If you are a tenant of commercial property, how should you compile an application for landlord’s consent to assign or sublet?
The quality of the application will influence the time taken to give consent and the likelihood of consent being given.
As a corollary, if you are a landlord of commercial property, how should you respond to such an application and, importantly, reduce the risk of either having to consent to an unwelcome application or even worse, having to defend proceedings brought by a tenant?
In leases of commercial properties, it is usual for the lease to provide assignments or sub-letting of such properties is prohibited under the terms of the lease save where the landlord has given prior consent.
The Landlord and Tenant Act 1927 provides, in section 19(1), that where a lease contains a tenant covenant against assigning or sub-letting without consent, the covenant is deemed to contain an additional proviso that such consent is not to be unreasonably withheld or delayed.
Moreover, under the Landlord and Tenant Act 1998, where a lease contains a covenant by the tenant not to assign or sub-let without the consent of the landlord, such consent not to be unreasonably withheld, the landlord owes a duty to the tenant to respond within a reasonable time.
The Landlord and Tenant Act 1988 allows a tenant
- To apply to court for a declaration the landlord has acted unreasonably and
- To claim damages as a result.
Applications for such consents are often made in a haphazard way. The tenant is unsure what information to send to the landlord. The landlord is worried even though essential information is missing, he will be forced into a decision for fear of proceedings.
A new website – Property Protocols – attempts to address these difficult issues. It can be found at http://www.propertyprotocols.co.uk/.
It is a free resource to the property industry created by Guy Fetherstonhaugh QC and Jonathan Karas QC of Falcon Chambers and Nicholas Cheffings and Mathew Ditchburn of law firm Hogan Lovell.
The authors hope the protocols suggested by them will be adopted by the property industry and, in the context of applications for consent to assign or sublet, the purpose of the protocol is
To improve communication between landlord and tenant and establish a workable timetable
To avoid arguments as to the information and documentation that should form part of any application and
In the case of disputes, to guide the parties to alternative dispute resolution.
For example, in connection with the application, the Protocol recommends it should be in writing and should
- Specify whether the tenant intends to assign or sublet (and whether to sublet the whole or part)
- Identify the third party (here meaning the assignee or sub tenant) and any guarantor
- Provide sufficient information about the third party including references, accounts and business plans
- Provide details of the proposed use and any alterations
- Provide an undertaking for the landlord’s costs
- And provide such other information as may be pertinent to the application.
This list is non-exhaustive.
The landlord should
- Acknowledge receipt within 5 working days
- At the same time notify the tenant if further information is required and whether the landlord needs time to ascertain whether further information is required
- Where the landlord is itself a tenant, and the terms of its lease require it to seek the consent of any superior landlord, to pass on such application to the superior landlord.
If the landlord seeks further information, it must be supplied by the tenant as soon as possible.
However, the Protocol reminds the landlord that it should deal with the application expeditiously and communicate its decision and reasons to the tenant in writing within a reasonable time of receiving the application and any further information reasonably requested.
The Protocol suggests the landlord should communicate its decision within 21 days of receiving the tenant’s application. What constitutes a reasonable time in every case depends upon the circumstances of the application – for example, the urgency of the application (in cases where the tenant is trying to save a business) or complexity (a corporate restructuring).
Finally, if the tenant believes the landlord has unreasonably withheld or delayed its consent, the Protocol recommends the parties consider whether some form of alternative dispute procedure is more suitable than litigation in the courts. Options would include referring the dispute to expert determination by an independent third party.
It will be very interesting to see if the Property Protocol is adopted by the property industry. It contains useful checklists which can be adopted by landlords and tenants alike. Further Protocols are planned, and we shall comment upon them after they are published.
Written by Mark Sellers
PRINCE EVANS SOLICITORS LLP
Direct Line: 020 8799 1840
Fax Number: 020 8840 7757
Mobile: 07768 714265