The relationship between commercial landlords and their tenants is complex. In many cases their interests are diametrically opposed and never more so than when the tenant wishes to leave before the end of the lease.
The majority of commercial leases will be for a fixed term and sometimes the tenant wants to leave while there are still several years left to go. In practice, what this means is that the tenant must find a replacement and assign the lease to them. Needless to say, the landlord will be keenly interested in the nature and creditworthiness of the new tenant.
This process can be entirely painless. The new tenant may be as good as the old, and the old tenant may only be moving because their success requires expansion to larger premises.
Most leases will include a clause restricting the assignment of the lease. In rare cases this may be absolute. More commonly, the consent of the landlord is required. This is usually specified as “not to be unreasonably withheld” but even if the wording is not used, the landlord’s consent must be exercised reasonably or the tenant may be given a free hand.
In the recent case of No 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd, the lease permitted assignment with consent and the landlord applied conditions to that consent being granted, firstly that the incoming tenant provide bank references, secondly that the landlord was able to inspect the premises, and finally, that the tenant pay the landlord’s costs, set at £1,600 plus VAT. The tenant objected and the matter ended up in court.
The court considered it was entirely reasonable for the landlord to investigate the financial position of the incoming tenant. Likewise it was reasonable for the landlord to inspect the property to ascertain that the outgoing tenant had complied with its duties and not, for example, let the property fall into disrepair or made unauthorised alterations – matters that it is far harder to take up with a new tenant not actually responsible for them.
However, the court ruled that the final condition was unreasonable because the sum sought was disproportionate in the circumstances, and on that basis found for the tenant.
The impact of this went beyond simply forcing the landlord to give up its costs. The court’s decision meant that the landlord’s other objections – that would be considered reasonable – were also swept away, leaving the tenant free to assign to its chosen subtenant with neither references nor inspection. The landlord’s consent was therefore no longer a factor at all. If the landlord had limited its requirements to the first two points, or even simply sought a lower sum for its costs, then it would have retained some measure of influence on the assignment process.
The Property Litigation Team at Blacks can provide advice and assistance on any property related matter. Please contact Luke Patel on 0113 227 9316 or email him at “LPatel@LawBlacks.com”.