Landlord’s refusal of consent to assignment: what if there are good and bad reasons?

Landlord’s refusal of consent to assignment: what if there are good and bad reasons?

A tenant applies to the landlord for consent to assign, where the landlord is not entitled unreasonably to refuse consent. The landlord refuses consent on three grounds. Of those three grounds, two are reasonable; the third is unreasonable. Is the refusal of consent valid?

The answer was revisited and summarised again in the Court of Appeal’s recent decision in No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2018] EWCA Civ 250 (21 February 2018).

Here, the three grounds for refusal were, first, a failure to give an undertaking to pay certain legal and surveyor’s costs for the licence to assign, the tenant saying that the fees sought were too high; second, a failure to provide an undertaking allowing a landlord’s inspection to check that there were no breaches of the lease; and, third, refusal to provide a bank reference to assess the covenant strength of the proposed assignee.

Based on the evidence, the refusal to grant consent relating to the costs issue was unreasonable, while the refusals relating both to the inspection and the need for a bank reference were reasonable.

The law on this point based on earlier cases has been summarised as follows:

“If the landlord has a good and a bad reason for withholding consent, consent may nevertheless have been reasonably withheld if the good reason is a sufficient reason and is not otherwise vitiated by the bad reason. However, there may be cases where the real reason for refusal is a bad one, and the good reasons are no more than makeweights, or where the bad reason vitiates the good one. In the absence of such factors, the landlord is entitled to rely on his good reason.”

If the good reasons are freestanding, and not dependent on the bad reason, there will have been no infection of the good by the bad. This proposition, that a bad reason will not “infect” or vitiate a good one is consistent with other areas of law. So, for example if you allege breach of contract for both good and bad reasons, your reliance on a bad reason will not invalidate your reliance on a good one.

But what is really meant by a bad reason infecting a good one? The conclusion was that if the decision would have been the same without reliance on the bad reason, then the decision (looked at overall) is good. In that situation the bad reason will not have vitiated or infected the good one.

To illustrate why this point of principle makes sense in practice, the Court of Appeal gave the example of premises let at open market value for a significant annual rent. On the tenant seeking consent to assign, the landlord refuses on the well-reasoned ground that the tenant would be unable to pay the rent, but also refuses on the unreasonable ground that his costs would be £1000, when in fact a reasonable sum would be £750. It would be draconian to saddle the landlord with a tenant who might not be able to pay the rent, simply because his demand for costs was £250 too high.

Before coming before the Court of Appeal, the High Court judge had stated that there was no indication that the landlord, West India Quay, in respect of its unreasonable costs demand:

“…. would have modified its position … even if [the tenant] ETAL had agreed to provide bank references and to pay for inspection by a surveyor. I therefore think [ETAL] is right to submit that in this case the bad reason vitiated the two good ones, with the consequence that West India Quay’s success on those two matters is not enough to render the refusal of consent reasonable.”

However the Court of Appeal held that this had been the wrong question to consider. The question was not: would the landlord have maintained the unreasonable reason if the reasonable conditions had been complied with?

Rather it is: would the landlord still have refused consent on the reasonable grounds, if it had not put forward the unreasonable ground? To put the point another way: the question is whether the decision to refuse consent was reasonable; not whether all the reasons for the decision were reasonable.

Where, as here, the reasons were free-standing reasons each of which had causative effect, and two of them were reasonable, the decision itself was reasonable.

William Lawrence