Qualified covenants – can a landlord unreasonably refuse consent to alterations?
The question in this week’s Plog is whether a qualified covenant in a lease (ie a covenant requiring landlord’s consent, but which does not expressly set out that the landlord must not unreasonably withhold consent) means that a landlord may refuse consent to alterations without having to prove the reasonableness of his decision.
Does the landlord need to be ‘reasonable’?
Under section 19(2) of the Landlord and Tenant Act 1927 (“LTA 1927”) a qualified alterations covenant is transformed into a fully qualified covenant (ie with the obligation on the landlord not to be unreasonable in withholding consent) where the alterations a tenant seeks to make are considered an improvement.1
Once the qualified covenant has transformed into a fully qualified covenant, the landlord is under a duty not to unreasonably withhold consent to the alterations proposed. This applies to all covenants in respect of improvements. An ‘improvement’ at law is not expressly defined and therefore is interpreted from a tenant’s point of view. So, if the works will improve the tenant’s use of the premises or make them ‘more convenient and comfortable to him’ this view will suffice even if the landlord disagrees with the classification of ‘improvement’ by the tenant (FW Woolworth & Co v Lambert [1937 CH 37]. As a result, most tenants’ alterations will be deemed improvements.
Can the landlord request a premium or costs in return for consent?
The landlord can require, as a condition of giving consent:
- Payment of a reasonable sum for any damage or diminution in value of the property, but also diminution of the value of neighbouring property of the landlord.
- Payment of its legal expenses which have been incurred as a result of giving consent.
- A requirement that the tenant must reinstate the property at the end of the term if the alterations do not improve the letting value of the property.
However, the landlord cannot request that a premium is paid for giving consent as this is usually regarded as the landlord unreasonably withholding consent. Consequently, the tenant could then go ahead with the works anyway without paying the premium requested.
This is just an overview and reminder that although it may seem that a landlord has the power in a lease to turn down tenants’ requests for alterations, there are statutory mechanisms such as section 19(2) of the LTA 1927, as discussed, which may allow a tenant more freedom than initially thought.
1 There are limited circumstances where an exception to this rule applies; these include mining leases, certain agricultural leases and some residential leases under the Housing Act 1980 and Housing Act 1985. Therefore the type of lease must be established prior to application of this rule.