Lawbite: Assignment - refusing consent costs landlord £214,000

• Real estate dispute resolution
• Real estate sector

24-06-2014

Singh v Dhanji [2014] EWCA Civ 414

When a tenant requests landlord’s consent to an assignment of the lease, one matter which commonly crops up is whether outstanding breaches of the tenant’s covenants amount to a sufficient reason to refuse consent.  The answer is generally ‘no’, and this case is an example of that.

In July 2007, the tenant’s solicitors wrote to the landlord to apply for consent to assign the lease. The landlord had earlier discovered that the tenant had extensively refurbished the premises without his consent.  The work, amounting to some £140,000, involved moving two stud partition walls, replacing all the dental chairs and associated plumbing, replacing the sinks, cupboards and other equipment, removing suspended ceilings and replacing flooring.  The landlord now served a number of s.146 notices alleging breaches of fire precautions, steps taken to prejudice insurance cover, breach of decorating covenants, restrictions on signage and the modification works.  He then wrote to the tenant informing her that his consent to the assignment was conditional upon the breaches specified in the s.146 notices being complied with, among other matters.

Since the lease only prohibited structural alterations, and the county court found that the works carried out were non-structural, the only issue remaining for the Court of Appeal was whether the landlord had unreasonably withheld consent.  The landlord need not have been right in believing there were breaches of covenant, so long as the belief was a reasonable one; to justify refusal, though, the breaches needed to have been sufficiently serious, and the Court held that they were minor in nature and of a kind which would not prejudice the landlord if not remedied until the end of the term. The landlord was held to have unreasonably withheld consent to the proposed assignment and the initial award of £183,000 plus interest of £31,000 to the tenant was upheld.

The case is another example of the established position that a breach of covenant needs to be a serious one if it is to justify a landlord in refusing consent to an assignment,  and a reminder that the imposition of unreasonable conditions by a landlord for its consent to assign a lease will leave it open to substantial claims for damages from tenants. Careful consideration must be given to such applications and all possible grounds for refusal examined in detail to ensure that they are robust, provable and exist at the date of refusal.