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Dealing with leases: a new protocol for applications for consent to assign and sublet

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16/12/2014

Introduction

It was hoped that the enactment of the Landlord and Tenant Act 1988 (the LTA 1988) would bring to an end the uncertainty that plagued applications by tenants to assign or sublet their premises. Such uncertainty had, prior to the LTA 1988, in the opinion of tenants at least, been exploited by landlords to allow them to delay in granting consent, or giving reasons for refusing consent. In cases where landlords delayed unreasonably, the only recourse available to tenants was to apply to court for a declaration that consent had been unreasonably withheld. Such an application however would be time consuming and the delay could potentially result in the tenant losing its assignee/subtenant. The tenant could, of course, proceed with the assignment/subletting without consent but if it then transpired that consent had been withheld on reasonable grounds, the tenant would be in breach of the lease and potentially liable in damages and the lease itself at risk of forfeiture.

The LTA 1988 imposed positive obligations on landlords in relation to applications for consent to assign, sublet, charge or part with possession, including requirements to give consent (save where it is reasonable not to do so) and to do so within a reasonable time, to give written notice of the decision and to pass applications for consent on to appropriate people. The LTA 1988 has, in the main, achieved the aim of redressing the balance between landlords and tenants and the threat of an action for damages from a tenant unfairly prejudiced by a landlord’s delay in providing consent has provided an incentive to landlords to process applications in a timelier manner.

Whilst the LTA 1988 certainly improved the position in relation to applications for consent, it is not without its issues and a plethora of case law has arisen in relation to interpretation of its various provisions. As such, the position from both parties point of view is not necessarily as clear as it could be.

Aims of the Protocol

As a result of this residual uncertainty, Falcon Chambers and Hogan Lovells International LLP have developed a protocol for applications for consent to assign or sublet leasehold interests in commercial property that is located in England or Wales (the Protocol).

The protocol is not mandatory and nor does it comprise an exhaustive list of requirements which would be applicable in all circumstances. It aims to set out best practice and the authors hope that its use will help to both avoid disputes between landlords and tenants and resolve any that do arise. It is designed to be used in conjunction with provisions in the new Model Commercial Lease and the Code for Leasing Business Premises and the intention is that the Protocol would be incorporated into leases as code that the parties agree to be bound by. The Protocol is described as having three purposes:

  • To improve communication between landlords and tenants in relation to applications for consent and to establish a timetable that allows landlords sufficient time to fully consider applications but gives tenants some certainty that their application will be dealt with within a reasonable timeframe.
  • To avoid arguments with regard to the information and documentation that should form the basis of the tenant’s application and period in which the landlord ought to provide a decision.
  • In the event that disputes do arise, the Protocol guides the parties towards alternative dispute resolution in the form of arbitration or mediation with recourse to the courts being a last resort. Speedy resolution of disputes is in the interests of both parties; from the tenant’s perspective it either allows it to proceed with the deal as soon as possible or gives it certainty that it can’t and from the landlord’s point of view it mitigates the risk of liability under the LTA 1988.

Detail of the Protocol

It should first be noted that the protocol is only designed to apply to applications for consent to assign or sublet a lease. It does not apply to any other application under the lease, for example, an application for consent to alterations.

The application

The protocol confirms that any application for consent to assign or sublet should be in writing and should specify the following:

  • Whether the tenant proposes to assign or sublet the whole or part of the premises (and if a part, which part).
  • Identify the assignee or subtenant and any guarantor that is being provided.
  • Provide sufficient information about the assignee or subtenant to enable the landlord to consider the application including, where relevant:

– Details of their trade or business;
– If they’re a company their company number and registered office;
– If they’re an individual, character references;
– Bank and/or accountants’ references; and
– In the case of an assignment, information that is sufficient to demonstrate that the assignee and any guarantor can comply with the tenant covenants in the lease (for example the last three years’ accounts).

  • Provide the information referred to above in relation to any guarantor.
  • Details of the proposed use of the premises.
  • In the case of a subletting, provide a draft sublease or sufficient information about its terms.
  • Provide a solicitors undertaking in respect of the landlord’s reasonable and proper legal and professional costs associated with the grant of consent.
  • Confirm whether there are any circumstances which make the application for consent particularly urgent.
  • Provide to the landlord and other pertinent information which could impact on the landlord’s decision.

This list is not designed to be exhaustive and the tenant must, when making its application, take into account all of the circumstances and consider what information the landlord might require. All information should, ideally, be provided in one package and should be served on the landlord in accordance with the terms of the lease. Where possible, a copy of the information ought also to be served on the landlord’s managing agents.

Further information

The landlord should, within 5 working days of receiving the application, respond to the tenant to confirm receipt. If the landlord is of the belief that the application does not contain sufficient information for a decision to be reached, or further time is reasonably required to deal with the application, the landlord should notify the tenant in its response. If the landlord is itself required to make an application to a superior landlord it should attempt to serve on that party a copy of the application and supporting documents within 5 working days of receipt from its tenant.

Where further information is requested by a landlord the tenant should try to supply that in one single package, as soon as reasonably possible and in any event before the original information that it supplied becomes out of date.

Landlord’s decision

The landlord should deal with the tenant’s application expeditiously and provide its decision and reasons for it to the tenant in writing with a reasonable time of receiving the application (and any additional information reasonably requested). Ideally the decision should be provided within 21 days of receiving the application but what constitutes a reasonable time will depend on the circumstances of the case in question, including the type and quantity of information provided and requested, the speed with which the tenant responds to requests for information, any particular time limits binding the tenant and the complexity of the transaction.

It should also be noted that generally, the landlord should not assume that a new 21 day period begins when the tenant provides any further information that it has requested.

Alternative dispute resolution

If the tenant believes that the landlord has unreasonably withheld or delayed the provision of consent the parties should then consider whether some form of alternative dispute resolution would be more suitable than litigation and attempt to agree which form to adopt.

If, the parties cannot reach agreement after complying with protocol then court proceedings should be commenced as a last resort.

WM comment

Even before the Protocol was issued a well advised tenant would, when making an application for consent, provide the landlord with all pertinent information to enable it to fully consider its position. The Protocol does not therefore break new ground as such. It is however a useful reminder of how applications for consent to assign or sublet should be approached and, if its use becomes standard in the industry if may achieve its aim of speeding up the process of obtaining consent.

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