How (not) to apply for a licence to assign

8 November, 2012
by: Cripps

The recent case of E.ON UK plc v Gilesports Limited [2012] highlights some of the pitfalls that lie in wait for tenants, when making application for consent to assign a lease.

 

Gilesports held a lease of a shop.  They wanted to assign the lease to the Original Shoe Company Limited, and their solicitors made application for landlord’s consent in May 2008.  The application was made by way of an e-mail, to the landlord’s agents.  The agents contacted the landlord, who duly appointed some solicitors to act for them.  There was some correspondence with the tenant’s solicitors about payment of costs, and provision of accounts for the proposed assignee.

 

Notwithstanding that no licence to assign had been completed, Gilesports completed the assignment at the end of May.  The dialogue with the landlord’s solicitors about the text of the licence to assign continued, although it was slow moving.  In 2009 the assignee went into administration, owing a significant amount of rent arrears.

 

The landlord sued the original tenant, Gilesports, for arrears, on the basis that no consent to the assignment had been given, so Gilesports remained liable.  Amongst other things, the Court was asked to decide whether the landlord had unreasonably delayed giving its consent to the assignment. 

 

When a tenant applies for landlord’s consent to alienation, an important piece of legislation can come to their aid. This is section 1 of the Landlord and Tenant Act 1988.  This provides that the landlord owes a duty to give consent within a reasonable time, save where it is not reasonable to do so.  This therefore puts the onus on the landlord to establish that any reasons for not giving consent, are reasonable.  However, this legislation only applies where an application is “served” on the landlord.  The lease in this case contained comparatively standard provisions for service of notices, requiring that any notice must be in writing and served on the party to whom it is addressed, either by hand or by registered post. 

 

Because the Gilesports’ application for consent had been made by e-mail, to the landlord’s agent, this did not satisfy the requirements for service of the application, so section 1 did not apply.

 

Despite this, the court also considered whether the landlord in this case had in fact unreasonably delayed giving consent.  Gilesports’ solicitors had never indicated that the application was an urgent one.  There had been delays by Gilesports and their solicitors in dealing with the application process.  The court referred to established case law, which indicates that the “reasonable period”, within which a landlord may consider an application, may be measured in weeks rather than months. But the Court decided that the landlord had not unreasonably delayed their consent in this case.  Gilesports therefore remained liable to pay the outstanding rent.

 

The case provides a reminder of key points which tenants and their advisers need to be aware of, when making application for licence to assign or underlet:

• check the terms of the lease carefully, to see what requirements the landlord may make, and whether any third party consents may be required, such as a superior landlord;

• check the notice provisions in the lease, to see how notices should be served.  Normally applications should be made in writing and direct to the landlord, even if this is also copied by e-mail to the landlord’s surveyors or other advisers;

• provide as much information about the proposed transaction and assignee/undertenant as possible.  Even where they are a well known entity, a landlord may well be able to require accounts and references for them;

• provide undertakings for costs promptly, as the landlord may be entitled to refuse to deal with an application before any necessary costs undertaking is given;

• if there is genuine urgency, make this clear at the outset.  Give consideration to proposing a realistic deadline for the parties to aim for. 

Reviewed in 2015