The case of No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd surprised the legal profession in 2016 when the court held that one bad reason for refusing consent to assign a lease effectively trumped two other good reasons, making the landlord’s refusal unreasonable.
This decision provides some welcome pragmatism for landlords, residential and commercial alike, but care still needs to be taken when considering possible reasons for refusing consent, to ensure the decision is reasonable.
Best practice for refusing consent
- Always make sure the reasons for refusing consent are related to the landlord and tenant relationship and the subject matter of the lease
- It will be reasonable to refuse consent or impose conditions if otherwise the proposed assignee would have an adverse effect on the landlord’s rights and interest in the property or in its estate as a whole
- Ensure any refusal is notified to the tenant in a reasonable time, giving the reasons for the refusal. This will be a matter of a few weeks, but will differ depending on the facts of the case and may depend upon how quickly the landlord is provided with all relevant information to allow him to evaluate the application properly
- If there is insufficient information about the assignee either the application for consent to assign should be refused promptly or requests for financial and other information must be made speedily.
In the case, the tenant, East Tower, sought consent from its landlord, West India, to assign its interest in three apartments. West India withheld its consent to two of these applications on grounds that it had not received undertakings for its legal fees or for the cost of carrying out inspections of the apartments and it had not received a bank reference to enable it to assess the assignee’s covenant strength. The High Court held that the legal fees requested were excessive for a residential application and that this one bad reason overruled the two good reasons, thereby making West India’s refusal unreasonable overall.
The Court of Appeal disagreed and held that if the good reasons were independent of the bad reason then the bad reason should not “infect” the good. The vital question is whether the decision to refuse is reasonable not whether all the reasons were reasonable.
In this case the reasons were independent of each other and two of them were reasonable. The landlord would have refused consent on the reasonable grounds in any event. As a result the Court held that the decision to withhold consent was reasonable.