Almost all commercial leases contain a clause preventing a tenant from assigning their interest in a lease without the consent of the landlord. The landlord’s consent is usually qualified in that it cannot be unreasonably withheld.
A landlord may have multiple reasons for refusing to consent to an assignation. Examples include the fact that the tenant is in arrears, that the terms of the assignation could hurt its own commercial interests and the assignee is not financially able to perform the obligations under the lease.
It is therefore not uncommon for a landlord to give multiple reasons for refusing to consent to an assignation. What happens if some of these reasons are reasonable, whilst others are unreasonable?
This was the question for the Court of Appeal of England and Wales in No. 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd  EWCA Civ 250. Three grounds were given by the landlord for refusing to consent to the assignation of the lease. Two were reasonable; the third was unreasonable
The court found that the fact that the landlord had a mixture of good and bad reasons for refusing consent to assign the lease did not automatically invalidate the refusal. The key reasoning applied by Lord Justice Lewison was that:
If the decision would have been the same without reliance on the bad reason, then the decision (looked at overall) is good. In that situation, the bad reason will not have vitiated or infected the good one.
He also noted:
“would the landlord still have refused consent on the reasonable grounds, if it had not put forward the unreasonable ground? To put the point another way: the question is whether the decision to refuse consent was reasonable; not whether all the reasons for the decision were reasonable”
This is consistent with the approach adopted by the Scottish Courts. In the 2006 Scottish case of Burgerking v Rachel Charitable Trust it was decided that, as in No. 1 West India Quay, if more than one reason for refusal is given by the landlord, the landlord’s decision is normally upheld if at least one of the stated reasons is valid. This was, however, caveated by the fact that this may not be the case if the differing reasons given are not truly independent of one another, or if the basis of the landlord’s decision is an accumulation of reasons.
The decision in No. 1 West India Quay No. 1 West India Quay (Residential) Limited serves as a useful reminder that landlords must be careful when withholding consent to the assignation of a lease. There may be multiple grounds upon which a landlord wishes to refuse to consent. Some of these grounds may pose a greater risk of being challenged as unreasonable than others. Advice should be sought as to how best to frame objections to assignations. This will be dependent on the facts and circumstances of each particular case.
For advice on the basis upon which a landlord can reasonably withhold consent to an assignation, please contact David Ford or your usual Brodies contact.
On November 14, 2018