Landlord Successful in Opposing Assignment to New Company

Most leases contain clauses which permit their assignment from one tenant to another, provided this is done with the landlord’s approval, and they also contain a clause specifying that approval is not to be ‘unreasonably withheld’.

In a recent case, a landlord withheld approval for the transfer of a lease to a new tenant on the grounds that the proposed new tenant was a newly-formed company and it was therefore not possible to judge whether it was ‘respectable and responsible’ and able to pay the £400,000 annual rent due. The landlord’s rejection gave no other reason for its decision.

The tenant went to court to get the decision reversed. Although the point that the proposed new tenant could not be demonstrated to be respectable and responsible was accepted, the tenant argued that the landlord had acted unreasonably in withholding consent to the transfer, as additional information might have been made available to give the necessary comfort to the landlord. The landlord argued that the right to withhold consent was an absolute right when the proposed assignee could not be demonstrated to be respectable and responsible. The landlord also argued that the tenant’s letter proposing the assignment was not an application for consent to assign the lease because it proposed that references on the assignee’s directors could be taken. The tenant argued that the landlord should have considered the application and demanded such further information and/or concessions it needed from the tenant in order to overcome its reservations about the proposed assignee.

The High Court could not accept the tenant’s argument. The landlord had the right to make a decision based on the information put in front of it. The tenant was free to make other proposals to overcome any objections.

The Court did, however, conclude that landlords are required to respond to requests for assignment within a reasonable time and to give the tenant reasons why the application to assign the lease has been refused. The burden of proof is on the landlord in such cases to show that it has acted reasonably.