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No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2018] EWCA Civ 250

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27th February 2018

Leases often provide that a landlord may not unreasonably refuse consent to assign. In this case, applicable to both residential and commercial leases, the Court of Appeal considered whether consent was unreasonably withheld where two of the grounds for refusal were reasonable, but a third had been held not to be.

Facts

East Tower Apartments Ltd (“ETAL”) proposed to assign the 42 apartments of which it was the tenant. Under the terms of the leases, it was required to obtain its landlord’s consent to any assignment. That consent was not to be unreasonably refused.

The landlord imposed three conditions on the grant of consent. First, that the tenant pay a fee of £1,600+VAT for the grant of the licence to assign, to include the fee of a surveyor instructed, as a second condition, to inspect the apartments to establish whether ETAL was in breach of covenant. Thirdly, the landlord required the assignee provide a bank reference so that its covenant strength could be assessed.

The tenant disputed the reasonableness of all three conditions and issued proceedings for declarations to that effect.

First instance

The case came before HHJ Karen Walden Smith in the county court. She held that all three of the conditions for the grant of consent were unreasonable, and that the landlord had therefore unreasonably withheld consent to assign.

On the landlord’s appeal however, Henderson J. held that only one of the conditions was unreasonable, that being the cost of the licence to assign. The other two conditions for the grant of consent were, in his judgment, reasonable.

Even so, in his judgment, those two “good” conditions were vitiated by the landlord’s insistence on ETAL paying an (unreasonable) fee for the licence to assign. Therefore he, like HHJ Walden Smith, concluded that the landlord had unreasonably withheld consent to assign.

The landlord appealed to the Court of Appeal.

Issues

The question before the Court of Appeal was whether two good reasons for refusing consent to assign could be vitiated by one bad reason.

Decision on appeal

The lead judgment was given by Lewison LJ, with whom Floyd and Peter Jackson LJJ agreed.

The court reviewed the difficulties in the common law position and the reasons for the Law Commission’s recommendations for the changes that saw the light of day in the Landlord and Tenant Act 1988.

The key provisions of the Act on which the appeal turned were sections 1(3) and (4).

Section 1(3) of the 1988 Act imposes a statutory duty on a landlord where consent to assign is sought. The duty has several limbs:

• the landlord must give consent unless it is unreasonable to do so, and
• must serve on the tenant “a notice of his decision whether or not to give consent”,
  • setting out any conditions for the grant of the consent, or
  • the reasons for refusing it.

If the duty is breached and gives rise to loss, it is actionable by way of a claim for breach of statutory duty.

Section 1(4) provides that the section 1(3) duty is not satisfied if consent is granted subject to an unreasonable condition.

Lewison LJ.’s judgment builds on two cases.

First, BRS Northern Ltd v Templeheights Ltd [1988] 2 EGLR 182, in which Neuberger J. held, in relation to reasons for refusing consent to assign, that “it may be clear that the bad reason is by far the most important reason, and that the purportedly good reasons were merely makeweights; or it may be that the existence of the bad reason infects or vitiates what would otherwise, in the absence of the bad reason, be a good reason”.

Secondly, Eclairs Group Ltd v JKX Oil & Gas plc [2015] UKSC 71, in which Lord Sumption expressed the test as “one of causation”.

Lewison LJ reformulated the test in two ways: “would the landlord still have refused consent on the reasonable grounds, if it had not put forward the unreasonable ground? Or, to put the point another way: the question is whether the decision to refuse consent was reasonable; not whether all the reasons for the decision were reasonable”.

In ETAL’s case, there was no evidence supporting the conclusion that the demand for an excessive administration fee, which was the bad reason, was the most important reason for the landlord having refused consent to the assignment and had therefore caused the landlord to refuse consent.

Nor could it realistically be said that the bad reason had vitiated or infected the good reasons. The bad and the good reasons were freestanding; there was no connection between them.

Applying the reformulated test therefore, and allowing the appeal, he said, “Where, as here, the reasons were free-standing reasons each of which had causative effect, and two of them were reasonable, the decision itself was reasonable.”

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