NCR Ltd v Riverland Portfolio No1 Ltd

A landlord considering consent under the Landlord and Tenant Act 1988 must decide within the time reasonably required by the completed application and the circumstances. A substantial or unusual transaction may justify more than a short period where legal and financial implications require advice or board consideration. For withholding consent, genuine and relevant concerns suffice; objective correctness is unnecessary. The concern must be founded and related to the landlord–tenant relationship. A landlord may ordinarily consider its own interests, although exceptional disproportion between its benefit and the tenant’s detriment may make refusal unreasonable. Underletting and assignment attract the same general principles, although their practical consequences differ.

Riverland was landlord of premises let to NCR under a 25-year lease requiring consent before underletting. NCR applied to underlet to Telco, involving a substantial reverse premium. A completed application was supplied on 28 July 2003. Riverland refused consent on 20 August 2003, relying on the proposed underlessee’s covenant strength and the financial terms.

The High Court, with Peter Leaver QC sitting as a deputy judge, declared that Riverland had failed to decide the application within a reasonable time and had unreasonably withheld consent. Riverland appealed. The issues were whether the decision was timely, whether refusal was unreasonable, and whether a change to the proposed payment structure invalidated the application.

The appeal was allowed unanimously. Carnwath LJ gave the leading judgment, with which Slynn and Ward LJJ agreed. The declarations made below were set aside.

1. Reasonable time. The formal statutory application had to be distinguished from earlier informal exchanges. The completed application was received on 28 July. The court adopted the approach in Go West Ltd v Spigarolo [2003] QB 1140: reasonable time means the time reasonably required by the landlord to perform the statutory task. The transaction involved a substantial reverse premium and serious legal, financial and estate-management issues. In the absence of special exceptional circumstances, less than three weeks during the holiday period was not inherently unreasonable. Telco was willing to wait until 20 August, and no practical harm from the delay was shown.
2. Changed terms. A change in the instalment structure of the reverse premium did not withdraw or invalidate the application. The landlord’s duty related to the proposal actually before it. A material change to the terms might require revised consent.
3. Reasonableness. The principles in Ashworth Frazer Limited v Gloucester City Council [2001] 1 WLR 2180 applied. The landlord bore the burden of showing that refusal was reasonable. The reasons had to concern the landlord–tenant relationship, but need not be objectively correct or justifiable. Genuine, relevant and not unfounded concerns could suffice. A landlord normally could consider its own interests alone, subject to the exceptional disproportion identified in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513. The general principles applied to underletting as well as assignment, although the transactions had different practical consequences.
4. Application. Riverland failed to establish that the reverse premium or the need for bankers’ consent justified refusal. However, the judge had set the standard too high in rejecting the covenant-strength evidence. The expert valuation showed a real, although uncertain, present reduction in the value of the reversion, reflecting Telco’s possible renewal rights under the Landlord & Tenant Act 1954 and the difference between a single letting and reletting vacant premises. Riverland’s concerns were genuine and not unfounded. The refusal was therefore reasonable.

• Court of Appeal (Civil Division) — Appeal allowed. The declarations made below were set aside: [2005] EWCA Civ 312.
• High Court (Chancery Division) — Peter Leaver QC, sitting as a deputy High Court Judge, held on 2 April 2004 that Riverland had failed to decide the application within a reasonable time and had unreasonably withheld consent.