In a difficult financial environment, one way for tenants to free up cash flow is to assign or underlet existing lease agreements to third-parties.
While most commercial property leases state that tenants may not assign or underlet lease agreements without written consent from the landlord, Section 19 of the Landlord and Tennant Act 1927 states that landlords must not withhold consent unreasonably.
There are a number of issues landlords will use to help make a decision on consent, including:
- Does the lease set out the circumstances whereby consent can be withheld?
- Does the lease set out the conditions subject to which consent can be granted?
- What are the likely consequences of refusal on the tenant?
- What are the likely consequences of the assignment on the landlord?
- What facts are known to the landlord to support his/her decision?
- Are the grounds by which the landlord is seeking to withhold consent reasonable?
- Do the grounds by which the landlord us seeking to use to withhold consent relate only to the lease, the tenant or the proposed assignee?
Some commercial leases go even further, stating that such consent must not be unreasonably withheld or delayed, thus ensuring that landlords respond to any such applications in a reasonable timeframe.
But just what is a reasonable timeframe for landlords to consider and inform tenants as to their decisions? If an application is straight-forward this could be as little as two weeks (possibly even less) from the time all relevant information has been supplied. It is crucial therefore that tenants are as prepared as possible as to the type of information that may be required to support an application for consent to assign a lease.
Tenant checklist: points to consider when making an urgent application for consent to assign a lease
- Make sure the application is made in writing and served on the Landlord in a manner set out in the Lease, or if the Lease is silent, served by hand or registered post to the Landlord’s last known place of business or to his duly authorised agent.
- Make sure all supporting documents are included in the application at the same time as the application is originally sent. At the same time ask whether the Landlord requires any further information.
- Explain that the provisions of the 1988 Act apply and the Landlord is obliged to deal with the application within a reasonable time.
- If the application is urgent, state the reasons why.
- Set a deadline when the application for consent must be dealt with and the reasons behind such, taking into account the amount of documentation that the Landlord will have to consider, the covenant strength of the proposed assignee and the time of year when the application is made (if the application is made during a holiday period, this will need to be borne in mind).
- Explain to the Landlord that if it does not consider the application within a reasonable time that you will proceed with the assignment in the absence of consent.
- Create an audit check trail and if you have not heard from the Landlord, contact the Landlord by letter, email and/or telephone. Be resilient.
A landlord must consider all the circumstances relating to an application for consent to assign a lease and if consent is withheld (or indeed any conditions on consent are imposed), reasons for doing so must be supplied in writing.