Can a landlord refuse consent to a proposed assignment to a new formed company

In Royal Bank of Scotland PLC -v- Victoria Street (Number 3) Limited the Lease contained a covenant that the Tenant should not assign the Lease without the Landlord's consent, where consent was "not to be unreasonably withheld in the case of a respectable and responsible assignee".  The Lease also contained a restriction on the permitted use of the property in question to that of a Bank or as offices with ancillary carparking.

The Tenant applied to the Landlord for consent to assign its Lease to a newly incorporated company that provided professional property services to UK and European clients.

The Landlord responded stating that the assignee was not a respectable and responsible assignee as required under the terms of the Lease. The Tenant issued proceedings for a Declaration that the Landlord had unreasonably withheld consent. The Tenant's claim failed.

The key issue was that the Landlord was required only to show that its conduct in refusing consent was reasonable. It did not have to prove that it was right or justifiable. If it was able to prove that a reasonable person in the Landlord's position could have reached the same conclusion then the Landlord's conduct was deemed to be acceptable.

Of particular interest in this case was the fact that it related to a tenancy granted before the Landlord and Tenant (Covenants) Act 1995 came into force, such that if the assignment had proceeded then the assignor, which was itself a substantial company, would have remained liable for any breaches of the Lease by the assignee.

This might normally have provided a compelling reason why the assignment should be permitted but it seems to have been accepted as part of this case that holding a previous Tenant to account is less satisfactory than compliance by the current Tenant. As such, it would not be satisfactory for the Landlord to have to wait for the new Tenant to default and then chase the previous Tenant for payment of rent and the like possibly on a regular basis.

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25.03.2009