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Court of Appeal gives judgment in important case on landlord’s refusal of consent

DATE: 21 Feb 2018

The Court of Appeal today handed down judgment in No.1 West India Quay (Residential) Limited v East Tower Apartments Limited [2018] EWCA Civ 250. The judgment constitutes the definitive statement of the law in relation to a landlord’s refusal of consent to assign based on multiple reasons that are good and bad. 

The Respondent, the tenant of numerous long residential leases in a high value apartment complex, sought consent to assign a number of these leases. The Appellant landlord refused consent to assign for three reasons:

(1) the Respondent had not given an undertaking for the landlord’s legal fees in the sum of £1,250 plus VAT;

(2) the landlord was entitled to have a surveyor inspect the premises as part of the consent process, and the landlord sought the cost of this at £350 plus VAT); and

(3) the landlord was entitled to a bank reference in order to assess the prospective tenant’s covenant strength. 

The tenant sought declarations that the refusal of consent was unreasonable and that the landlord was in breach of its duty under s. 1 of the Landlord and Tenant Act 1988. 

The claim was originally heard by HHJ Walden Smith in the County Court. She held that all three conditions were unreasonable. The legal costs sought were too high and could not be justified by the evidence (instead £350 was a reasonable figure). The surveyor’s inspection and bank reference could not be justified in the context of a long residential lease at a substantial premium. 

On the first appeal, Henderson J held that the surveyor’s inspection and the bank reference were indeed reasonable, but could not find that the Judge’s “robust and sceptical approach” to the legal fees was in error. Therefore there were two ‘good’ reasons, and one ‘bad’ in the refusal notice. He held that as the landlord would not have granted consent if the two good reasons had been satisfied by the tenant, the refusal was unreasonable. 

On this second appeal to the Court of Appeal, Lewison LJ gave the lead judgment. The Respondent’s submission that any single unreasonable reason would render a refusal of consent unlawful under the 1988 Act was rejected. So too was its contention that s. 1(4) had any application to a refusal of consent. S. 1(4) provides that the grant of consent subject to any unreasonable condition does not satisfy the landlord’s duty, but it does not apply to refusals. 

Lewison LJ (with whom the remainder of the Court agreed) felt that it would be “a draconian sanction if the landlord is to be saddled with a tenant of precarious financial means all for the sake of having demanded £250 too much as a fee.” 

The key conclusion was stated at [42] of Lewison LJ’s judgment, in the following terms:

“42.   In short, in my respectful opinion, the judge asked himself the wrong question. The question was not: would the landlord have maintained the unreasonable reason if the reasonable conditions had been complied with? Rather it is: would the landlord still have refused consent on the reasonable grounds, if it had not put forward the unreasonable ground? 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. Where, as here, the reasons were free-standing reasons each of which had causative effect, and two of them were reasonable, I consider that the decision itself was reasonable.”

The court also acknowledged that the Appellant’s case was consistent with the law in other areas, including public law decision making (citing the judgment of May LJ in R v Broadcasting Commission ex p Owen [1985] QB 1153, and the Supreme Court decision in Braganza v BP Shipping Ltd [2015] UKSC 17 which applied public law principles to contractual discretions), and the discharge of directors duties (citing Lord Sumption’s proposed ‘but for’ test of causation in Eclairs Group Ltd v JKX Oil & Gas plc [2015] UKSC 71). 

The Respondent has sought permission to appeal to the Supreme Court. 

Jonathan Wills acted for the successful Appellant, led by Martin Hutchings QC (having also acted as sole counsel in the High Court and County Court).

Click here for a copy of the judgment.