) of the 1988 Act and s23 of the 1927 Act. (Estates Gazette, 21 February 2004, p133).

Underletting to be at market rent

Reverse premium? - Delay

There are here two cases that were part of one on-going dispute:

NCR Ltd v Riverland Portfolio No 1 Ltd
[2004] 16 EG 110.

Facts

The lease required any sub-lease to be granted at a market rent. The proposed sub-lease was at a market rent but in order to induce the sub-tenant to take the lease the tenant offered a reverse premium. L refused consent claiming that the reverse premium constituted a breach of the lease.

Held

The premium was not a breach of the lease. The fact that the inducement was required to get the sub-tenant to enter into the lease did not mean that it would not be paying a market rent.

NCR Ltd v Riverland Portfolio No 1 Ltd (No 2)
[2005] EWCA Civ 312

Covenant not to sublet without consent not to be unreasonably withheld. L refused to consent to Ts proposed subletting. T made two complaints: (i) that there had been an unreasonable delay and (ii) that the refusal was unreasonable. The judge found in favour of T but his decision was overturned in the CA. The case contains a useful summary of the law (paragraph 11 of the judgment) but otherwise essentially turns upon its own facts and the evidence, including expert evidence, before it.

The main question was the reasonableness of the decision to refuse consent. The judge had found in favour of T and the CA found that he was wrong to do so. The fact that the head tenant continued to be liable under the lease was not a reason for ignoring the covenant strength of the proposed sub-tenant.

On the question of the reasonableness of the time taken to give a decision the judge considered that a period of two weeks was sufficient time for a decision once all the relevant information was available. This was criticised by Carnwarth LJ in the CA, para 21:
    "In my view, whatever earlier discussions there had been, Riverland was entitled to adequate time following receipt of the completed application to consider the serious financial and legal implications of a refusal with its advisers, and if necessary to report to the relevant Board. In the absence of special exceptional circumstances, a period of less than three weeks (particularly in the holiday period) cannot in my view be categorised as inherently unreasonable for that process.."

Article: Reversing the trend by Sandi Murdoch Points out how in NCR Ltd v Riverland Portfolio No 1 Ltd [2004] EWHC 921 (the first case) the tenant and sub-tenant used a reverse premium to get round the problem of the landlord forbidding sublettings below the initial rent when the market has declined, highlighted by Allied Dunbar v Homebase [2002] EWCA Civ 6666. (Estates Gazette, 25 September 2004, p133).

Back to top

If you have found this page useful, you may be interested in the following:

Options
Free Summaries £nil
Full Membership From £207 + VAT (1 year)