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An assignment will rarely be seen in an assured shorthold tenancy. But, it's nevertheless possible. This article looks at case law regarding assignment and landlord's consent.
A sub-letting of the whole term operates as an assignment.
An assignment is different to a sub-letting because the estate in land is transferred from the first tenant to the new tenant. However, an assignment by a tenant is ineffective to pass the tenant's legal estate to the proposed assignees unless it is made by deed [s52(1) Law of Property Act 1925 and _Crago v Julian_ [1991] EWCA Civ 4].
A deed is not required if the landlord expressly or impliedly agrees to the assignees becoming the tenant and accepts him in place of the former tenant [_Crago v Julian_ [1991] EWCA Civ 4], in which case it is not an assignment but surrender and re-grant of the tenancy.
In our view, the Landlord and Tenant Act 1988 does not imply a term a tenant may assign or sub-let, and the Act only applies if there is a term allowing assignment with the landlord's consent.
However, according to the Office of Fair Trading guidance on unfair terms, such a term absolutely prohibiting assignment would be contrary to the Unfair Terms Regulations - see page 107, for example.
Where a clause allows assignment subject to consent, a landlord may require the outgoing tenant to act as a guarantor for the new incoming tenant [section 16 Landlord and Tenant (Covenants) Act 1995].
Assignment mainly occurs in commercial leases but can happen with a residential tenancy. Most of the case law quoted on this page refers to commercial leases, but there is no reason why it would be different to residential (except the last case at the bottom, where the damages awarded to the tenant would be nothing like those in that case).
There is no hard and fast answer to withholding reasonable consent, and the landlord must prove that it was appropriate to do so if they withhold consent—[s1(6)(c) Landlord and Tenant Act 1988].
Where a tenancy is a joint and several tenancy, all the tenants will probably need to consent to the assignment (and sign the deed) because it is very much like surrendering the previous tenancy and granting a new tenancy to a new tenant(s), (for example Leek and Moorlands Building Society v Clark [1952] 2 Q.B. 788).
Where a deed is not done with all joint tenants signing, it is most likely that, in reality, the tenancy will be surrendered, and a new oral tenancy with the new composition of tenants will have been granted.
About giving consent and the landlord not unreasonably withholding consent, the procedure that a landlord and tenant must follow is governed by the Landlord and Tenant Act 1988. Essentially, a tenant must make an application to the landlord; then, the landlord must respond in a reasonable time and give reasons. Once L has given written notice with reasons refusing consent, the period of suitable time for giving consent (required by s1(3) of the Landlord and Tenant Act 1988) has passed. L cannot subsequently change their mind and say that the change has occurred within a reasonable time of the request.
The fact that there were subsequent attempts to negotiate permission to assign did not deprive T of the facts to its rights under the 1988 Act.
"The expression 'within a reasonable time' may have entitled the landlords to a longer period in which to serve the notice than in fact they chose to take. Having chosen to serve a notice, however, they cannot subsequently be allowed to say, because they could have taken more time, that their refusal was ineffective as a refusal under the section. The purpose of written statutory notices such as those required by section 1(3) is to ensure that each party knows where the other stands and the refusal must be treated as such." (Pill LJ at para 80). Go West Ltd v Spigarolo [2003] EWCA Civ 17; 07 EG 136; [2003] 2 WLR 986; [2003] 2 All ER 141.
Landlords often think that they can refuse to consent to an assignment on the grounds that the intended use by the assignee would be a breach of covenant. They used to be wrong. The court's view was that as the landlord will have the same rights against the assignee as he has against the tenant, he would not be prejudiced (Killick v Second Covent Garden Property Co. Ltd [1973] 2 All ER 237, CA). However, the House of Lords has now overruled Killick and held that refusing in these circumstances is not automatically unreasonable. Instead, one must ask what the reasonable landlord would do in the case's particular circumstances. The court cannot and should not formulate strict rules regarding how a landlord should exercise their power of refusal. _Ashworth Frazer Ltd v Gloucester City Council_ (No.2)[2001] UKHL 59: [2002] 05 EG 133.
A requirement for a prospective assignee to offer a guarantor of its covenants is often included in a lease as an absolute requirement in what is otherwise a fully qualified alienation covenant. There is no implied term that the landlord will act reasonably in requesting a guarantor. The most that can be said is that there is an implied term that any request for guarantors must be genuine to improve the landlord's financial security Mount Eden v Towerstone [2002] 31 EG 97; [2003] L&TR 4
Let this case be a warning to any landlord who thinks they might like to make life difficult for a tenant seeking to assign or underlet.
The proposed assignee was suitable. After a reasonable time had passed for making a decision, Ls advisors made increasingly unreasonable demands on T. They even went on to write an outrageous letter in which they accused T of a long delay in furnishing replies.
No decision was given because L, through its agents, was pursuing a deliberately obstructive policy designed to prevent the assignment from going through.
The reason for doing this was that L thought that if the assignment could be prevented, it would be able to negotiate a surrender with a nil premium because of the problematic situation T would be in.
Peter Smith J awarded £25,000 exemplary damages on top of his award under the Landlord and Tenant Act 1988 (which included damages for loss of the premium of £75,000 that it would have gotten from the assignee and a sum for loss of goodwill and turnover).
"It seems to me that it is important to mark the courts disapproval by a sum which will cause the Defendant to consider seriously its future conduct. The sum should not be excessive; it should be moderate. Moderate however, is to be assessed on the overall facts of the case and in the light of the conduct and the need to mark disapproval. It is important for landlords to appreciate that they should not resort to tactics to frustrate legitimate expectation of tenants by raising long and irrelevant queries designed to avoid giving the answer to the application for a licence to assign. This is the more so when the conduct is calculated to achieve an extraneous benefit for itself at the expense of the tenant." (para 150). Design Progression Ltd v Thurloe Properties Ltd [2004] EWHC 324