Consent to Underlet – How much is enough?

With many tenants finding themselves with unused space and wishing to underlet, the recent case of British Telecommunications Ltd v Rail Safety and Standard Board Ltd [2011] All ER acts as a stark reminder to all potential parties that they must ensure any agreements in terms of when landlord’s consent is granted are absolutely clear.

The Detail

British Telecommunications Ltd (BT) and Rail Safety and Standard Board Ltd (RSSB) entered into an agreement to underlet subject to obtaining superior landlord’s consent to both the proposed underletting and alterations.  In the event that consent had not been obtained by a certain date either party was permitted to terminate the agreement on notice on the other part. 

The agreement defined the superior landlord’s consent as “…the consent of the Superior Landlord to the grant of the Leases by way of the Licence to Underlet and to the Tenant’s Works by way of the Licence for Alterations”.

The date specified in the agreement passed and whilst the licence to underlet had been executed by all parties, the licence to alter had not been executed by RSSB although it had approved the form of licence and had been notified that the other two parties were in a position to complete.

RSSB subsequently served notice on BT to terminate the agreement on the basis that no consent had been granted as the licences had not been entered into.  BT argued that completion of the licences was not required to satisfy the condition in the agreement and that the unilateral confirmation from the superior landlord of consent in principle was sufficient.

Decision

The court agreed with BT finding that all that was required in the agreement was the consent of the superior landlord not the completion of the licences. It stated that whilst reference in the definition of superior landlord’s consent was made to licences this did not mean that the parties had intended that consent did not exist until licences were entered into. Consent was therefore deemed to have been given.

Conclusion

This case once again highlights the importance of making it absolutely clear in negotiations as to when parties intend consent to be considered granted.  In the event that a completed licence, or any other such formality, is required, the documentation and communications must clearly set out parties intentions.