Absolute & Qualified Covenants

LEASE CONSENTS – THE BASICS

Following on from our previous blogs its time to see how your lease works in detail. What if you need to make a change?

It is quite normal that during the course of a lease a tenant may need to approach the landlord for consent for covenants that requires the landlords consent to proceed.  As we have pointed out in previous blogs as each lease differs it is essential to read the lease at an early point to avoid costly mistakes.

The distinction between ‘absolute’ covenants, those that prohibit the act, and ‘qualified’ covenants, those that require the landlord’s consent for that act, need to be understood and they contain certain requirements of both the landlord and the tenant. So be aware of the type of covenant and what you need to do. Here are some pointers;

Tenants request for a change of use;

Absolute Covenant – if the lease clause simply prohibits a change of use then there is no implied term to the effect that consent should be granted by the landlord. You cannot proceed.

Qualified Covenant – this may state that the change of use is permissible subject to obtaining the landlord’s consent.  This may go on to say that the landlord’s consent should not be unreasonably withheld or delayed.
What is reasonableness? Well, there is case law on the question of reasonableness, under the Landlord and Tenant Act 1927 s.19 if the landlord grants consent he cannot charge more than expenses and compensation for loss in value provided that the change of use does not include structural alterations to the property.

 

Tenants request for alterations;

Absolute Covenant – again there are no implied terms.
Qualified Covenant – if the lease clause states that such change is subject to the landlord’s consent it is also implied that the consent cannot be unreasonably withheld or delayed.  The landlord may require payment for compensation for loss in value of the property and expenses and he may also look for re-instatement provided it is reasonable and the improvement did not add value to the property.  Again there is case law which defines what an improvement is and we recommend you take advice. Again, there is case law on the test of reasonableness.

Requests for Assignment & sub-letting;

Absolute Covenant – again, statute does not imply any requirement or the landlord to give consent when there is a prohibition to assign or sublet.
Qualified Covenant – where the lease clause states that assignment or subletting is permissible with the landlord’s consent, statutes assists;

Landlord and Tenant Act 1927 s.19 – there is a proviso that consent cannot be unreasonably withheld and it permits the landlord to recover his reasonable expenses.
Landlord and Tenant Act 1988 s.1 – this provides that landlords are liable for unreasonably withholding and/or delaying consent.  The landlord must provide written reasons for refusing consent or conditions.
Landlord and Tenant (Covenants) Act 1995 – modern leases now specify circumstances when it will be reasonable for a landlord to refuse consent.  Consider this when negotiating and drafting a lease.

Landlord’s advice;

If you are granting a new lease or renewing an old, think carefully about the circumstances in which you would refuse consent to an assignment or subletting. You should also be aware that the more restrictive a lease is the bigger impact it will have on its valuation.

If you receive a tenant’s application then you should act promptly;

Check the lease

Obtain valuation and/or accounting advice.

If you need more time then keep the tenant informed.  If you want more information ask for what you reasonably need and why you need it.

If you want to refuse consent, spend time drafting your response as you only have that one opportunity to explain your reasons.  Provide the supporting advice from your professional team’

Tenant’s advice;

Again, and as always, read the lease for the conditions that need to be performed in relation to your application and meet them.

Check that you are not in breach of any lease covenants. 

Put your request for consent in writing and make it clear what you are asking for. Set a reasonable date for your landlord’s decision and quote the statues above. This shows you know your position and your rights.  Send it by post and recorded delivery.

Pre-empt the landlord’s request for information by providing everything with your application.

If you believe the landlord is stalling, tell him so in writing but carry on dealing with his enquires.

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