A recent Supreme Court case has emphasised that tenants will not always succeed in obtaining damages where a landlord unreasonably withholds consent.

Initially, the High Court had concluded that the landlord was obliged to act reasonably and having failed to so act, it was liable in damages for breach of covenant. There was no specific provision in the lease to act reasonably and this was therefore implied from the relevant legislation.

On appeal, the Supreme Court decided on 16 June 2010 that the statutory proviso does not place a positive obligation on the landlord to act reasonably; it merely aids interpretation of the tenant’s covenant not to assign without consent.  Accordingly, there being no covenant on the part of the landlord to act reasonably, there was no breach of covenant by the landlord entitling the tenant to damages.

This decision will have far reaching implications for landlords and tenants.  The remedies now available to a tenant faced with a landlord acting unreasonably are (i) a declaration from the Court that the withholding of consent is unreasonable or (ii) the taking of an informed risk to assign without consent and then defending any action by the landlord on the basis that, having applied for consent, the landlord unreasonably refused such consent.  It would not be prudent for a tenant to attempt to assign in the absence of consent without first obtaining advice on the matter.

A prospective assignee is unlikely to await the outcome of proceedings or wish to embroil itself in a potential dispute with the landlord by taking the assignment without consent.

The decision swings the pendulum firmly back in favour of the landlord in cases of this nature.  However, it is not safe to say that the tenant can never seek damages. The terms of the lease need to be reviewed in every case.  Damages may still be available to a tenant where there is a covenant by the landlord to act reasonably with regard to consent applications.  Tenants need to be especially vigilant in negotiating leases to ensure they provide for such a covenant on the part of the landlord in light of the Supreme Court’s decision.