UK: Exemplary Damages for Unreasonably Withholding Consent

Originally published September 2004

A recent decision of the High Court¹ illustrates the circumstances in which exemplary or punitive damages for breach of statutory duty may be awarded to a tenant where a landlord is deemed to have unreasonably withheld consent to assignment of a lease.

Section 1(3) of the Landlord and Tenant Act 1988 ("the 1988 Act") provides that when a landlord is served with a written application by a tenant for consent to a transaction he owes a duty to the tenant, within a reasonable time to:

• Give consent unless it is reasonable not to do so.
• Serve on the tenant written notice of his decision specifying any conditions to which the consent would be subject, or reasons for withholding consent.

Pursuant to Section 4 of the 1988 Act, a claim for breach of statutory duty under the 1988 Act may be made the subject of civil proceedings in tort, giving rise to a claim in damages.

The subject premises were demised to the tenant for a term commencing in June 1994 until March 2004. When licence to assign was sought the premises were under-rented as the rent was £100,000 per annum pursuant to the lease, but an open market rental of the premises on a lease granted at that time could have commanded a rent of between £139,000 and £155,00 per annum. The application for licence to assign was made in January 2002 when the residue of the term was two years. The Claimant tenant marketed the residue of the term, accepted an offer of a premium of £75,000 from the proposed assignee and provided financial information and references concerning the proposed assignee to the Defendant landlord. The Defendant, through its agents, made more and more requests for information which resulted in the transaction being protracted. The proposed assignee decided to withdraw from the transaction and the Claimant commenced proceedings alleging breach of statutory duty. Evidence was put before the court that the Defendant’s conduct, through its agents, was tactical as the Defendant could have benefited had the assignment not proceeded.

The Judge considered that in March 2002 the Defendant had all the relevant information to make a decision as to whether to give licence to assign and that this was the latest date when a reasonable time had been given to consider the position. Therefore, the Judge found the Defendant in breach of statutory duty to provide an answer within a reasonable time. He went on to say that the information the Defendant had should have led it to go on to grant licence to assign and that any refusal based on this information would have been unreasonable. The Judge was critical of the handling of the application for licence and found that damages were payable.

The purpose of damages in these circumstances is to put a Claimant in the position it would have been but for the breach of statutory duty. The Judge found that by reason of the breach the Claimant lost the proposed premium and remained liable for the passing rent.

The Judge considered that the conduct of the Defendant satisfied the criteria so as to merit an award against it for exemplary damages. Such awards may be made against Defendants which have acted unacceptably. The Judge decided that the Defendant through its agents acted in a cynical way and he stated that through an award against it of exemplary damages he hoped to discourage the Defendant from similar actions in the future as well as to express disapproval of its conduct. He stated that the calculation of exemplary damages "is not to be done by nice legal principles. It is to be assessed by an appropriate amount, having regard to the general criteria … to mark the displeasure of the court of the Defendant’s conduct….The sum should not be excessive; it should be moderate". Having regard to the circumstances of the case the Judge decided that an award of £25,000 would be appropriate.

• The landlord could have dealt with the application for licence to assign within 2 months.
• The landlord never set out its reasons as to why it was not granting consent and was therefore deemed to have unreasonably withheld consent.
• The landlord did not respond to the application for consent within a reasonable time and made repeated requests for information, but never communicated a decision and never offered even conditional consent.
• The tenant lost a premium from the potential assignee.
• The landlord, through its agents, was found to have acted in a cynical way intended to frustrate the tenant in obtaining an assignment of the lease.

This case provides a useful indication of the approach which the courts are likely to take when considering an application under the 1988 Act and the type of conduct which is to be deemed reasonable, as well as the penalty which may be awarded for conduct which is found to be unacceptable.

© RadcliffesLeBrasseur

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.