The Relationships Between Landlord and Tenants - Essay Example

? The relationship between landlord and tenants in relation to assignment of leases and recovery of rent arrears : The relationship between landlord and tenants in relation to assignment of leases “not to be on unreasonably withheld” & the legal and softer approach to dealing with rent arrears bearing in mind a proactive management approach Introduction Question one : Case scenario The first question deals with assignment of a lease by the tenant whereby the lease agreement permits for assignment, but with the consent of the tenant. In this case, the consent of the tenant cannot be unreasonably withheld. One of the shop is used by a hairdresser who wish to assign the lease to another hairdresser in the town. Shelagh (the other hairdresser) is considered a better covenant than existing tenant since she has a more profitable business than the current tenant. Although, I dislike Shelaghm, the lease permits the tenant to assign the premises with my consent. In this case, I cannot withhold the consent unreasonably. In the above case scenario, I cannot simply say no to the assignment of the lease. There are numerous laws that govern the landlord and tenant relationship with regard to the assignment of the lease. The Amendment of law of property Act 1925, provides the procedure for discharging or modifying any covenants including leaseholds (Pawlowski, 2002). The lease is of a commercial property and entails a covenant that is legally binding to the landlord and tenant. The tenant has the right to assignment lease to another tenant. Accordingly, the covenant requires the tenant to make an assignment only with the consent of the landlord. The Landlord and tenant Act 1988 imposes a duty on the part of the Landlord in the assignment of the lease (Pawlowski, 2002). According to Section 1 of the Landlord and tenant Act 1988, the tenancy may include a covenant not to enter in assignment of the lease without the consent of the landlord (Karp and Klayman, 2003). According to Section 1 (3) of the same Act, the tenant can make an application for the consent of the landlord as regards the assignment of the lease. In this case, the landlord cannot withhold his consent unreasonably and must respond within the appropriate time of his decision regards the assignment of the lease. Accordingly, the landlord must notify the tenant of any conditions attached to the consent or reasons for withholding the consent (Karp and Klayman, 2003). In addition, section 19(1) a of the landlord and tenant ACT1927, makes it clear that a landlord cannot unreasonably withhold his consent in a qualified covenant (Karp and Klayman, 2003). Accordingly, section 19 (1A) of the landlord and tenant Act 1927 allows both the landlord and tenant to agree of certain conditions that will apply while granting the consent of assignment (Pawlowski, 2002). In this case, the landlord will not unreasonably withhold his consent if he withholds the consent due to a specific circumstance that attaches to the assignment. In the above case, it is the legal duty of the landlord to grant the consent of assignment or provides reasons for the withholding of the consent (Karp and Klayman, 2003). Ideally, the main issue that arises in the grant of assignment consent is financial capability of the proposed new tenant. The landlord can ask for the financial accounts of the proposed tenant and enlist the services of a credit rating agency in determining the creditworthiness of the proposed tenant (Pawlowski, 2002). In the above case, Shelagh has a more profitable business and thus more credit worth than the current tenant. Accordingly, the landlord is entitled to take in to full consideration of the attaching property interests in the whole property such as good estate management reasons (Karp and Klayman, 2003). The landlord will seek satisfaction that the proposed new tenant is capable of complying with the lease covenants after the assignment and require for additional securities such as rent deposit and guarantees. In addition, the landlord will examine the nature of the proposed tenant’s business and review whether it will accommodate tenant-mix policy (Karp and Klayman, 2003). According to the case of Go West Ltd v. Spigarolo (2003) EWCA Civ 17, (2003) QB 1140, the landlord provided the tenant with a written notice withholding the consent to assign lease. In addition, the refusal notice was provided at the end of reasonable period to grant the notice of withholding the consent (Karp and Klayman, 2003). The lease provided for assignment with the consent of the landlord. The correspondence between the two parties implied that the notice of refusal was issued after the stipulated period of providing the consent. The court held that the continuing correspondence between the landlord and tenant was an indicator that the consent was being unreasonably withheld. The Judge ruled that that the reasonable time for consent to assignment is through providing a written notice as outlined in Section 1 (3) of the 1988 Act and that the landlord must have either declined the consent or awarded his consent at the first correspondence. In this case, the landlord could not claim that a reasonable time for consent had elapsed and therefore breached his duty to the lease (Karp and Klayman, 2003). According to the case of International drilling fluids Ltd v. Louisville Investments (Uxbridge) Ltd (1986) Ch 513 whereby the landlord refused an assignment proposal from a tenant who occupied the premises as his permanent offices (Senn, 2011). The proposed tenant was to use the premises as serviced offices and the lease provided for the use of the premises as offices. Since the new tenant was to use the premises for purposes stipulated by the lease, the court held that the withdrawal of consent by the landlord was unreasonable (Senn, 