UK: Singh V Dhanji (Consent To Alienation)

Last Updated: 21 May 2014
Article by Georgina Redsell

The Court of Appeal recently considered an appeal from a claim against a landlord for damages for breach of his statutory duty arising out of his refusal to consent to the assignment of a lease of dental premises in Nottingham: Singh v Dhanji and Dhanji [2014] EWCA Civ 414. The Trial Judge had granted a declaration that the landlord's conditions for permitting the tenant to assign the lease were unreasonable and awarded the tenant damages of £183,000 plus interest of £31,000.

The Facts

The landlord let the premises for a 15 year term from 10 March 2000. A number of disputes had arisen between the parties prior to this one, including a claim by the tenant for breach of warranty in relation to the sale. In addition, rent had not been paid by the tenant for more than a year because the landlord had closed the account to which the rent was to be paid. The landlord then forfeited the lease by peaceably re-entering the property in the evening, changing the locks and turning off the electricity. This resulted in a successful application by the tenant for an injunction to restore her to possession and later an order for relief from forfeiture.

Whilst peaceably re-entering the property, the landlord noticed that the tenant had carried out extensive refurbishment works. The works were carried out in 2004 at a cost of around £140,000 and the tenant did not tell the landlord about them at the time. On 26 July 2007, the tenant's solicitors wrote to the landlord asking for consent to an assignment. The landlord responded on 7 August 2007 to say that he was preparing notices in relation to breaches of the lease and that until these breaches were resolved no assignment would be approved. On 23 August and 9 September 2007, the landlord served a number of section 146 notices on the tenant. On 17 September 2007, the landlord consented to the assignment on various conditions - including that all of the breaches of the lease specified in the section 146 notice were remedied.

The tenant responded by saying that she denied breaches but even if the breaches complained of were genuine they were of such a minor nature that they should not adversely affect the value of the landlord's interest in the property. On 24 September 2007 the landlord brought a claim for possession based on the section 146 notices. Shortly afterwards the tenant brought a claim for a declaration that she was entitled to damages for unreasonable refusal of consent to assign.

The Law

Section 1 of the Landlord and Tenant Act 1988 provides that where a lease contains a covenant not to assign, underlet, charge or part with possession of the property and it is subject to a qualification that consent should not be unreasonably withheld then the landlord owes the tenant a duty, within a reasonable time, to: (i) give consent (except where it is reasonable not to give consent); and (ii) serve the tenant with written notice of the landlord's decision specifying any conditions (if consent is given subject to conditions) or any reasons for refusal, if consent is withheld.

The burden of showing that the conditions of the consent were reasonable fell on the landlord. It was argued on his behalf this did not mean having to show that his reasons were right or justifiable but just that they were conclusions that might be reached by a reasonable person in the circumstances. It was accepted on behalf of the landlord that the mere fact that the landlord is able to identify a breach of covenant does not mean that he is reasonable to refuse consent. The question is whether the breach of covenant is of such a nature so as to justify the refusal of consent to assign, which involves a consideration of the nature and gravity of the breaches complained of.

The Decision of the Trial Judge and Court of Appeal

The breaches complained of in the section 146 notices included breaches of fire precautions, steps taken to prejudice insurance cover, breach of decorating covenants and restrictions on signage and the refurbishment works. The Judge found that none of the alleged breaches were proven and declined to make an order for possession. The Judge also considered whether the conditions imposed by the landlord on his consent to the assignment were reasonable. In doing so, the Judge noted that the reasonableness or unreasonableness of refusal depends upon the degree of seriousness of the breach and on whether the landlord's position is prejudiced by the assignment. The Judge found that the breaches of covenant alleged were not serious enough to have provided reasonable grounds for imposing a conditional consent that they were remedied, even if the breaches had been proven. The Court of Appeal was satisfied that the Judge had sufficient basis for holding that the refusal of consent was unreasonable. They noted that the Judge was well aware that the landlord raised no objection to the identity of the proposed assignee. In addition, most of the alleged breaches were ones which, even if they were proven, could be taken up with the new tenant. Other breaches were trivial and minor in nature. The Court of Appeal found there was nothing in the findings of fact by the Trial Judge which the Court should interfere with.

Conclusion

This case is a useful reminder of the approach which a landlord is obliged to take when responding to an application for consent to an assignment. The burden will be on the landlord to show that any conditions or reasons for refusal are reasonable. Trivial breaches of lease which cause no real prejudice to the landlord are unlikely to be regarded as sufficient grounds for withholding consent.

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.

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