UK: A Wake Up Call for Landlords

A tenant applying to a landlord for consent to assign its lease or to sub-let is an everyday occurrence in the commercial world, but a recent High Court decision acts as a reminder to landlords that they must deal with such applications promptly.

In this case (Design Progression v Thurloe Properties) the tenant of a shop in Fulham Road, London found a company that wanted to take an assignment of its lease and who was prepared to pay £75,000 to do so. The tenant applied to the landlord for consent to the assignment of the lease and supplied information about the prospective assignee so that the landlord could decide whether to accept the covenant of the assignee. The landlord continued to ask for increasingly irrelevant information about the assignee and no consent to (or refusal of) the assignment was ever forthcoming. The incoming tenant got fed up waiting and took alternative premises. The existing tenant, who had vacated the shop ready for the new tenant, moved back into the premises in order to mitigate its loss, and had to continue paying the rent under the lease.

The tenant sued the landlord for failing to respond to its application within a reasonable time as the landlord was bound to do under the Landlord and Tenant Act 1988. The Court found that the landlord was in breach of its statutory duty because it had all the information it needed to make a decision whether to grant licence to assign, but it had not communicated a decision to the tenant. The landlord was liable to the tenant in damages to compensate the tenant for the loss of the premium it would have received from the assignee, loss of profit and the rent for the period it was not occupying the premises, and the cost of moving back into the shop. This amounted to £135,000.

It also became clear that, in this particular case, the landlord had operated in a deliberately obstructive and cynical way in order to frustrate the proposed assignment. The landlord was hoping to negotiate a surrender from the tenant at a nil premium and then to re-let the property, but at a significantly higher rent. This was a clear abuse of the procedures under the 1988 Act and to mark the Court's disapproval of the landlord's actions it awarded the tenant a further £25,000 in exemplary damages.

This is believed to be the first time that exemplary damages have been awarded against a commercial landlord in a situation such as this. The landlord's delaying tactics cost it over £160,000. When a landlord receives an application from a tenant for consent to assign or sub-let it must give the tenant written notice of its decision whether or not to give consent (together with any reasons if the consent is withheld) within a reasonable timeframe. What constitutes a reasonable timeframe will depend upon the facts. However, in another recent case the Court held that once a landlord had received all the information necessary for it to make a decision, it should have communicated that decision within one week. The Court also pointed out that if the landlord requires further information to enable it to properly consider a tenant's application, it must not delay in requesting it.

So, if you are a landlord and you receive an application from a tenant for consent to an assignment or a sub-letting, you must deal with the request promptly and decisively. To do otherwise could leave you open to a claim from the tenant for damages and this could cost you dearly.