A licence to print money?

A recently launched protocol outlines an approach for ending the practice of landlords using applications for leasehold permissions to demand exorbitant costs In the usual scenario T applies to L for licence to assign its lease. L’s solicitors respond, saying that their standard fee for granting licence is £1,250; that this does not include the further time that may be spent considering the detail of the assignment; that valuers and other experts such as accountants may also have to review the proposals; and that an undertaking for costs up to £5,000 is required before the application is considered. T’s application is very straightforward, and it is scandalised at the notion that it might cost anything approaching such a large sum, given that L’s solicitors will use their standard precedent. However, T is conscious that if it tries to argue the amount down, that will add to the legal fees, and it may end up costing it less just to agree, in the hope of a swift resolution of its application. L has no incentive to keep its costs down, and ultimately its bill is indeed £5,000. T knows that it could always apply to tax L’s bill – but it just wants to get on with its life, and so it pays up. Instances such as these are regrettably commonplace, and stem largely from the old culture whereby tenants had to prove that landlords were acting unreasonably in withholding consent. Although the burden of proof has now switched, as a result of the Landlord and Tenant Act 1988, the practice of demanding undertakings for large sums has continued. The Protocol and costs undertakings During the course of the correspondence generated by the launch of the Protocol for Applications for Consent to Assign or Sublet (see www.propertyprotocols.co.uk), the need for, and size of, costs undertakings to landlords was the topic that generated by far the most concern. The authors have now expanded the Protocol to provide a fuller account of the views expressed, devoting a whole paragraph to the subject of costs undertakings.    The first point to make is that T should proactively offer to meet L’s reasonable and proper legal and other costs in connection with the application and the grant of consent, preferably at the point of application. There is no requirement for T to volunteer a figure at this stage: it will suffice for it to express itself in general terms. The point of T making such an offer, rather than waiting for L to raise the subject, is that landlords invariably specify a figure, the size of which may be contentious in itself. If, by contrast, T takes the initiative by making an open-ended undertaking (but protected by the reasonableness tag), then L has no need to revert with a particular figure for T’s consideration. L is only entitled to behave reasonably – and a request for something other than what T has already put forward surely cannot be reasonable.  This approach should avoid the sort of satellite squabbling over amounts that can bedevil such applications. In this and every other respect, the Protocol is designed to avoid arguments over process, and concentrate on the real issues – if any – that may concern the parties. Secondly, L may take issue with the security of T’s offer, unless it is backed by a professional, such as T’s solicitor. If T is a large plc, on the other hand, it is difficult to see circumstances in which it would be reasonable for L to insist on a solicitor’s undertaking. All that L is entitled to do is to seek assurance that its costs will ultimately be met, and there are many ways in which T could give that assurance, even if its own covenant is insufficiently persuasive – for example, by making a payment on account. Thirdly, some tenants will not wish to give an open-ended undertaking, notwithstanding the protective reference to reasonableness. In such circumstances, T may instead wish to offer an undertaking to pay costs up to a specified and appropriate amount. If L considers that the amount of the undertaking offered by T is insufficient, it will nevertheless generally be unreasonable for it to refuse even to start on its consideration of T’s application. It should instead commence that consideration, and tell T that it will not be able to complete its consideration of the application unless and until a sufficient undertaking is given. L should of course appreciate that if it subsequently transpires that T’s offer was sufficient all along, then L’s refusal to proceed further without an increased offer will be unreasonable, leaving L at risk for damages. The point about all of this is that L should not use costs as an excuse to defer dealing with T’s application. Doing so may amount to an unreasonable delay or refusal of consent. In particular, L should not delay its consideration of T’s application on the basis only that the parties are seeking to agree an increased amount to which T’s undertaking for, or payment on account of, costs should be limited. L should process the application by doing work up to the limit of T’s undertaking or payment on account.  The Alterations Protocol The points made above apply with equal force to other applications T may wish to make for L’s consent – although applications for licence to assign or sublet occupy a special position, because it is only to them that the 1988 Act applies. The authors of the Protocol for Applications for Consent to Assign or Sublet are putting the finishing touches to a new Protocol for Applications for Consent to Carry Out Alterations, which it is hoped will be as useful to the lawyers and surveyors who practice in this litigious field. It is surely in the interests of all of us that if there are arguments to be had over tenants’ applications, the real issues should swiftly be identified and resolved at minimum cost, avoiding tiresome disputes over process. Guy Fetherstonhaugh QC is a barrister at Falcon Chambers