Too much space? What alienation rights does a tenant have - England & Wales


Can the tenant sub-let or assign? What are the landlord’s obligations in relation to a request to sub-let or assign?

 

Too much space? What alienation rights does a tenant have - England & Wales

Transcription

 Alexandra Holsgrove-Jones:

Welcome to another of our TLT Taster sessions on current issues affecting the real estate sector. We've discussed in previous sessions, the variations to leases that are being documented to allow flexibility in terms of both lease terms and the reconfiguration of premises. In this session, we're going to be exploring how a tenant can dispose of space. I'm Alexandra Holsgrove-Jones, Senior Professional Support Lawyer in TLT's real estate group. And I'm joined by Emma Cork, a Legal Director in TLT's property litigations team. Emma, some businesses may have found that the enforced remote working brought about by the COVID-19 pandemic means that they need less office space. Tenants might therefore be looking to get rid of space. How can they do this?

Emma Cork:

As is always the case, the starting point is going to be the lease. The initial questions to ask will be, "How long does the term have left to run?" And, "Is there a break option for the tenant?" If the term's nearing its end, the tenant is probably best sitting tight and working on the steps that it needs to take to vacate, remove tenant belongings, and hand back the property at the end of the lease. At tenent should be looking to return vacant possession. There'll be obligations in the lease about the state and condition in which the tenant should hand back the property, and if these aren't complied with the landlord can bring a monetary claim after lease end. If there is a break option for the tenant, it will need to make sure that it's strictly complies with the requirements of that break so that the lease can come to an end on the break date. I'm not going to go into details now of how to ensure that a break is validly exercised, because we're doing another session on break clauses.

 Alexandra Holsgrove-Jones:

Okay. So what if the lease term still has a number of years left to run and either there is no break option for the tenants, or it's still some time in the future. How could a tenant free itself of unwanted premises?

Emma Cork:

If that's the case, we'd need to look at the alienation provisions in the lease. Does the tenant have the right to sublet, either whole or part, or assign the premises in whole or part?

 Alexandra Holsgrove-Jones:

Okay, so let's look at those separately. Firstly subletting, what's the normal position in a commercial lease?

Emma Cork:

So leases commonly allow a tenant to sublet the whole of the premises with landlord's consent, but it's less common for leases to allow subletting of parts. Where they do, it's normal for the subletting of parts to be over a defined area, perhaps a floor or a specified area of a floor in a building.

 Alexandra Holsgrove-Jones:

And what about the assignment?

Emma Cork:

Again, it's normal for at least to permit assignments of whole with landlord's consent, whereas assignments of part are generally prohibited.

 Alexandra Holsgrove-Jones:

And you mentioned that landlord's consent is usually required. Are there any duties in relation to the landlord's obligation to respond to a request to sublet or assign?

Emma Cork:

Right under the Landlord and Tenant Act 1988, a landlord is under a duty to give consent unless it's reasonable not to do so, to give written notice of its decision within a reasonable time, and to pass on applications for consent to the appropriate people. For example, a superior landlord or a mortgagee.

 Alexandra Holsgrove-Jones:

And what's considered a reasonable time for responding?

Emma Cork:

Basically the landlord's under a duty to take no longer than is reasonable, and this will be measured in days or weeks rather than months. Unless there are particular factors to take into account, a very rough rule of thumb is about a three to four week turnaround. But if the tenant has asked in its application for the matter to be dealt with urgently, because of certain factors, these should be taken into account.

 Alexandra Holsgrove-Jones:

Now, sometimes the tenant makes the request with a little bit of supporting information, and this is then supplemented by further information at a later date. When does the clock start and running for the landlord's response?

Emma Cork:

This is a really good point, and something that tenants really need to be aware of when making an application for consent to assign or sublet. The time should start running when the tenant's application for consent is validly made. This means that the tenant must make the application in accordance with the provisions of the lease, and if the application doesn't contain sufficient information to enable the landlord to make a decision, the landlord could refuse consent, because it only has to make its decision based on the information provided. A landlord's under no obligation to request missing information, so if the tenant doesn't provide everything required, it risks the application being refused.

 Alexandra Holsgrove-Jones:

What if the landlord doesn't want to give consent? When can it refuse consent without risking the tenant claiming that its refusal has been unreasonable?

Emma Cork:

Whether or not consent has been unreasonably refused will be determined on the facts of each case. However the landlord should remember that they can't refuse consent on grounds that nothing to do with the landlord and tenant relationship, and it's for them to show that their conduct is reasonable. It may be reasonable to refuse consent based on a tenant's breach of covenant, but this would depend on the nature and severity of the breach. And the terms of the lease may well set out reasons why the landlord can refuse consent, or conditions that it can reasonably impose if giving consent. So if the landlord can justifiably get within one of these reasons to refuse, the decision will not be unreasonable.

 Alexandra Holsgrove-Jones:

Now at this time, some tenants might be experiencing financial difficulties, and that might be one of the reasons that they're seeking to assign a lease. Will this make it more difficult for a landlord to refuse consent to the assignment?

Emma Cork:

A landlord's entitled to be satisfied that proposed assignee is of sufficient financial covenant strength to pay the rent and perform the covenants under the lease. This is the case regardless of the assigning tenant's financial position.

 Alexandra Holsgrove-Jones:

Okay. Now you mentioned earlier that the landlord has an obligation to pass requests onto third parties, such as a superior landlord. If a superior landlord delays in giving its response, can the intermediate landlord just wait until the matter has been dealt with by the superior landlord?

Emma Cork:

No, it risks the tenant seeking a declaration, or otherwise arguing that consent has not been given in accordance with the Landlord and Tenants Act 1988. A superior landlord's delay, or refusal of consent, doesn't relieve the immediate landlord of its obligations. The immediate landlord could, however, give its consent subject to a condition that superior landlord's consent is obtained.

 Alexandra Holsgrove-Jones:

Thanks Emma. To finish, can you just run through the key points for landlords and tenants when dealing with requests for consent to assign or underlet?

Emma Cork:

Sure. Both parties need to remember that the starting point is, as always, the lease, and that will govern what's permitted in terms of alienation. A tenent should ensure that it provides the landlord with sufficient information to make a decision, and also that it complies with the service provisions set out in the lease when making the application for consent. Generally, this means that an application by email won't be sufficient. And landlords need to deal with applications swiftly, otherwise they risk consent being deemed to have been refused, and this could result in them having to pay damages to the tenant. There's a lot to think about, whether you're a landlord or tenant when dealing with alienation, so it's vital to ensure that you're properly advised.

 Alexandra Holsgrove-Jones:

Now both under-letting and assignment can leave the exiting tenant on the hook to some extent. In the case of an under letting, the tenant retains its relationship with the landlord, it just has another party in the equation too, the under-tenant. If the tenant assigns, it could find itself having to give an authorised guarantee agreement, or AGA, guaranteeing the performance of the incoming tenants during the period that it remains tenant under the lease. What if the tenant wants to get out of the picture completely?

Emma Cork:

Well, the tenant could surrender the lease, but this would require the landlord to agree to the surrender. And in the current economic uncertainty, many landlords may be reluctant to agree to a tenent surrendering it's lease.

 Alexandra Holsgrove-Jones:

Thank you Emma. And thank you for joining us. If you have any questions on the issues raised, please get in touch and you can also sign up for other TLT Taster sessions.

Get in touch

Related insights & events

View all

Hot topics

Related services