One of the major differences between owning a freehold property and being a tenant under a commercial lease is the freedom to deal with or make changes to the property. If a commercial tenant wants to assign or sublet, carry out works or change the use of the let property, the chances are they will need to ask their landlord for permission.
Do I need landlord's consent?
The starting point is always the wording of the lease, but it's essential to understand this isn't always where the matter ends. Most modern commercial leases will restrict a tenant's ability - either absolutely or not without landlord's consent - to assign or sublet the property, carry out alterations or change use. However, there may be agreed exceptions to this position where a tenant may be allowed to, for example, share the property or carry out some alterations, without requiring landlord's consent. There are also statutory and common law rules which can override the wording of the lease.
Applying for consent
If consent is required, the application needs to be communicated to the landlord in the manner provided for by the lease and by the appropriate person. Adverse consequences can result from, for example, sending an application to the landlord's agent by email when the lease requires service on the landlord at its registered office or a third party applying for consent.
The application should contain all relevant information to enable the landlord to make an informed decision, including full details of any proposed assignee, new use or alterations. There are useful protocols that can be followed when making an application for consent to assign/sublet or carry out works. These are found here.
Can the landlord withhold consent?
This is the most complicated area. Once again, the starting point is the lease, but statute may imply wording which alters the position. Generally, if the lease absolutely prohibits something, the landlord has absolute discretion on the matter.
Where something is allowed subject to landlord's consent, the question arises as to whether the landlord must act reasonably in considering the application. Usually this will be expressly spelt out in the lease, but if not, it may be implied by statute. It is easier to consider the three main types of consent application separately.
- Assignment/subletting: The landlord cannot unreasonably withhold its consent, whether or not the lease expressly says that.
- Alterations: In the case of most alterations (termed "improvements"), the landlord cannot unreasonably withhold its consent, whether or not the lease expressly says that.
- Change of use: Unless the lease provides that landlord's consent is not to be unreasonably withheld, the landlord will have absolute discretion in considering whether to grant consent.
Assuming the landlord must act reasonably, the next step is to consider whether there is anything in the lease which allows the landlord to sidestep any question of reasonableness.
Once the above hurdles have been cleared, and it is established that the landlord is to act reasonably, then their decision, and any conditions imposed, must be reasonable. The basic position is that the landlord cannot refuse consent (or impose conditions) on grounds that have nothing to do with the landlord and tenant relationship. Each case will be heavily fact dependent.
What if the landlord unreasonably withholds consent?
Both the remedies, and the burden of proving whether the landlord has acted unreasonably, can differ depending on the type of consent sought. This is a complex area and professional advice should always be sought if a dispute arises.
Will I have to pay?
The lease will almost certainly require the tenant to pay the landlord's reasonable legal fees for considering the application and documenting any consent. If the tenant is appointing its own legal representative, it will be paying their fees also.
Documenting the consent
This depends entirely on what the lease says. If the lease requires only that consent be given "in writing", an email may suffice. Modern well drafted commercial leases will require consent to be given by deed in a formal licence. The licence will set out the terms of the consent, the parties' respective rights and obligations and any interaction with (or variation of) the lease, for example the effect of works on rent reviews. A well-advised landlord will also want any guarantor of the tenant to be a party and to guarantee the tenant's obligations in the licence.
Are other consents required?
It is important to consider whether the consent of other parties is needed. This may include a superior landlord, mortgagee or the beneficiary of a restrictive covenant. If building works or a change of use are being considered, these may require planning permission or building regulations consent. Depending on the nature and location of the property and the circumstances of the consent being sought, other consents may also be required.
Clearly this is a complex area and the above is by no means a comprehensive summary of the relevant background law and considerations. If you have any questions on the above or require advice in this area, please contact our real estate team.
Daryl Rivero
Jack Lightburn