A sensible landlord will take great care when picking an initial tenant and should exercise the same caution when deciding whether that tenant should be allowed to assign their lease to someone else. The difficulty with an assignment is that the circumstances in which consent can be refused are restricted by law, making it crucial to seek early legal advice.
Most commercial leases will include a provision which prohibits assignment without the landlord’s consent, and will prescribe the process the tenant needs to go through to secure this. What some landlords do not realise is that they can only refuse consent if they have very good reasons.
Refusal must be reasonable
You can only refuse consent to an assignment if it is reasonable to do so, and where consent should be given you must ensure that you provide this without unnecessary delay. There may be financial penalties if you fail to do this.
If you believe that you are justified in refusing consent, then you must explain why by providing reasons. Likewise, if you are prepared to grant consent, but only if certain conditions are met, you must ensure that any conditions you intend to impose are reasonable.
What is ‘reasonable’?
There are no fixed rules about what is and is not reasonable, and therefore whether a decision to refuse consent is deemed reasonable will always depend on the circumstances. Cases that have come before the courts do, however, give us a few rules of thumb. For example, concerns about the proposed assignee’s ability to pay the rent or to maintain a property that is already in a poor state of repair may be reasonable grounds for refusal, but steps taken by the existing tenant to mitigate any potential concerns will need to be taken into account as part of the decision making process. For instance, the offer to enter an authorised guarantee agreement may go some way to allaying fears about compliance with lease obligations, as may an offer by the proposed new tenant to pay a decent rent deposit.
How quickly is a decision required?
In relation to timing, you should aim to make a formal response to the tenant within three to four weeks of receiving their request, although circumstances might mean that a reasonable time is longer or shorter than this. It may be, for example, that consent is needed urgently. Your solicitor will be able to advise you on how quickly a response is required.
When thinking about response times, it is important to bear in mind that you are entitled to have a full package of information about the proposed assignment, and also the potential new tenant, before you can be expected to properly consider the request. The clock will not start ticking on the reasonable period for a response until you have everything that you need to make a reasoned decision.
In view of this, a well-advised tenant will deliver the necessary pack of information when they make their initial request. If they fail to do this you should, as a minimum, tell them that you will require bank references and accounts for the last three years for the proposed new tenant and ask if there are any unusual arrangements proposed between the two parties, such as the existing tenant agreeing to make payments towards the rent the new tenant will become liable for. Anything that strikes you or your solicitor as being odd, and in particular which is suggestive of the new tenant being unable to comply with the lease obligations without support, should be investigated.
For further advice about the assignment of a commercial lease, or for any other commercial property matter, please contact our commercial property team on 01225 755621.