Landlord and tenant: new protocols and lease applications
14 June 2016
Mathew Ditchburn explains how new protocols can lead to fewer disagreements over lease applications
There are lots of opportunities for landlords and tenants to fall out. Some disputes are necessary, so as to resolve an important point of substance. Those around process, however, often benefit no one, but incur time and cost without getting to the heart of the matter.
Assigning and underletting
Tenants’ applications for landlord’s consent are a paradigm case. Take, for example, a covenant against assignment or underletting without landlord’s consent, which is 'not to be unreasonably withheld'. The tenant may find a prospective assignee or undertenant wishing to take the leased premises and apply to their landlord for consent.
The process can stall straightaway if the landlord says that they lack sufficient information on which to base their decision. Or they may say that they need several weeks or months to decide, even if that means losing the prospective assignee or undertenant.
The landlord’s concerns may be entirely genuine. The tenant, however, may suspect that the delay is tactical. Such situations can snowball quickly: the more the parties argue, the higher the costs will be, which the landlord will want paying, and the more scope there is for further argument.
Both sides put themselves at risk, then. The tenant loses valuable time, which can damage its business, while the landlord risks a claim if they are found to have acted unreasonably. The courts are not always best suited to resolve these disputes either, as the damage will invariably have been done before the parties can get to trial.
Reducing and resolving disputes
Against this backdrop, the Protocol for Applications for Consent to Assign or Sublet (the Alienation Protocol) was devised as a behavioural code and best practice guide, applicable to commercial properties in England and Wales. It aims to improve communication, avoid unnecessary arguments and guide the parties towards alternative dispute resolution (ADR) methods such as arbitration or mediation.
The Alienation Protocol has been positively received by the industry, with the British Property Federation and RICS Dispute Resolution Service among those providing endorsements. It has been used by landlords to regulate the applications process, and may ultimately be seen referenced in leases.
It was always intended that the Alienation Protocol would be the first in a series of such guides. To that end, the Protocol for Applications for Consent to Carry Out Alterations (the Alterations Protocol) has now been launched. It applies where a tenant wishes to carry out alterations but the lease restricts their ability to do so. Compliance with this protocol should help landlords and tenants focus on what to do to avoid costly and unnecessary squabbles, identify the issues and settle disputes quickly by ADR.
Alterations and improvements
Alterations clauses in leases typically fall into 2 categories: those absolutely prohibiting alterations (such as structural or exterior works) and those requiring landlord’s consent. Even where the lease does not say so, if the alterations are 'improvements' then section 19(2) of the Landlord and Tenant Act 1927 provides that such consent cannot be unreasonably withheld.
The Alterations Protocol requires that any application should adequately describe the proposed works, including by reference to detailed plans, drawings and specifications. There may be a mixture of works within and outside the leased premises, structural and non-structural, requiring consent and unrestricted. The tenant should identify which of these are which, providing the information in a single package.
The landlord will usually be entitled to their reasonable and proper costs. The tenant should give an enforceable undertaking for these. Any cap should take into account the complexity of the proposed works, the value of the property, professional advice required, consent needed from a superior landlord and conditions imposed. The landlord should not use any disagreement over this as an excuse not to start dealing with the application.
The landlord should acknowledge the application within 5 working days, and indicate whether they require further information. If so, the tenant should provide it as soon as reasonably possible.
There is no statutory obligation for a landlord to respond to an application for consent to carry out alterations within a reasonable time, or give reasons for any refusal, unlike applications for consent to assign or underlet, where this is imposed by section 1 of the Landlord and Tenant Act 1988). Nevertheless, the Alterations Protocol directs landlords to respond reasonably promptly and give any reasons for refusal in writing. The more these protocols are used, the more beneficial they will be.
Mathew Ditchburn is a partner in Hogan Lovells’ Real Estate Disputes team
- View both protocols on the Property Protocols website
- Related competencies include Conflict avoidance, management and dispute resolution procedures, Landlord and tenant, Leasing/letting
- This feature is taken from the RICS Property journal (May/June 2016)