April 29 2005
The Court of Appeal recently delivered its judgment in NCR Limited v Riverland Portfolio No 1 Limited, which concerned a tenant's application for licence to underlet. The decision provides valuable guidance to both landlords and tenants dealing with such applications.
In any tenancy where the tenant has covenanted not to assign or underlet without the consent of the landlord and such consent is not to be unreasonably withheld, the Landlord and Tenant Act 1988 imposes statutory duties on the landlord: (i) to give consent within a reasonable time, except in cases where it is reasonable not to give consent; and (ii) to serve written notice of its decision including, where appropriate, any conditions for the consent or the reasons for withholding the consent.
NCR (the tenant) had a 25-year lease, which still had 10 years to run. The application for consent was made on June 30 2003. Riverland (the landlord) did not have sufficient information to make a decision until July 28. On August 7 NCR notified Riverland that it required a decision by August 11. Riverland refused consent on August 20.
The rent payable by NCR was £710,000 per year. NCR was permitted to grant an underlease with Riverland's consent provided that the underlease was at "the best rent obtainable in the open market achieved without payment of a premium or other capital consideration". NCR agreed to underlet the premises at £710,000 per year. However, this was coupled with a payment by NCR to the prospective undertenant of a £3 million reverse premium. It was agreed that £710,000 per year was the best rent obtainable.
Riverland refused because (i) the proposed payment of the reverse premium would reduce the rent payable below the level of the best obtainable, and (ii) the prospective undertenant was not of sufficient financial standing.
The issues between the parties were as follows:
The High Court found that Riverland was in breach of its statutory duty, as it failed to make a decision within a reasonable time and refused consent on unreasonable grounds. The court's reasoning was as follows:
Riverland appealed the first and third issues, and won. The Court of Appeal decided that 11 working days was not a sufficient time, following receipt of the properly constituted application for licence, for Riverland to consider the serious financial and legal implications of a refusal with its advisers. In the absence of any special circumstances, a period of less than three weeks - particularly in a holiday period - cannot be categorized as inherently unreasonable for the process. It is in neither side's interest, at least where a refusal is being contemplated, for the decision to be rushed.
Moreover, while it is right to have regard to the fact that the landlord will have the benefit of the tenant's covenant throughout the remainder of the tenancy, undue reliance should not be placed on this. The covenant strength of the prospective undertenant is relevant and may be taken into account, particularly as the prospective undertenant may become the immediate tenant if the underlease is of the whole and attracts the protection of the Landlord and Tenant Act 1954.
The following practical points arise for a landlord:
The following practical points arise for a tenant:
For further information on this topic please contact Martin Wright or Mark Race at Ashurst by telephone (+44 20 7638 1111) or by fax (+44 20 7638 1112) or by email (email@example.com or firstname.lastname@example.org).
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