The subject of Landlord’s Consents can be a very confusing one for both landlords and tenants alike, but it is crucial to ensure clarity so both parties are aware when and how a tenant may assign, sub-let, make alterations to or change use of a commercially rented property.
Striking a balance between protection and flexibility
All commercial Leases should aim to strike a balance between the Landlord’s long-term interests in the property and the Tenant’s shorter-term occupation of it; the Lease should protect the capital value of the Landlord’s asset while being flexible enough to allow the Tenant to carry on their business.
The parties’ differing objectives mean that when drafting commercial leases there are a number of points which commonly require close attention and can give rise to the need for amendments in order to ensure both parties’ interests are properly protected.
Obtaining the landlord’s consent
In this article, Tom considers one such issue, namely requirements that the Tenant obtain the Landlord’s consent before taking specified steps in relation to the property.
Almost all commercial leases will specify a number of circumstances in which the Tenant must obtain the Landlord’s consent.
Where the Landlord owns a substantial asset, it is not unreasonable that they should wish to retain control, particularly given that inappropriate actions of the Tenant may affect the value of the property, or the ease with which it could be sold or re-let in the future.
For Tenants, the ability to obtain consents can be critical to their ability to react to changing times and carry on their business from a property. Tenants generally prefer flexibility in their leases and will feel that the fewer instances in which the Landlord’s consent is required the better.
It will always be necessary to consider the specific terms of any given lease, but some situations in which a landlord’s consent may often be required include, for instance, before the Tenant:
- – transfers the lease or sub-lets the property;
- – makes alterations to the property (although some minor alterations may not require consent),
- – redecorates the property (particularly near the end of the lease term),
- – displays signage at the property, and
- – makes any planning application.
Most commercial leases will state that a Landlord’s consent must be given in writing and that consent will also be required from any superior landlords and/or mortgagees of the property. In addition, many leases will provide that a Landlord may attach conditions to any consent(s) that it grants; the type of conditions that can be attached will depend on the wording of the lease.
Dealing promptly with tenant’s application for consent
One tactic that Tenants and their solicitors often use is to agree that the Landlord’s consent must be obtained on condition that the Landlord agrees not to unreasonably withhold or delay giving consent. In these circumstances the onus would be on the Landlord to demonstrate clear reasons why consent should not be given, for instance because the Tenant’s proposed actions may have an adverse impact on the value of the property going forwards.
Clearly there is a balance to be struck for both parties and usually reasonableness will be the key; whilst both parties have their own separate interests to protect, it will be in both parties’ interests to preserve a good working relationship.
However, if matters do become contentious then issues surrounding Landlords’ consents can be particularly difficult to resolve – for instance it is often difficult to assess whether a party has behaved reasonably in relation to a consent. Tenants will often argue that Landlords have unreasonably withheld or delayed giving consent whereas Landlords frequently assert that the tenant has not followed the correct procedure as set out in the lease.
Whether you are a Landlord or a Tenant, we would recommend seeking specialist advice; this advice is generally needed in two separate stages:
When agreeing the Lease – Both parties should ensure that they understand the circumstances in which consent is required and whether the Landlord will have the right to withhold consent and/or attach conditions. Both parties should seek to ensure that their interests (including any longer-term plans for the property) are sufficiently safeguarded.
When the Tenant envisages requesting Landlord’s consent – The Tenant should seek advice about the formalities required by the lease (this may be very different from one lease to the next) and how best to comply. The Landlord should seek advice regarding its rights and how it can go about protecting its interests. Most leases will state that where a Tenant applies for a Landlord’s consent then the Tenant must pay the Landlord’s legal costs in connection with the process.
Tallents can help at every stage in the process of drafting a commercial lease. Our commercial property department has experience in advising both Landlords and Tenants regarding all aspects of commercial lease negotiations and the Landlord and Tenant relationship. In the event of a dispute then our specialist litigation solicitors can guide clients through the process.