Consent to Underlet

In a situation where a superior landlord's consent is required to underlet, what constitutes landlord's consent? In the case of British Telecommunications Ltd v Rail Safety and Standards Board Ltd, the court considered whether the landlord had sufficiently consented or whether the defendant tenant was entitled to serve a notice to terminate the agreement to underlet.

Facts

BT agreed to underlet part of their premises to the defendant. The agreement was expressed to be conditional upon BT obtaining the superior landlord's consent. The agreement defined the 'Superior Landlord's Consent' as being the consent of the Superior Landlord by way of Licence to Underlet and by way of Licence for Alterations to be signed by the Superior Landlord, BT and the defendant.

Under the terms of the agreement, the defendant was required to provide reasonable assistance to obtain the superior landlord's consent and to be a party to both the licence to underlet and the licence for alterations. The agreement provided that if the superior landlord's consent had not been obtained by a specific date, a right arose for the agreement to be terminated.

By that date only the licence to underlet had been executed by all three parties. Although the defendant had approved the licence for alterations, it had only been signed by the superior landlord and BT. Completion was therefore prevented from taking place.

On the basis that the superior landlord's consent had not been obtained as required by the agreement, the defendant served a notice to terminate the agreement.

The defendant argued that the parties had intended that both the licence to underlet and the licence for alterations should have been completed by the superior landlord, BT and themselves by the specified date. BT argued that the superior landlord's consent in principle was sufficient and therefore the appropriate consent as had been obtained.

What did the court decide?

The court agreed with BT. Although the parties contemplated that Licences would be completed, the parties did not contemplate that the required consent would not have been obtained until the Licences had been completed. In addition, the parties did not intend on 'providing themselves with the opportunity to change their minds'.

All that was required was the consent of the superior landlord and such consent did not need to be contained in formal licences. As a result, the appropriate consent had been obtained from the superior landlord and therefore the defendant was not entitled to terminate the agreement.

Practical Points

Where a contract to do something such as granting an underlease is made conditional upon consent being obtained, the contract should specify exactly what amounts to consent and exclude the possibility of the parties relying on their own breach to allow them to terminate the agreement.

Katherine Breckin is a solicitor in the Michelmores property litigation team. For further information on the issues raised in this article, please contact Katherine at katherine.breckin@michelmores.com   

 This information has been prepared by Michelmores LLP as a general guide only and does not constitute legal advice on any specific matter and should not be relied upon as such. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not taken as a result of this information.