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No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2016] EWHC 2438 (Ch)

14 December 2016

Facts

The tenant held 999 year underleases of 42 apartments in a 33 storey building. Each underlease contained a covenant not to assign the whole of the property without the prior written consent of the landlord, such consent not to be unreasonably withheld.

The tenant decided to sell its apartments. It brought proceedings against its landlord for declarations that the landlord had unreasonably withheld consent in relation to two apartments and had unreasonably delayed consent in relation to one other.

Issues

  1. In relation to the two apartments, was it unreasonable for the landlord to ask for a bank reference in respect of the relevant proposed assignees?
  2. In relation to the two apartments, was it unreasonable for the landlord to require an undertaking for £350 plus VAT to cover the costs of a surveyor inspecting the relevant properties and to require such inspections as part of its consideration of the relevant applications?
  3. In relation to the two apartments, was it unreasonable for the landlord to require an undertaking for £1,250 plus VAT to cover legal fees in respect of the relevant licences to assign?
  4. In relation to the one apartment, had time started to run (for the purpose of deciding whether the delay was unreasonable) where the tenant’s application for licence to assign was sent by letter to an address given by the landlord for that purpose (in a sales pack), rather than to the landlord’s registered office (as required by the lease for the service of notices)? This was significant because although a subsequent application had been correctly sent to the landlord’s registered office, the period of delay between receiving that second application and giving consent was not unreasonable.

Decision

  1. A landlord could not be expected to speculate about the financial position of a tenant on the mere basis that he had the funds to acquire the apartment. The reassurance which the landlord was entitled to seek was that the relevant covenants would be complied with. It was reasonable for a landlord to seek reassurance about the ability of an assignee to pay the service charge and to ask for a simple bank reference stating that the assignee was good for the estimated amount.
  2. It was not unreasonable for the landlord to instruct a surveyor when the issue was whether there had been compliance with the repairing and alterations covenants in the relevant underleases, especially as neither apartment had been occupied by the tenant (but had been let to a succession of short-term occupiers). Before deciding whether to grant consent to the relevant assignments, the landlord was entitled to find out whether the relevant covenants had been complied with and, if not, whether the breaches were minor and easily remediable.
  3. It was unreasonable for the landlord to require payment of legal costs of £1,250. A reasonable fee should be assessed by reference to what would need to be done in a typical case or what was in fact done in the particular case under consideration, not by reference to a list of everything that could conceivably be done. A covenant requiring consent should not be used as a source of profit by landlords or managing agents. Here there was no evidence to suggest that the licences cost the landlord more than £350 each.
  4. The provisions of the Landlord and Tenant Act 1988 (LTA 88) [which place a duty on a landlord to consent to a tenant’s application for consent to assign within a reasonable time, unless it would be reasonable not to do] are not engaged even though a landlord knows about an application and is discussing it with its tenant, until an application for licence to assign is properly served on a landlord in accordance with the terms of the relevant lease.

Points to note/consider

  1. Although the judge decided that two of the reasons for the landlord withholding consent here (in relation to the two apartments) were reasonable, there was no evidence to suggest that the landlord would have modified its position on its fees, even if the tenant had accepted the landlord’s other conditions. The judge considered that this tainted the landlord’s other legitimate reasons for refusing to grant consent, meaning that, overall, the refusal of consent was unreasonable.
  2. The decision here on the unreasonableness of the landlord’s legal fees may not be much help to commercial tenants faced with four figure demands for legal costs for a simple licence to assign. The decision was based on paragraph 2 of schedule 11 of the Commonhold and Leasehold Reform Act 2002, which provides that a variable administration charge (which includes sums payable by a tenant of a dwelling for or in connection with the grant of approvals under a lease) is payable only to the extent that the amount of the charge is reasonable. There is no equivalent specific statutory provision for commercial tenants. Also, there was no authorised guarantee agreement or fresh guarantee here and the judge expressly acknowledged that when assessing the reasonableness (or otherwise) of legal costs, there was a difference between the costs for ‘one-off’ individually negotiated licences and those for repetitive licences as in this case (the landlord had a standard form of licence which was used on all assignments in the block).
  3. The judge’s decision on starting time running under the LTA 88 is extremely harsh, but it was founded on precedent (the 2012 decision of E.ON UK Plc v Gilesports Ltd). The judge felt that the serious legal consequences that flow from a failure to comply with the provisions of the LTA 88 meant that the process of application and decision should be subject to a reasonable degree of formality. It is very important therefore to check the notice provisions in a lease and to serve a request for landlord’s consent on the landlord formally in accordance with that provision (even if there must be some doubt whether an application for consent can truly be described as a ‘notice’).

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

David Harris

David Harris

Professional Development Lawyer

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