Senior solicitor Julian Spence, in our Commercial Property team, explains the issues that can occur as a result of granting or withholding landlord content.
If there are no provisions in a lease restricting what tenants propose to carry out within the premises, the general rule is that the tenant can go ahead without consent from the landlord. Landlords therefore often wish to control what their tenants may do whilst in occupation of premises by inserting provisions in the lease stating that the tenant may only do certain things with the landlord’s consent. Landlords should be aware that there can be pitfalls associated with imposing such restrictions including a possible adverse impact on rent review.
Landlords are commonly under an obligation not to unreasonably withhold consent to an assignment or an underletting. This may not be the case if landlords choose to impose absolute prohibitions on alienation allowing them to complete control, or qualified prohibitions where tenants must comply with conditions precedent. If there are no such restrictions in the lease against assigning or underletting without consent, section 19(1) of the Landlord and Tenant Act 1988 provides that landlords are under an obligation not to unreasonably withhold consent unless it is reasonable to do so or to impose reasonable conditions.
Landlords should carefully consider applications for consent to carry out alterations. In the recent case of Duval v 11-13 Randolph Crescent Ltd , the Court of Appeal held the landlord breached the terms of a covenant contained in one lease (requiring the landlord to enforce covenants) by granting consent to a second tenant to carry out alterations that went beyond the scope of what the second tenant was entitled to do.
Landlords who grant consent to a tenant to do something the tenant is not entitled to do could also potentially release a guarantor. Landlords can try to mitigate or avoid this risk by obtaining the consent of any guarantor when granting any such consent to a tenant.
There can be disadvantages for landlords seeking to impose absolute prohibitions in leases. Whilst so doing allows the landlord to retain greater control, it can also have an adverse effect on rent review, run the risk of the landlord breaching a covenant or inadvertently release a guarantor. Careful thought should therefore be given both at the heads of terms and the drafting stage. Landlords should also carefully consider the nature of a tenant application for consent in conjunction with the provisions contained in the lease. Care should be taken not to inadvertently grant consent in any correspondence.
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This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.