If a commercial lease permits assignment with the landlord's consent (which the vast majority of leases do), then it is implied by statute that such consent cannot be unreasonably withheld.
If a tenant makes an application for licence to assign then the landlord has a number of statutory duties under the Landlord and Tenant Act 1988. The Act obliges the landlord to:
(a) Give consent, except where it is reasonable not to;
(b) Give consent within a reasonable time;
(c) Give the tenant written notice of the decision, including specifying any conditions attached to the consent and giving reasons for any refusal; and
(d) Pass on the application to anyone else whose consent is needed (this would normally be a superior landlord, but can in some circumstances also include a mortgagee).
These statutory duties are owed by the landlord to the tenant, and not to an assignee or guarantor.
Examples of situations where the Courts have found a landlord to be unreasonably withholding consent include:
(a) Refusal on grounds that have nothing to do with the landlord and tenant relationship;
(b) Refusal based on outstanding tenant breaches of covenant - the question is simply whether the landlord's interest would be prejudiced by consenting to the assignment;
(c) Not giving the decision in writing to the tenant; and
(d) The landlord seeking to profit from the assignment or better the terms of the lease.
A landlord is entitled to reasonably refuse consent and the onus falls on the landlord to prove they are acting reasonably. Examples of situations where the Courts have found a landlord to be acting reasonably in withholding consent include:
(a) The proposed guarantor cannot meet all of its contingent liabilities, not just its liabilities under the lease;
(b) Damage to the reversionary interest;
(c) The proposed assignee is a group company of the tenant; and
(d) Legitimate concerns about the assignee's financial standing.
The landlord must not unreasonably delay its decision following the tenant's application for licence to assign. The Courts have held a period of two weeks to be reasonable, whilst periods of seven weeks and of four months have been found to be unreasonable.
The time for the landlord giving their decision starts running from the correct service of the application on the landlord. For tenants this means it is very important to check the landlord's address for service, both in the lease and also at Companies House if they are a company.
The Landlord and Tenant (Covenants) Act 1995 allows the parties to agree within the lease certain conditions that a landlord may attach to any consent to an assignment. Examples of such conditions include the requirement for an authorised guarantee agreement from the outgoing tenant or (if reasonable) the requirement for either a guarantor or rent deposit.
First, if the tenant is absolutely certain of their case they could proceed anyway and transfer the legal estate in the premises in breach of the lease restrictions. However, if the landlord is reasonably withholding or delaying consent then the landlord's options in respect of the breach of the lease could include a damages claim and/or forfeiture.
Secondly, the tenant can apply to Court for a declaration that consent is being unreasonably withheld or delayed. If the declaration is granted the tenant can proceed without the landlord's consent (if, of course, the assignee is still on the scene).
Finally, the tenant could seek damages from the landlord for breach of the landlord's statutory duties. The tenant would have to show they had suffered a loss as a result of such breach of duty.
It is important that both landlords and tenants are aware of their obligations and rights when a tenant wishes to assign its lease. Here at VWV we have a specialist team of commercial property lawyers who are experienced in dealing with lease assignments on behalf of both landlords and tenants.