Q&A: Is it true that minor outstanding breaches of a tenant’s covenants can amount to a sufficient reason for a landlord to refuse consent to an assignment of a lease?

July 8, 2014

Generally speaking, the answer to this question is no.

Over the years it has been well established that a breach of covenant by a tenant needs to be sufficiently serious in order to justify a landlord in refusing consent on an assignment.

If a tenant breaches its alterations provisions will this constitute as a sufficiently serious breach?

This really depends on the particular facts of the matter in hand.  A recent case, Singh v Dhanji [2014] EWCA Civ 414,  held that a landlord had unreasonably withheld consent to an assignment of a lease following a breach by the tenant of its covenants relating to works.

In this case the landlord discovered that the tenant had extensively refurbished the premises without any consent. The lease prohibited structural alterations and the tenant had carried the following:

  • moving two stud partition walls;

  • replacing all the dental chairs and associated plumbing;

  • replacing the sinks, cupboards and other equipment;

  • removing suspended ceilings; and

  • replacing flooring.

Following this discovery, the landlord served several section 146 notices on the tenant being a notice warning the tenant that it was in breach of covenant.  The landlord also wrote to the tenant to inform it that consent was, amongst other things, conditional on compliance with the breaches specified in the section 146 notices.

On looking at the facts, the Court of Appeal held that the works carried out by the tenant were non-structural in nature.  The lease only prohibited structural works. Due to this, the courts then considered whether the landlord had unreasonably withheld consent; any breaches by the tenant had to be sufficiently serious to justify refusal of consent to the assignment and any belief by the landlord that the tenant was in breach of its covenants had to be a reasonable one. 

It was held that the works carried out by the tenant were minor and would not prejudice the landlord if they were not remedied before the expiry of the term.  In light of this, and bearing in mind the works were non-structural, it was held that the breach by the tenant could not classified as sufficiently serious and that the landlord had unreasonably withheld consent.

Therefore, if a tenant has breached its alteration provisions prior to applying for consent to assign, a landlord should ensure that the breach is sufficiently serious in nature before withholding consent. In circumstances where the breach is minor and does not prejudice the landlord, it is unlikely that withholding consent will be seen to be reasonable.

Are there any cost implications for withholding consent unreasonably?

In the case above the tenant was awarded an initial award of £183,000 plus interest of £31,000. Landlords should therefore tread with caution when withholding any consent to assign. If the breach of covenant is not a serious one, unreasonable refusal or imposition of unreasonable conditions will leave landlords open to substantial cost implications.


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