Design Progression Ltd v Thurloe Properties Ltd

Under the Landlord and Tenant Act 1988, a landlord must decide an application for consent to assign within a reasonable time. The landlord must then give consent, refuse it on reasonable grounds, or give conditional consent. If no decision is made by the end of that period, the landlord is in breach, regardless of whether it might later have had reasonable grounds for refusal.

Reasonable time depends on all the circumstances, including the information reasonably required and any delay by the tenant. A landlord must assess the proposed assignee and the transaction as a whole. It must not use repeated, irrelevant requests for information to pursue an extraneous commercial objective. Exemplary damages may be awarded where the landlord cynically abuses the statutory regime to obtain a profit.

The claimant held a short residue of a commercial lease containing a qualified covenant against assignment. It agreed an assignment to a successful sole-trader interior designer for a premium of £75,000 and applied to the defendant landlord for consent.

The landlord and its advisers requested further financial information over several months, including audited accounts and extensive business material. No decision to consent, refuse, or consent conditionally was communicated. The claimant alleged breach of the statutory duty under the Landlord and Tenant Act 1988, claimed damages, and later obtained permission to claim exemplary damages.

The issues were when reasonable time expired, whether the landlord had breached its statutory duty, the recoverable compensatory loss, and whether exemplary damages were available and appropriate.

1. Statutory duty and outcome. The claim succeeded. The defendant breached its duty under section 1 of the Landlord and Tenant Act 1988 by failing to make and communicate a decision within a reasonable time. The counterclaim was dismissed.
2. Reasonable time. The period is assessed by reference to all the circumstances, including the information available when the application was made, subsequent events, and any delay caused by the tenant. On the evidence, the latest reasonable date was 21 March 2002, alternatively 25 April 2002.
3. By 21 March the defendant had the relevant accounts, management information, references and information about the proposed assignee. The remaining demands were largely irrelevant and formed part of a deliberate obstructive strategy. The defendant’s failure to decide by the cut-off date constituted a breach whether or not it had reasonable grounds to refuse consent. A later ability to formulate reasons could not cure the breach.
4. The proposed assignee’s covenant had to be assessed in the context of the short residue, the under-rented premises, the continuing liability of the existing tenant and surety, and the lease’s alienation provisions. The landlord could not take into account the prospective assignee’s ability to pay a rent under a future renewal as though that were part of the application.
5. Damages. The claimant was entitled in principle to the lost premium, appropriate wasted rent, the agreed loss-of-profit sum, and reduced reinstatement costs, subject to mitigation. Expenditure incurred because the claimant chose to leave the premises, rather than because of the breach, was not recoverable.
6. Exemplary damages. Following Kuddus v Chief Constable of Leicester Constabulary [2002] 2 AC 122 and the second category in Rookes v Barnard [1964] AC 1129, exemplary damages were available for a cynical abuse of the statutory process calculated to secure a profit exceeding the likely compensation. The defendant’s failure to complete its scheme did not prevent an award. £25,000 was awarded to punish the conduct and mark the court’s disapproval.