Modern commercial leases in England and Wales generally make provision for a tenant to obtain the consent of its landlord when it would like to do something that could materially impact the landlord or the property. The lease provision often sets out the conditions to be met by the tenant, as well as what the landlord should take into account in considering the request. In the case of alienation covenants (such as requests to assign the lease to another tenant) where the tenant is required to obtain landlord consent, the landlord must not unreasonably withhold such consent.
Whether or not a landlord has acted reasonably in refusing consent will depend upon the circumstances of each case. There is no "one size fits all" definition of reasonableness, and each case will turn on its own facts.
The recent High Court decision in MMI Properties (Wilmslow) Ltd v Shepherd has added to this body of case law, with a finding that a landlord who acts too soon in reaching a decision to withhold consent to assign will be found to have unreasonably withheld such consent – even in circumstances where it would have been reasonable to do so in the future.
The tenant of a wine bar in Cheshire applied (20 August 2021) to the landlord to assign its lease to another tenant. The landlord acknowledged service of the tenant's application on 2 September and replied, raising a number of unparticularised issues. Despite requests from the tenant's solicitor, no clarification as to what the issues were was provided – instead the tenant was simply referred to earlier correspondence.
The landlord raised further queries regarding the covenant strength of the proposed assignee, demanding responses by 5pm that day. The tenant responded confirming the information would be obtained, but did not provide the substantive information within the required timescale.
On 7 September, the tenant requested that a decision be made if the landlord was not prepared to discuss the application. The landlord refused consent that day, citing the alleged poor covenant strength of the proposed assignee.
The High Court found the landlord to have acted unreasonably in withholding consent, as it had made its decision too soon. Had the landlord waited, however, and obtained the necessary information allowing it to make an informed decision, then it may have been acting reasonably where that additional information did not improve the proposed assignee's covenant strength.
It is yet to be seen whether the landlord will appeal the decision; if it does, an update will be provided as necessary. Regardless, this case stands as a salutary lesson to commercial landlords of the risks posed by failing to give a tenant a fair hearing of its application for consent.
If you are a commercial landlord or tenant dealing with or required to respond to landlord-consent requests under a lease or, you have any concerns or queries about how these issues may impact you or your business, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies' contact.