2011). Accordingly, Lord Justice Balcombe summarized his findings by asserting that the purposed of a qualified covenant against alienation is for the protection of landlord from undesirable occupation of the property (Senn, 2011). Accordingly, the Lord observed that the landlord is not entitled to refuse consent for assignment on any collateral grounds that do not involve the relationship between the landlord and tenant as regards the premises (Karp and Klayman, 2003). In addition, the landlord bears the burden of prove in ascertaining whether the consent was reasonably withheld and the refusal grounds must be reasonable according to the prevailing circumstances (Karp and Klayman, 2003). Further, the landlord can refuse the consent if the proposed tenant intends to use the premises for any other purposes other than those outlined by the lease and it is prudent to refuse the consent in order to safeguard the landlord’s existing rights (Senn, 2011). Accordingly, it is unreasonable to impose a condition that will enhance the control of the landlord after the assignment. In addition, the landlord must consider the detriment suffered by the proposed tenant if he withholds his consent. In the case of Kened Limited and Another V. Connie Investments Limited (1997) 1 EGLR 21, Lord Miller held that the landlord and tenant Act 1988 required the landlord to clearly state his reasons for withholding the consent in writing within a reasonable time (Karp and Klayman, 2003). This judicial view was further emphasized in the decision of Footwear Corporation Limited V. Amplight Properties Limited (1998) 2 EGLR 28 where Lord Neuberger if the landlord did not provide the reasons for withholding the consent within a reasonable time, then he would not rely on those reasons in a court while justifying the withholding of the consent. In the case of Bickel v. Duke of Westminster (1977) QB 517, the court held that the refusal to consent must be reasonable (Senn, 2011). Lord Denning pointed out that the reasonableness of the refusal must be measured by all circumstances attached to the particular case (Karp and Klayman, 2003). The Lord clarified that the character of the proposed assignee was not only the yardstick in determining the landlord’s refusal of consent (Senn, 2011). The reasonableness of consent was further elaborated in the case of Ashworth Fraser V. Gloucester City Council (2001) 1 WLR 2180, Lord Bingham clarified the seven propositions articulated in the case of International drilling Fluids Limited v. Louisville Investments (Uxbridge) investments. Lord Bingham outlined that a landlord could not withhold his consent on assignment on grounds that are irrelevant to the relationship between the landlord and tenant as regards to the subject matter of the lease (Karp and Klayman, 2003). This same principle had earlier on expressed in the case of Houlder bros & Co. Limited v. Gibbs (1925) CH 575, 587 where Sargant LJ ruled that the grounds of refusal must not be something extraneous and completely disassociated with the underlying subject matter of the lease contract. Accordingly, Lord Bingham asserted that the refusal of consent must be similar to that of a reasonable man acting in the same circumstances (Senn, 2011). If the landlord says no, without providing any reasons, the tenant has the right to take the matter to courts and claims that the landlord has breached the lease agreement by unreasonably withholding the consent to assignment (Karp and Klayman, 2003). After the landlord says no to the consent, the tenant can either proceed without the consent and assign the lease to the assignee (proposed tenant) or make an application to the court for a declaration that he or she is supposed to proceed with the assignmen (Senn, 2011)t. It is the burden of the landlord to prove that his refusal was reasonable. Accordingly, the landlord must offer reasonable reasons for withholding the consent. According to 2007 lease code, landlords must allow assignments in circumstances where the covenant strength of incoming tenant or guarantor is equal or greater than that of the outgoing tenant. In this case, Shelagh is more profitable and creditworthy than the outgoing tenant. The tenant is entitled to damages and some damages may be punitive in order to punish the landlord for breach of his duty. Section 4 of the landlord and tenant Act 1988 entitles the tenant to sue for damages for the breach of statutory duty by the landlord (Senn, 2011). For instance, the decision in the case of Design Progression v. Thurloe Properties (2005) 1 WLR I, the court awarded the tenant exemplary damages in order to punish the landlord for breach of the statutory duty contained in the 1988 Act. Since the landlord just said ‘no’ without reasons for refusal of the consent, the courts will not allow him to rely any reasons that he did not provide to the tenant in writing and within a reasonable time during the withholding of the consent (Senn, 2011). Some of the possible court rulings will include termination of the lease. In this case, the court will rule that the landlord has breached his duty under the covenant and led to substantial injury to the tenant. Accordingly, the court can require for specific performance whereby the landlord is expected to consent to the assignment request. The court can also issue exemplary damages and damages for emotional distress to the tenant (Senn, 2011). The emotional distress damages will contain the attorney’s fees and other associated costs while exemplary damages will aim at punishing the tenant for breach of his duty under the covenant. However, the landlord can demonstrate that Shelagh is not a respectable and responsible assignee and require for the entry of direct covenants with Shelagh in order to preserve all covenants and conditions of the lease. In this case, the landlord must claim that he objected to the assignment