When a tenant applies for consent to assign or sublet a lease, landlords are not usually allowed to unreasonably withhold consent. However, where this is not the case it is crucial to understand the two-stage test that often exists in these leases. The test is designed to determine whether the landlord can refuse consent to the application and is meant to provide a fair and balanced approach to the decision-making process.
The first stage of the test is the suitability requirement, which evaluates the proposed assignee or subtenant to determine if they are responsible and respectable. This requirement often comes before the reasonableness test, and the tenant must demonstrate that the proposed assignee or subtenant meets these criteria before moving on to the second stage of the test.
It’s important to note that the first stage of the test is more technical and less open to interpretation. For example, even if a guarantee is being offered, the tenant may not be able to demonstrate that the proposed assignee or subtenant is responsible and respectable if they are not of sound financial standing.
Recent court cases, such as Burgerking Ltd v Castlebrook Holdings Ltd and Homebase Limited v Grantchester Developments (Falkirk) Limited, have provided further clarification on what constitutes “responsible” and “respectable” in this first stage of the test.
To be considered “responsible,” the proposed assignee or subtenant must have a sound financial standing and must demonstrate their ability to meet their financial obligations under the lease. This requirement applies equally to individuals and companies, and the tenant must provide proof that the proposed assignee or subtenant can pay rent and meet other financial obligations.
To be considered “respectable,” the proposed assignee or subtenant must have a good reputation and must not have a history of any behaviour that may be considered unethical or illegal. This requirement refers to the reputation of the proposed assignee or subtenant and not the reputation of any related individuals or companies.
The second stage of the test is more open to interpretation and evaluates the reasonableness of the landlord’s decision to either grant or refuse consent. There are 11 key points to consider when evaluating the reasonableness of the landlord’s decision, and these include factors such as the tenant’s ability to find a suitable alternative, the financial impact of the sublet or assignment on the landlord, and the impact on the character of the property.
In conclusion, tenants should be aware of the two-stage test in their lease and should carefully evaluate the suitability of the proposed assignee or subtenant to ensure that they meet the criteria set out in the first stage of the test. If the tenant can demonstrate that the proposed assignee or subtenant is responsible and respectable, they can then move on to the second stage of the test to determine the reasonableness of the landlord’s decision. By understanding the two-stage test, tenants can ensure that they are well equipped to make informed decisions about their applications for consent to assign or sublet a lease.
If you require assistance in assigning or subletting your lease then call us today, on 0121 268 3208 or send us an email at firstname.lastname@example.org with your query and we will get back to you.
Please note that this blog is not intended to be tax or legal advice. This material has been prepared for informational purposes only and as general guidance. Is not intended to provide, nor should it be relied on for, legal or tax advice. You should consult your own advisors or seek professional independent advice before engaging in any transaction.