Both landlords and tenants need to know what is ‘reasonable’ when a landlord considers withholding consent. Most commercial leases contain a provision that the tenant can only assign or sublet his or her interest with the consent of the landlord, such consent not to be unreasonably withheld. Given the importance of this issue, it comes as no surprise that there is a considerable body of case law on this point and that disputes still go to court.
Singh v Dhanji: the facts
In Singh v Dhanji and another  EWCA Civ 414 the Court of Appeal considered whether or not a landlord had unreasonably refused to consent to the assignment of a lease of dental premises in Nottingham. At first instance, the tenant had shown that consent was unreasonably refused and succeeded in obtaining an award of damages of £183,000.
The appellant, Mr Singh (referred to as ‘Mr Buddha’ by the judge and by the Court of Appeal) was a dentist. In 2000 he let out the property to the respondent, Mrs Dhanji. In July 2007, Mrs Dhanji wrote to apply for consent to assign the lease to a proposed purchaser. Mr Buddha wrote back complaining of breaches of the leases, stating that until these were resolved he would not agree to an assignment.
Mrs Dhanji denied the breaches. She also argued that, in any case, even if the breaches were proven they were so minor as to make a refusal to consent to the assignment unreasonable.
At first blush the typical covenant ‘such consent not to be unreasonably withheld’ appears to give considerable latitude to the landlord. Both the common law and legislation have intervened to cut down the landlord’s ability to refuse to consent.
Under section 1 of the Landlord and Tenant Act 1988, the landlord’s discretion was shaped in a number of important ways:
- the section applies not only to assignment, but also to covenants restricting subletting, charging, and parting with possession where it is qualified that the landlord’s consent is not to be unreasonably withheld;
- when asked by the tenant in writing to consent to the transaction, the landlord is under an obligation to reply within a reasonable time in writing;
- if consent is withheld, the landlord must give his or her reasons for withholding it;
- if conditions are attached, the conditions must be specified by the landlord and must themselves be reasonable;
- the burden of showing that withholding consent, or any conditions attached, was reasonable, or that the reply was served in a reasonable time, is firmly on the landlord.
The question of when it is reasonable, and when it is unreasonable, to withhold consent has been explored a number of times. The case law was distilled by the Court of Appeal in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd  Ch. 513:
- the purpose of this kind of covenant is to protect the landlord from having his or her premises used or occupied in an undesirable way or by an undesirable tenant / assignee;
- as a result, a landlord is not entitled to base his refusal on grounds which have nothing to do with the relationship of landlord and tenant;
- it is not necessary for the landlord to prove that the conclusions which led him to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances;
- it may be reasonable for the landlord to refuse his consent to an assignment on the ground of the purpose for which the proposed assignee intends to use the premises, even though that purpose is not forbidden by the lease;
- a landlord need only consider his own interests in most cases. There may, however, be cases where there is such a difference between the benefit to the landlord and the detriment to the tenant if the landlord refuses consent that such refusal is unreasonable;
- it is, in each case, a question of fact, depending on all the circumstances, whether the landlord’s consent has been unreasonably withheld.
What is reasonable should be given a broad and common sense meaning: Ashworth Frazer Ltd v Gloucester City Council  1 EL 2180.
Where a tenant is in breach of covenant, such as a covenant to repair, and the landlord relies on this to withhold consent, the question whether this is reasonable or not turns on the seriousness of the breach and whether the landlord is prejudiced by the assignment. It certainly does not automatically entitle the landlord to refuse to give consent, especially where the breach is not serious.
In Singh v Dhanji the trial judge found that the alleged breaches were not proven. That was not the end of the story, as the court then had to consider whether it was reasonable for the landlord to conclude (even mistakenly) that there were breaches and that they amounted to a reasonable refusal to consent. Here, again, the judge disagreed with Mr Buddha: he held that the alleged breaches were not serious enough to provide a reasonable ground for imposing as a condition of consent that they be remedied, even if the breaches had been proved.
The Court of Appeal refused to interfere with this finding of fact. The breaches were of a minor nature. It would not prejudice the landlord if they were not remedied until the end of the term. There was no objection to the identity of the proposed assignee: the landlord could take up these issues with the new tenant.
Conclusion: to grant or not to grant consent?
Although the courts have stated that what is ‘reasonable’ should not be too closely defined, the landlord still needs to tread carefully before refusing to give consent to an assignment or subletting. If the matter goes to court, the burden will be on the landlord to show that this refusal is reasonable. If the breaches of the lease relied upon are minor and the landlord’s interests will not be prejudiced, this will be a tough burden to satisfy.
Question: What is the difference between assignment and subletting?Answer:
Assignment and subletting occur in instances when an existing lessee (tenant) wishes to abandon his lease before the date specified in the lease agreement.
An assignment of a lease is the transfer of the entire property and giving over of proprietary rights under the lease to a new tenant. A sublease only transfers a part of the interest in the property. So when you assign a lease you give up your rights in relation to the property and the lease, when subletting you retain these rights and share them with the sublessee.
A sublease can apply to a physical part of the property, or for a period of time within the existing lease. This might happen when an existing tenant, the ‘head tenant’, wishes to rent out a part of the property such as a room or a basement to another person, the ‘sub-tenant’, without giving up the entire property, OR if they wish to rent out the entire property for a period of time within their fixed-term lease. The sub-tenant treats the head tenant as their landlord, as the head tenant retains his tenancy agreement with the actual landlord and assumes liability on behalf of the sub-tenant for any loss or damage they may cause.
You will need the consent of the landlord in order to assign lease or sublet – before you do so, speak directly with your landlord or consult a leasing lawyer.
Answered by Emma Jervis
Emma is an experienced franchise lawyer and litigator who has successfully helped many clients achieve commercial and workable solutions to their legal problems. With over 10 years legal experience, Emma has run many cases in all tiers of the NSW Court system and Family Court of Australia, as well as having many years experience in advising clients of their legal rights in both the commercial and family law spheres. Emma is also experienced in drafting a range of documents, including franchise documents and complex commercial contracts.