of the grounds of the covenant strength of Shelagh such as the ability to maintain al covenants of the lease. This argument was demonstrated in the case of The Royal bank of Scotland v. Victoria Street (3 ) Limited (2008) EWHC 3052 (Ch), whereby the court ruled that the landlord could object to assignment request if he is concerned with the practical payment of rent and observance of all covenants of the lease (Senn, 2011). Case two The other shop is occupied by a tenant who has not paid rent for the last three quarters despite many promises to make the rent payments. There are numerous legal steps that the landlord can follow in order to recover the rent arrears or terminate the tenancy agreement. There are numerous legal and safer approaches of dealing with rent arrears. The tribunals, courts and enforcement Act 2007, provides the procedure that a landlord can use in recovering commercial rent arrears (Senn, 2011). The procedure is outlined in Schedule 12 that deals with taking control of goods to recover the rent that is payable under the lease. Section 77 of the Act requires that the rent be payable before the notice of enforcement and be capable of being calculated with certainty (Senn, 2011). This Act also abolished the distress for rent Act of 1689. The landlord can seek for enforcement powers from the court in order to recover the rent arrears through taking possession of the goods. The distress remedy was replaced by Commercial Rent Arrears Recovery (CRAR) that provides a softer approach of recovering unpaid rent (Senn, 2011). The landlord can take control of the goods through making appointing bailiffs (enforcement officers). The landlord can either take control of the goods through an agreement, securing the goods on a public highway or removal from the tenant’s premises. The landlord must provide a 14 days notice to the tenant and seizure of goods will take place within 3 months after the issue of the notice (Senn, 2011). The entry of premises will take place during normal working days. Accordingly, the seized goods will be sold in order to enable the landlord to recover the outstanding net rental arrears. In addition, the landlord can recover the rent from sub-tenants of the premises (Senn, 2011). Another option that is available is application for the termination of the lease. The regulatory reform (business tenancies) (England and Wales) order 2003 provides the landlord with the right to make an application for the termination of the tenancy (Senn, 2011). Section 5(2) provides that the landlord can make an application for a court order to terminate tenancy without the grant of a new tenancy. According to Section 5(4), the court must be satisfied that the grounds for the termination are reasonable. Another option is re-entry and termination of the lease. The landlord must exercise his right of re-entry before the expiry of the lease. All commercial leases grant damages for breach of covenants and right to termination for breach of a condition (Senn, 2011). If the lease provides the right of re-entry, the landlord can re-enter the premises before the expiry of the lease due to the rent arrears. In this case, Section 14, schedule 4 of the land transfer form Act, R.S.B.C 1996 allows for re-entry of the premises without any formal demand after the lapse of 15 days if the rent is unpaid (Senn, 2011). However, the landlord must provide a notice of re-entry as outlined in the case of Burlington Northern Railroad Co. v. Baseline Industries Ltd, (1993) B.C.J 1882 since a failure to provide a notice will contravene the landlord’s right to re-entry (Senn, 2011). In my view, the best option of dealing with the rent arrears is following the Commercial Rent Arrears Recovery procedure. Since the tenant has a hairdresser business, the landlord will be capable of seizing the hairdressing equipment and recovering the rental arrears from the disposal of such equipments. In this case, the landlord must provide a 14 days notice to the tenant and appoint enforcement agents. Conclusion The Landlord and Tenant Act 1988 provide that the landlord has a duty to provide consent for assignment request within a reasonable time and not to withhold such consent unreasonably. The landlord must also outline the reasons for refusal of the consent in writing and provide reasons for withholding the consent. The unreasonable withholding of the consent makes the landlord liable to breach of duty as outlined in the lease. In this case, the tenant can claim tortuous damages as outlined by Section 4 of the Act. The Court will issue punitive damages for unreasonable withholding of the consent. Accordingly, the landlord has various options of recovering rent arrears. The Commercial rent arrears recovery procedure outlines various steps that the landlord can use in taking possession of the tenant’s goods and ultimately recovering the net outstanding rent. Reference list: Karp, James and Klayman, Elliot. 2003. Real estate law. London: Real Estate Education. Pawlowski, Mark. 2002. Leasing commercial premises. London: Taylor & Francis. Senn, Mark. 2011. Commercial real estate leases: preparation, negotiation, and forms. London: Aspen Publishers. Secondary sources Landlord and Tenant Act 1927. Landlord and Tenant Act 1988. The Regulatory Reform (Business Tenancies) (England and Wales) order 2003. Tribubals, Court and enforcement Act 2007. Burlington Northern Railroad Co. v. Baseline Industries Ltd, (1993) B.C.J 1882. Design Progression v. Thurloe Properties (2005) 1 WLR I. Go West Ltd v. Spigarolo (2003) EWCA Civ 17, (2003) QB 1140. Houlder bros & Co. Limited v. Gibbs (1925) CH 575, 587. International drilling fluids Ltd v. Louisville Investments (Uxbridge) Ltd (1986) Ch 513. Kened Limited and Another V. Connie Investments Limited (1997) 1 EGLR 21. The Royal bank of Scotland v. Victoria Street (3 ) Limited (2008) EWHC 3052 (Ch). Read More