Most commercial leases contain provisions, known as alienation provisions, allowing the tenant to assign the lease or grant an underlease to another tenant during the term.
The tenant may want to do this to divest themselves of the lease where there is time left to run and the lease does not contain a break option or the landlord will not agree to surrender the lease.
If the tenant wishes to assign the lease or underlet the premises, it is likely that the lease will stipulate that they need to obtain the landlord’s consent to do so.
Similarly, the tenant may wish to carry out alterations to the premises at the start of or during the term of the lease and, depending on the nature of the alterations, this will also likely require the landlord’s consent.
For the purposes of this blog, our Commercial Property Lawyers will be focusing on applications for consent to assign and underlet.
Why is a requirement to obtain consent important for landlords?
Understandably, landlords will want a level of control over who occupies their property.
Also, landlords seek to ensure that the income they receive from rented properties is guaranteed, to protect the value of their investment.
A requirement for the tenant to obtain the landlord’s consent to assign or underlet enables the landlord to keep control over who is in occupation of the premises and their covenant strength.
What is the application process?
The landlord’s consent will be documented in a formal licence which is drafted, negotiated and agreed between the parties’ solicitors.
The lease will usually require the tenant to pay the landlord’s costs incurred in connection with dealing with the tenant’s application for consent.
Any application for consent from the tenant should be made in accordance with the terms of the lease.
The lease will state whether the tenant is permitted to assign or underlet part of the premises, or if only assignments and/or underlettings of the whole are permitted.
Conditions on consent
A landlord can impose reasonable conditions that the tenant must comply with.
Section 19(1A) of the Landlord and Tenant Act 1927 (the LTA 1927) also allows the lease to contain conditions that the tenant must comply with, even if they would otherwise be considered unreasonable.
Examples of common conditions which the landlord may impose before the tenant can assign the lease include:
- A condition that the outgoing tenant enters into an authorised guarantee agreement.
- A condition that a new guarantor enters into a guarantee and indemnity in favour of the landlord.
- A condition that the incoming tenant provides a rent deposit to the landlord.
Can the landlord refuse consent?
It is important for landlords to be aware that section 19(1) of the LTA 1927 provides that consent cannot be unreasonably withheld or delayed.
As with imposing conditions to the grant of consent, section 19(1A) of the LTA 1927 allows the lease to contain circumstances in which the landlord may refuse to grant consent, without further considering whether those circumstances are reasonable.
Examples of common circumstances contained in leases allowing the landlord to refuse consent to the tenant assigning the lease include:
- Non-payment of rent or other sums due under the lease.
- Breach of the tenant covenants contained in the lease.
- Where the incoming tenant is unable to comply with the tenant covenants in the lease.
- If the incoming tenant does not have sufficient financial strength.
What else should the landlord consider?
Where a written application for consent to assign or underlet is served upon the landlord, section 19(1) of the LTA 1927 states that the landlord shall:
- Give consent within a reasonable time, unless it is reasonable not to do so;
- Give written notice of the decision; and
- Forward the application for consent to the appropriate person.
If a written application is not served upon the landlord or the appropriate person, then the above duties do not apply.
Reasonable time is deemed to be several weeks rather than months, and the time will generally start when the landlord has been provided with all the relevant information to make their decision.
It is therefore important that solicitors are instructed to ensure the application is dealt with properly and within the relevant timeframes.
Landlords must be very careful about granting consent in correspondence with the tenant before the licence has been completed. It is therefore advisable that the landlord makes it clear in its initial correspondence that no consent is given unless a completed licence has been entered into.
If it does not make this clear, it is open to the tenant to make arguments that the landlord is deemed to have given consent.
Contact Our Property Litigation Lawyers
Whether you are a commercial landlord or tenant, if you need professional legal advice regarding consent under a commercial lease, please contact Myerson Solicitors’ Commercial Property team.
0161 941 4000
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Sarah Dabek
Senior Associate
Sarah is a Senior Associate in the Real Estate team at Myerson and has been with the firm since beginning her training contract in 2016, subsequently qualifying into the Real Estate team in 2018 and achieving promotions to Associate in 2021 and Senior Associate in 2024.
About Sarah Dabek