Landlord’s consent: one bad apple doesn’t spoil the bunch

What is the position if a landlord has good and bad reasons for refusing to allow a tenant to do something that requires its consent, which is not to be unreasonably withheld? Case law suggests that the landlord’s decision will be susceptible to challenge if it is made for a bad reason and any good reasons are merely makeweights, or if the bad taints or vitiates the good. No 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2018] EWCA Civ 250; [2018] PLSCS 34 concerned the assignment of long leasehold interests in two high value residential apartments in London. However, the rationale for the decision will apply to commercial leases as well. The tenant had taken 999-year leases of 42 apartments, which it let out on short-term assured shorthold tenancies. Following a dispute about service charges, the relationship between the parties deteriorated and the tenant decided to sell its apartments. It needed the landlord’s consent before assigning its leases, but such consent was not to be unreasonably withheld. After granting several licences to assign at a cost of £1,250 plus VAT per lease, the landlord employed a new in-house solicitor, who updated its procedures. From then on, the landlord began asking for bank references for prospective assignees and insisted on an inspection by a surveyor as well, which increased the cost of obtaining a licence to assign. Lower courts The tenant sought a declaration that the landlord had unreasonably refused to grant licences to assign because it declined to comply with the landlord’s requirements. The judge at first instance upheld the claim, ruling that none of the requirements were reasonable. On appeal, the High Court accepted, in the light of the estimated service charge costs, that it was reasonable for the landlord to require bank references so that it could check that prospective assignees had the wherewithal to pay. It was also reasonable to want to inspect the apartments to see whether there were any serious breaches of covenant. They had been let to a succession of short-term tenants, and the cost of inspection, at £350 plus VAT per apartment, was not unreasonable. However, the landlord had not established that its legal costs were any greater than £350. This meant that the landlord was charging too much for a licence to assign which, in the judge’s view, sufficed to make the landlord’s refusal unreasonable. Court of Appeal Did the fact that the landlord had had two good reasons for refusing consent vindicate its decision? Or is it, in fact, the law that, if any one of a landlord’s reasons for refusal is bad, then the refusal itself is unreasonable? The tenant argued that the Landlord and Tenant Act 1988 (the 1988 Act) had been enacted to strengthen the hands of tenants. It applies to leases that contain qualified covenants against alienation and places landlords under a duty to grant consent within a reasonable time, unless it is reasonable not to do so. They must also give written reasons for any conditions that they impose or, if consent is withheld, for their refusal, and section 1(6) puts the onus on a landlord who refuses consent to show that it has acted reasonably. Lewison LJ spoke for the court. He noted that the legislation requires landlords to show that their refusal was reasonable. It does not require them to show that all their reasons were reasonable. BRS Northern Ltd v Templeheights Ltd [1998] 2 EGLR 182, and other cases, confirm that a bad reason will not make a refusal unreasonable if a landlord has other good reasons for its decision, which can be disentangled from the bad. Lewison LJ added that to describe one reason as having “tainted” another implies some connection between them and, if the decision-maker would have reached the same decision without relying on the reasons that were bad, then the bad will not have tainted or vitiated the good. Cross-check The Supreme Court decision in Braganza v BP Shipping Ltd [2015] UKSC 17 established that the exercise of a contractual discretion must be judged by the same principles that apply to the exercise of public law discretions. However, R v Broadcasting Complaints Commission ex parte Owen [1985] QB 1153 confirms that the courts take a similar approach in such cases too. In addition, if a contracting party claims that the other party is in breach, giving good and bad reasons for its assertion, the court will allow it to rely on any good reason(s). Similarly, a notice served under section 146 of the Law of Property Act 1925 alleging multiple breaches of covenant will be valid, even if some breaches are not proved. And the exercise of a mortgagee’s power of sale will also be valid if the mortgagee is seeking to recover the secured debt, even if it has other improper reasons for its action. In this case, the reasons for the landlord’s decision were freestanding. Each had causative effect and two of the reasons were reasonable. Therefore, the landlord’s decision to refuse consent had been reasonable. Pause for thought Section 1(4) of the 1988 Act states that giving consent “subject to any condition that is not a reasonable condition” does not satisfy the duties imposed by the legislation. Does this mean that a landlord who grants consent subject to conditions will be in breach of its statutory duty if any one of its conditions is unreasonable? The court did not need to decide this and left argument about it for another day. Key points A bad reason for refusing an application for consent will not necessarily vitiate a landlord’s decision if there are other valid reasons The good reasons must be causative, and not makeweights, and they must not be tainted or vitiated by the bad Landlords who adopt a scattergun approach run the risk that bad reasons may infect the good Allyson Colby is a property law consultant