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Landlord was entitled to withhold consent for underleases

Posted: 23rd November 2016   In: Commercial Property

A landlord was entitled to require bank references and to impose other conditions before allowing a tenant to assign three underleases on residential apartments.

That was the decision of the High Court in a case involving two commercial property companies.

At the first hearing, the tenant had sought a declaration that the landlord had acted unreasonably in refusing to give consent without bank references for the proposed assignees. It also challenged the landlord's request for a prior inspection to be carried out by a surveyor, at a cost of £350, in order to check whether there had been breaches of the underleases.

The judge found in favour of the tenant. In particular, she held that the fact that the proposed assignees were paying substantial premiums for the leases was sufficient evidence of their financial status, so that bank references were unnecessary.

That decision has now been overturned by the High Court. It held that the relevant test was not whether a bank reference was "necessary" but merely whether a reasonable landlord might have required one before deciding whether to grant permission to assign.

Moreover, the fact that the assignees were paying a substantial premium did not necessarily demonstrate their financial position, since the money might have been provided by way of a gift. A bank reference would have been simple and inexpensive to provide and could not be regarded as an onerous requirement.

The court also held that it was not unreasonable for the landlord to instruct a surveyor at a cost of £350 to check whether the repairing and alterations covenants had been complied with, particularly as the apartments had been let to a succession of short-term tenants.

Please contact Santokh Singh if you would like more information about the issues raised in this article or any aspect of commercial property law.

Posted by: Santokh Singh
Commercial Property
Luton Office