Landlords’ decisions upheld as tenants fall short in consent applications

Recent decisions of the High Court, here¹ and in England and Wales², serve as an important reminder that landlord rights to consent to tenant proposals are robust and that tenant applications for consent should include everything necessary for the landlord to assess the impact of the application.

The Irish case (“Cambervale”) concerned a unit in a shopping centre, held by a tenant under a 500-year lease. The tenant wanted to sell its interest to a purchaser, who in turn intended to change the unit’s use from public house to community centre. The UK case (“Messenex”) concerned an application by a tenant for consent to two sets of substantial works that would add three floors to a commercial building and convert the ground floor premises to residential use. In both cases the declaration sought by the tenants that the landlords had acted unreasonably in withholding their consent was not granted by the relevant Court.

Cambervale

In Cambervale, the tenant applied to the landlord for consent to the sale, by assignment of the lease. The tenant intended to allow the incoming tenant to apply to the landlord for consent to change of use after the assignment had taken place and planning permission for the change of use had also been obtained. Knowing about the proposed future change of use, the landlord withheld its consent to the proposed assignment on grounds of good estate management. The landlord considered that use of the shopping centre unit as a community centre was not in keeping with a shopping centre which needed to ensure a mix of retail uses.

The tenant claimed that the landlord was acting unreasonably in withholding its consent on that basis, that the withholding of consent was informed by an ulterior motive, namely, to facilitate the landlord in obtaining possession of the unit by way of a surrender at an undervalue for the benefit of its parent company, and that as a 500-year lease, the landlord’s rights should be less in any event. The Circuit Court found in favour of the tenant and the landlord appealed to the High Court.

In the High Court judgment, it was acknowledged that there was no dispute between the parties as to legal principles in Ireland governing the assessment of the landlord’s reasonableness in consent applications. Among these are the principles set out by Haughton J in his judgment in Perfect Pies v Chupn Ltd [2015] IEHC 692 and include that:

• the onus of proving that consent has been unreasonably withheld is on the tenant;
• it is not necessary for the landlord to prove that the conclusions which led them to refuse to consent were justified, if they were conclusions which might be reached by a reasonable person in the circumstances;
• it may be reasonable for the landlord to refuse their consent to an assignment on the ground of the purpose to which the proposed assignee intends to use the premises, even though that purpose is not forbidden by the lease;
• a landlord is not entitled to refuse their consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease.

In Cambervale the High Court held that the tenant had failed to prove that the landlord had acted unreasonably. The landlord was entitled to take into account the proposed use of the unit by the incoming tenant even though no application was made for consent to change of use and the proposed change of use in this case to a community centre represented dead frontage, which was an unsuitable use in a small shopping centre. While the judge noted that a landlord is not entitled to use a tenant’s application for consent to obtain leverage in a strategy to regain possession of premises held under a lease, the Court did not find any evidence of that in this case and also dismissed the tenant’s argument that the fact that the unit was held under a 500-year lease and not a shorter term “occupational” lease should have any bearing on the assessment of the landlord’s rights to be satisfied with the incoming tenant and the proposed use of the unit.

Messenex

Although English and Welsh judgments are not binding in Ireland, they do have persuasive authority and the January 2024 judgment of the High Court of England and Wales in Messenex also signals the critical importance of a tenant providing to the landlord all the information that the landlord would objectively need to consider and assess the application for consent. While two reasons provided by the landlord for withholding its consent to the building works were held to be unreasonable, the Court refused to grant the declaration sought by the tenant that the landlord was acting unreasonably because the landlord’s request for structural drawings to evidence the effect the proposed works would have on the structural integrity of the building was reasonable and had not been met. This follows a decision of the Court of Appeal of England and Wales³ that reasons given by a landlord are free-standing and the question a Court must ask is whether the decision to refuse consent was reasonable; not whether all the reasons for the decision were reasonable.

Conclusion

There are no set requirements for a tenant’s application for consent and no set way in which a landlord must respond, but it is only if the landlord understands the tenant’s proposals and the impact on its interest in the property that the landlord can make an informed decision. It is clearly established law that if the landlord withholds consent, it will be for the tenant to establish that the landlord’s decision was unreasonable. Both these cases highlight that a landlord is reasonably entitled to have and take into account all information relevant to an application for consent and that it is in a tenant’s best interests to facilitate that by ensuring that the landlord has everything objectively reasonably required to assess the impact of an application on their interest in the property. 

While these cases relate to consent in a landlord-tenant context, the principles outlined in the judgments will be useful more broadly.  For example, many financing arrangements include requirements for a lender’s consent to actions that a borrower may wish to take from time to time (e.g. incurring additional debt, creating security or disposing of assets).  The relevant contractual provisions are often negotiated so that the lender consent may not be unreasonably withheld or delayed and the question of reasonableness may sometimes be the subject of debate.  While every contract will turn on its own wording and factual matrix, both the lender and borrower should be able to take useful guidance from these judgments in terms of how to approach requests for consent and the degree to which a lender can reasonably refuse consent.