This is an area of law where there has been much debate over the years, and there continues to be. It is common to hear disputes about whether a landlord has unreasonably withheld its consent to something that a tenant proposes to do, for example where the tenant is proposing to assign or sub-let a property, or undertake some fit out works.
The concept of “consent not to be unreasonably withheld” should always be considered on a case by case basis, with the burden of proof that consent is being unreasonably withheld being on the tenant.
Background
To provide a bit of background in relation to applicable law, there is no Scottish legislation in place, which relates directly to the reasonableness of withholding consent. In England and Wales, there is the Landlord and Tenant Act 1988 which places the onus entirely on the landlord to prove that they have or have not, acted reasonably in withholding consent. In Scotland, the common law position provides that the onus for establishing unreasonableness remains with the tenant.
This means that, for example, in the case of the assignation of a ground lease interest, the assignor requires to obtain the consent of the landlord to the assignation. If the landlord of were to reject the application for consent regarding the grant of the assignation, it would be up to the assignor, i.e. the current tenant, to challenge the rejection, with the input of the assignee (i.e. the prospective purchaser).
Common law position
In Scotland, the most up to date summary of the common law position can be found in Burgerking v Rachel Charitable Trust 2006 SLT 224 where Lord Drummond Young sets out the law relevant to the question of consent being unreasonably withheld. Lord Drummond Young cites the opinions of Balcombe LJ in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd 1986 1 Ch. 513 (Court of Appeal), which considered the meaning in the context of a lease assignation. The principles set out in this decision have been applied in Scotland, and can be summarised as follows:
(1) the purpose of a prohibition of assignation for which the landlord’s consent is not to be unreasonably withheld, is to protect the landlord from having the premises used or occupied in an undesirable way or by an undesirable tenant or assignee;
(2) the landlord is not entitled to refuse consent to an assignation on grounds that have nothing to do with the relationship of landlord and tenant in regard to the subject matter of the lease;
(3) the tenant has to prove that consent has been unreasonably withheld (as opposed to the landlord having to show that he has acted reasonably);
(4) it is not necessary for the landlord to prove that the conclusions that led him to refuse consent are justified, so long as they are conclusions that might be reached by a reasonable person in the circumstances;
(5) it may be reasonable for the landlord to refuse consent to an assignation because of the proposed use of the premises by the prospective assignee, even if such use is not prohibited in terms of the lease; and
(6) the landlord usually only needs to consider his own interests in deciding whether or not to give consent. However, there may be instances where the benefit to the landlord in refusing consent is so vastly outweighed by the harm to the tenant, as to make the refusal of consent unreasonable.
Further points to consider:-
Express wording is required
In Scotland, it is not implied that where landlord’s consent is required, such consent is not to be unreasonably withheld or delayed. This means that express wording has to be narrated in a lease, otherwise the landlord will have a complete discretion as to whether to give consent or not. If the condition requiring the tenant to seek consent is breached, the landlord may seek to irritate the lease. If the landlord unreasonably refuses to consent to the assignation, one consequence is the landlord’s liability in damages.
Landlord cannot refuse consent in order to gain a collateral benefit
The case of Renfrew District Council v AB Leisure (Renfrew) Ltd (In Liquidation) 1988 SLT 635 dealt with the right of the landlord to grant or withhold consent and confirmed that the landlord cannot refuse to grant consent in order to gain a collateral benefit. Examples of what might be considered a “collateral benefit” would be the insertion of an additional rent review or the tightening of the tenant’s repairing obligation. These were benefits that were sought in the case, and were held to be unreasonable by the Court.
This is different from the landlord refusing to grant consent until the tenant pays their rent arrears or carries out some essential repair works, which is permissible.
Withholding of consent by the tenant
If a challenge arises, it is usually in relation to the withholding of consent by the landlord, not the tenant. The case of Aviva Investors Pensions Limited v McDonald’s Restaurants Limited [2014] SCOH 009A provides an example where the tenant refused consent.
Most leases do not require the consent of the tenant for actions of the landlord, but this case did.
Brief summary
The landlord entered into an agreement with Costa to construct a free standing unit on part of the existing car park at the Corstorphine Road Retail Park in Edinburgh. The McDonalds’ (another tenant) lease provided that that the landlord could only pursue this agreement with Costa with McDonalds’ consent (not to be unreasonably withheld or decision unreasonably delayed). Substantial discussions ensued between the landlord and McDonalds (including the obtaining of an expert report on the impact of the new building), and it was held by the court that the tenant was not acting unreasonably in refusing consent. The reasoning provided is the following:
- the onus was on the landlord to prove consent unreasonably withheld
- court did not have to decide if it agreed with the refusal of consent or with the reasons for the refusal given.
- Not necessary for McDonalds to demonstrate that the advice produced in the expert report was correct.
As is the key point arising in most cases, the main question to ask in this case was, has the landlord/tenant acted in a reasonable manner in withholding consent?
Points to remember:
This is an area of law, which will always be subject to scrutiny when a refusal of consent occurs.
A tenant and prospective assignee may spend a considerable amount of time negotiating and adjusting the contract and only approach the landlord for consent at a late stage in the process. This often gives rise to delays, frustration and sometimes wasted time and fees if consent is ultimately rejected.
By making an early application for consent and understanding what the landlord’s reasons may be for either granting or refusing consent may go a long way to smoothing out the consent process, and would serve to minimise the potential risk of delay.
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