Applications for Landlord's Consent

Whether you are acting for a landlord or a tenant, it is always important to identify the relevant type of lease covenant when dealing with a tenant’s consent application. The wording of the covenant then needs to be examined in order to assess the level of restriction imposed on the tenant.

Absolute covenants

For example: “Not to underlet the whole or any part of the Demised Premises.”

A landlord has no duty to consider any application from a tenant for consent to an absolutely prohibited activity. If the landlord chooses to consider a tenant’s application despite the lack of any obligation to do so, it is not required to act reasonably and does not need to give reasons for any refusal of consent.

Qualified (fully qualified) covenants

For example: “Not to underlet the whole or any part of the Demised Premises without the consent of the Landlord”.

A qualified covenant prohibits certain activity without the landlord’s consent. Most qualified alienation covenants are converted into fully qualified covenants as a result of section 19(1)(a)of the Landlord and Tenant Act 1927. This would convert the above example covenant into the following:

“Not to underlet the whole or any part of the Demised Premises without the consent of the Landlord, such consent not to be unreasonably withheld.”

So, a fully qualified covenant means that the landlord’s consent is required and is not to be unreasonably withheld.

Hybrid covenants

Lease clauses dealing with alienation are often a mixture of these types of covenants, e.g. a fully qualified covenant against subletting may provide that no subletting is to take place at below open market rent.

Obtaining licences or consents from landlords is a frequent cause of frustration to tenants, and is often one of the points of greatest tension in the landlord/tenant relationship.

Where there is a fully qualified covenant against assignment, subletting etc. (whether express or implied by statute), the landlord owes duties under section 1 of the Landlord and Tenant Act 1988. These require the landlord:

• to give consent, except in a case where it is reasonable not to give consent,
• to serve on the tenant written notice of his decision whether or not to give consent specifying in addition—
  • if the consent is given subject to conditions, the conditions,
  • if the consent is withheld, the reasons for withholding it.

The decision in Blockbuster Entertainment Ltd v Barnsdale Properties Ltd (2003) should focus landlords’ attention on the importance of managing the process of giving consent. In Blockbuster, the landlord’s delay in giving consent to a proposed underletting resulted in the loss of the deal and a damages award of £70,000.

Ominously, Lloyd J concluded in Blockbuster that since there was no good reason for withholding consent, it should have been given within a week after the tenant’s request – a far tighter timescale than the 28 days sometimes suggested by inference from Dong Bang Minerva (UK) Limited v Davina [1996] 2 EGLR 31. However, case-law shows that the relevant timetable will depend on all of the circumstances.

Nonetheless, it is sensible for landlords to try to ensure that the procedures for receiving applications for consent, for considering those applications, and for documenting consent are streamlined and properly communicated to tenants.

Incomplete applications, or applications sent to the wrong place, frequently cause delays, frustration and lost deals.

The initial approach to request consent is often made to the landlord’s solicitor or agent – usually by letter but increasingly by email. Those initial letters will generally describe the proposed transaction but are rarely supported by information of the type that is properly required by the landlord to assess the application.

Tenants who want to help their landlord in dealing swiftly with their application for consent to assign or sublet should therefore look to include references, accounts and other necessary details about the third party – as well as an undertaking to pay the landlord’s costs of dealing with the consent application.

Landlords should try to ensure that the process for making a consent application is clearly set out and properly communicated to the tenant.

The landlord is entitled to know the details of the transaction and to receive full information regarding the covenant strength of a proposed assignee or subtenant. As part of the management information or regulations given to the tenant when the lease is granted, it is sensible for a landlord or its agent to specify the information that will be required with any consent application. The information given to the tenant should include names and addresses of the landlord or its agent, with a direction that applications will be accepted only if sent to the specified address. It should also provide, preferably in checklist form, the information that will be required with the application.

Licences to assign or sublet, along with licences to alter or change use, are essential parts of the title and management pack required for any commercial premises.

In many circumstances, a formal licence will be obtained – for example where the lease is an “old” tenancy and direct covenants are required from the assignee. In others – such as the assignment of a new lease where an authorised guarantee agreement is not required – a simple letter would suffice as the transmission of the benefit and burden of covenants is dealt with by statute. However, a formal licence is usually required by landlords.

A letter approving alterations may be appropriate where either the alterations are minor and there is minimal concern as to how they will be carried out or where the lease contains extensive provisions relating to how the tenant will carry out the work.