No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd

A landlord may reasonably require information and investigation relevant to the landlord-and-tenant relationship before consenting to an assignment. This may include a bank reference addressing the proposed assignee’s ability to comply with financial covenants, and a surveyor’s inspection where repairing or alterations covenants are relevant. The landlord may recover reasonable costs of considering the application under the lease.

However, a consent condition is unreasonable to the extent that it seeks an uncovenanted advantage or charges costs exceeding the reasonable expense of the work. Where a good reason for withholding consent is combined with a bad reason, the refusal remains unreasonable if the bad reason vitiates the good reasons. Formal service requirements under the lease and the Landlord and Tenant Act 1988 must generally be observed, subject to a clear and unequivocal representation capable of founding an estoppel.

East Tower Apartments Ltd, the underlessee, sought declarations under Part 8 that No.1 West India Quay (Residential) Ltd had unreasonably delayed or withheld consent to assignments of three long residential underleases.

The County Court held that consent for apartment 28.08 was given within a reasonable time, but that conditions imposed for apartments 27.02 and 27.09 were unreasonable. It declared that excessive fees, a pre-consent inspection and inspection fee, and a bank reference were unreasonable conditions.

On appeal and cross-appeal, the High Court considered the reasonableness of those conditions, the effect of a bad reason combined with good reasons, formal service of the application, retention of reasonable costs, and costs orders.

1. West India Quay’s appeal. The requirements for current UK bank references and surveyor inspections costing £350 plus VAT were reasonable. The landlord was entitled to seek reasonable reassurance about the assignee’s ability to comply with the financial covenants. A substantial purchase premium did not establish financial substance, and the landlord’s remedies for breach did not answer the separate question of covenant strength. In the assignment context, the landlord could investigate compliance with repairing and alterations covenants, and clause 3.10.4 permitted recovery of reasonable costs whether or not consent was granted (paras [33]-[49]).
2. The basic £1,250 plus VAT fee was an administration charge under Schedule 11 paragraph 1(1) to the Commonhold and Leasehold Reform Act 2002. The evidence did not establish that this sum reflected the work actually done. The County Court was entitled to assess £350 plus VAT as reasonable (paras [50]-[57]).
3. Although the bank-reference and inspection requirements were reasonable, the refusal letter made clear that West India Quay would not proceed until ETAL gave an undertaking for £1,600 plus VAT, including the unreasonable £1,250 charge. The bad reason therefore vitiated the good reasons, and the refusal remained unreasonable. The appeal succeeded on the declarations concerning the bank reference and inspection, but failed on the declarations concerning the excessive fee and breach of the statutory duty (paras [58]-[64]).
4. Apartment 28.08. The application sent to the address specified in the sales pack was not a valid application under the lease’s service clause. Informal communications should be distinguished from the formal statutory application and decision process. The alternative estoppel argument would have been legally available if there had been a clear and unequivocal representation upon which the tenant relied, but there was no such representation here. Fourteen days from valid service was not an unreasonable period. Permission to cross-appeal was granted, but the cross-appeal was dismissed on this ground (paras [65]-[77]).
5. West India Quay could retain £350 plus VAT for each assignment under clause 3.10.4, notwithstanding the unreasonable withholding of consent, because the contractual indemnity covered proper costs of the applications and the parties’ correspondence did not displace it (paras [78]-[83]). The challenge to the preliminary-hearing costs was dismissed, and permission to cross-appeal on indemnity costs was refused (paras [84]-[91]).

• County Court at Central London: held that consent for apartment 28.08 was given within a reasonable time, but that specified conditions imposed for apartments 27.02 and 27.09 were unreasonable and that the landlord breached section 3 of the Landlord and Tenant Act 1988.
• High Court (Chancery Division): allowed the landlord’s appeal in part, upheld the declarations concerning the excessive fee and statutory breach, and dismissed the tenant’s cross-appeal.