Articles | Alienation

The term "alienation" refers to the provisions in leases which govern the tenant's ability to transfer the lease, underlet the premises or share occupation of the premises.

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The term “alienation” refers to the provisions in leases which govern the tenant's ability to:

• transfer the lease (known as an assignment)
• underlet the premises (known as an underletting or sub-letting)
• share occupation of the premises (known as sharing occupation)

The ability for the tenant to assign, underlet or share occupation is dictated by the alienation provisions in the lease. Complete freedom for the tenant to deal with the premises without the landlord's consent will be possible if the lease does not contain any restrictions on alienation. This is not likely to be acceptable to most landlords. Similarly a lease with a complete prohibition on dealing (i.e. no alienation permitted) is not likely to be acceptable to tenants. Therefore a balance between the concerns of both the landlord and tenant will have to be reached.

Assignment

From a tenant's point of view a lease may have the potential to become a burden if they are not able to dispose of it in circumstances where the premises are surplus to requirements or no longer suitable for their needs. For a landlord, close control over dealings with the lease is essential to ensure that the lease is not transferred to an unsatisfactory tenant. By keeping close control over the assignment process a landlord can ensure that an incoming tenant is of good financial standing.  Furthermore, if the premises form part of a business or trading estate or shopping centre the landlord will want to ensure that the business carried on by the incoming tenant will not have a detrimental effect on the landlord's other existing tenants.

Underletting (or sub-letting)

The tenant may, for the reasons stated above, seek to underlet or sub-let either the whole or part of the premises. Again, the landlord will wish to control the ability of the tenant to underlet or sublet and it is important for the landlord to ensure that the sub-tenant is of sufficient financial standing and will be able to pay the rent and comply with the tenant’s obligations in the “head” lease because if there were to be a problem with the “head” tenant the landlord could end up having the sub-tenant as its direct tenant.  Sharing occupation

A landlord may also wish to prevent the tenant sharing occupation of the premises with a third party, for example allowing a concession stand within a retail store.  The tenant may desire to be able to share occupation of the premises with another company in the same group of companies as itself which is something that many commercial leases will permit.  Dealing with part of the premises

A landlord will often impose much stricter control on dealing with only part of the premises; often a complete prohibition. This is to avoid the estate management problems which dealings with part can create. If the landlord wishes to restrict a tenant from underletting anything other than the whole of the premises then the lease must contain wording which prohibits such dealing. A restriction in the lease which states simply that assignments and underlettings are prohibited without the consent of the landlord may have the undesired effect of permitting the assignment or underletting of part of the lease.

Restrictions on dealings

It is common for landlords to impose restrictions on tenants dealing with their premises or their lease. The most common restriction is for dealings of part and those which fall short of underlettings and assignments (such as sharing possession) to be prohibited and for dealings of the whole to be permitted but only with the landlord's consent.  In this way a balance is struck between the interests of the landlord and tenant.

A provision restricting dealing within the lease will commonly also contain:

• For assignments of leases granted before 1 January 1996, a requirement for the incoming tenant to enter into a direct obligation with the landlord to perform the tenant’s obligations in the lease. For leases granted after 1 January 1996 a lease will usually stipulate the conditions which must be satisfied or circumstances that must exist before the landlord will give his consent.
• For underleases, the conditions which will apply to the underletting are contained in the restriction within the lease. In particular the landlord will wish to ensure that any underlease is at a rent which is not less than the market rent for the premises and that the undertenant enters into a direct obligation with the head landlord to abide by the terms of the headlease.

Not to unreasonably withhold consent

The Landlord and Tenant Act 1927 provides that a restriction within a lease not to assign or sub-let premises without the landlord's consent is subject to an implied proviso that such consent should not to be unreasonably withheld or delayed.

The Landlord and Tenant Act 1988 provides that in situations where the landlord's consent is not to be unreasonably withheld, once a written application for consent to an assignment or underletting is made by a tenant a duty is imposed on the landlord to give their consent (except where it is reasonable not to do so) to the tenant together with a written notice of the decision.

What is reasonable?

With leases granted after 1 January 1996 and where the landlord has stipulated in the lease circumstances and conditions which the tenant must comply with, then, if the tenant does not meet these requirements the landlord will be reasonable in refusing his consent to a request to assign. If the landlord refuses consent for reasons not specified then this will not be reasonable.

The Landlord may stipulate whatever conditions he chooses and they might, for example, include the incoming tenant to be publically listed company, profits to equate to, say, three times rent or that the outgoing tenant enters into what is known as an Authorised Guarantee Agreement (which is an agreement to act as guarantor for the new tenant for so long as the new tenant holds the lease).

With leases entered into before 1 January 1996 or with underlettings, whether the landlord is acting reasonably in refusing consent will depend on the facts existing at the time.  The decision to refuse consent must be reasonable on the facts of each case and it is for the landlord to show that its conduct was reasonable.

The Courts have determined various cases which have decided that the landlord's refusal was reasonable.

These include:

• The landlord is entitled to be satisfied that the financial position of the proposed new tenant (where relevant, taken together with the financial position of any guarantor) is sufficient to be able to pay the rent and comply with the lease covenants.
• Where a landlord reasonably requires a guarantor, it is reasonable for the landlord to request confirmation, not only that a proposed guarantor is good for guaranteeing the rent, but also that it is good to meet all its contingent liabilities (for example paying for repairs to the premises, services, charges, etc.)
• If there is good reason to believe that the proposed new tenant will commit substantial breaches of covenant or where there are substantial and long-standing breaches of covenants and the landlord is not reasonably satisfied that the proposed new tenant will remedy these breaches.
• Refusal of consent to an assignment on the grounds that the proposed new tenant intends to use the premises in breach of the user covenant is reasonable.
• A landlord of a shopping centre will be reasonable in withholding consent where the nature of the proposed new tenant's business does not accord with the landlord's tenant-mix policy, as long as that policy is known to the tenants and is a rational one

What if a refusal is unreasonable?

The landlord is faced with a statutory duty to be reasonable. If this duty is breached the tenant can seek either damages from the landlord for breach of that duty. The tenant may also apply to the court for a declaration that the landlord is unreasonably refusing consent. If granted, the declaration allows the tenant to do what it requested consent for, without formal consent from the landlord.