Straudley Investments Limited v Mount Eden Land Limited

Under the Landlord and Tenant Act 1988, a landlord must consent to a proposed underletting unless refusal is unreasonable. Consent subject to an unreasonable condition does not satisfy that duty, and the landlord bears the burden of proving that the condition is reasonable.

A condition will normally be reasonable where necessary to protect the landlord’s contractual rights under the headlease. It will normally be unreasonable where designed to increase or enhance those rights. A landlord cannot use a consent condition to obtain security or monitoring rights absent from the headlease. A joint-account rental deposit was therefore unreasonable where it preserved an undefined security interest for the landlord.

Straudley was the tenant under a long headlease of premises divided into seventeen units. The lease prohibited underletting without the landlord’s prior written consent, such consent not to be unreasonably withheld or delayed. Straudley sought consent to underlet one unit and proposed taking a nine-month rental deposit from the subtenant.

Mount Eden agreed in principle but required half the deposit to be held in joint names. Straudley refused the condition. The Central London County Court held that the condition was unreasonable, granted a declaration and awarded damages of approximately £20,000 including interest. Mount Eden appealed on the issue whether the condition was reasonable under the Landlord and Tenant Act 1988.

The appeal was dismissed with costs. Lord Justice Phillips delivered the leading judgment, and Lord Justice Mummery agreed.

1. Under sections 1(3)(a), 1(4) and 1(6)(b) of the Landlord and Tenant Act 1988, the landlord had to consent unless it was unreasonable not to do so. Consent subject to an unreasonable condition was insufficient. Mount Eden therefore had to prove that the joint-account condition was reasonable.
2. The Court adopted the principles drawn from International Drilling Ltd v Louisville Investments [1986] 1 Ch 513, including the purpose of a covenant against assignment or underletting and the rule against reliance on collateral matters. The landlord need not prove that its conclusions were correct if they were conclusions which a reasonable person could reach in the circumstances, but the condition still had to relate to the landlord–tenant relationship.
3. The Court formulated two further principles. It will normally be reasonable to refuse consent or impose a condition necessary to prevent prejudice to the landlord’s contractual rights under the headlease. It will normally be unreasonable to impose a condition designed to increase or enhance those rights.
4. Mount Eden’s asserted need for early warning of rent arrears could not justify the condition because the headlease conferred no such right. The real purpose was to retain a security interest in the deposit if both the subtenant and Straudley were in default. The condition was especially unreasonable because it did not define when or how Mount Eden could exercise control over the deposit. It was therefore an illegitimate attempt to improve Mount Eden’s position under the headlease.

• Court of Appeal (Civil Division): [1996] EWCA Civ 673. Appeal dismissed with costs.
• Central London County Court: On 3 November 1995, His Honour Judge Diamond QC held that the condition was unreasonable, granted a declaration and awarded damages including interest.