Commercial lease assignment is one of the most common and commercially significant transactions in the property sector. A tenant who has outgrown their space, is rationalising its property portfolio, or is winding down operations will need to assign the lease — and the ability to do so quickly and on acceptable terms depends heavily on what the lease says and how the landlord exercises its discretion. Landlords need to strike a balance: protecting their legitimate interests (covenant strength, compliance with lease terms, obtaining an AGA) while not unreasonably obstructing assignment in a way that exposes them to liability under the Landlord and Tenant Act 1988. Getting this balance wrong can be expensive in both directions — an unreasonable refusal can lead to a damages claim; an assignment to a weak covenant can leave the landlord exposed if the assignee defaults.
The Alienation Covenant and LTA 1927 Section 19
Most commercial leases contain a qualified covenant against assignment — the tenant may assign with the landlord's prior written consent, which the landlord covenants not to unreasonably withhold or delay. Under s.19(1) Landlord and Tenant Act 1927, even where the lease does not expressly include the reasonableness proviso, it is implied by statute into any covenant requiring landlord's consent to assignment. A landlord who unreasonably withholds or delays consent faces a damages claim under the Landlord and Tenant Act 1988. An absolute prohibition on assignment (no assignment permitted under any circumstances) is also valid — a landlord in this position is not subject to the reasonableness test and can refuse for any reason. Qualification conditions (s.19(1A) LTA 1927, inserted by s.22 LTA 1995): the parties can agree in the lease that specified objective conditions must be satisfied as a prerequisite of the landlord's consent obligation. If those conditions are not met, the landlord can refuse consent without the refusal being unreasonable. Common qualification conditions: satisfactory financial references; covenant strength assessment by RICS surveyor; minimum turnover requirement.
- Qualified covenant: landlord cannot unreasonably withhold or delay consent — the most common commercial lease alienation regime
- Absolute prohibition: valid and enforceable; no statutory reasonableness test applies; tenant cannot assign under any circumstances
- LTA 1927 s.19(1): implies reasonableness into any consent requirement — even if the lease does not expressly state it
- Qualification conditions (s.19(1A)): pre-agreed conditions (financial standing, covenant strength, RICS assessment) can be built into the lease — if conditions not met, landlord can refuse without being unreasonable
- Scotland: LTA 1927 does not apply in Scotland; the Scots law position is governed by the specific lease terms and the reasonableness obligation implied by s.4 Law Reform (Miscellaneous Provisions) (Scotland) Act 1994
Landlord and Tenant Act 1988 — Consent Procedure and Timetable
The Landlord and Tenant Act 1988 imposes a statutory procedure on landlords who receive a written application for consent to assignment. The landlord must: (i) respond within a reasonable time; (ii) give consent, or refuse with written reasons; (iii) specify any conditions subject to which consent is given. 'Reasonable time' is not defined in the statute — case law suggests this is typically around 28 days, but the time runs from the date the landlord has all the information reasonably required to consider the application. Failure to comply with the 1988 Act entitles the tenant to a damages claim — damages include all losses flowing from the unreasonable refusal or delay (abortive legal costs, loss of opportunity to assign, additional rent). Landlords should respond promptly and in writing, specifying any conditions or reasons for refusal. The burden of proof that refusal was reasonable lies on the landlord.
- Written application: the LTA 1988 procedure is triggered by the tenant's written application for consent — a verbal request is insufficient
- Reasonable time: the landlord must respond within a reasonable time; typically around 28 days from receipt of all information required; longer delays risk a claim under LTA 1988
- Written reasons: if refusing consent, the landlord must give written reasons; vague or general reasons are insufficient — the reasons must be specific and relate to the particular application
- Conditions: if consenting conditionally, the landlord must specify the conditions in writing; conditions must themselves be reasonable
- Burden of proof: the burden of proving reasonableness lies on the landlord — unlike the general law where the burden is on the party challenging the refusal
What a Landlord Can Require on Assignment
A landlord giving consent to assignment can impose reasonable conditions on that consent. The most important conditions in practice are: (i) an Authorised Guarantee Agreement (AGA) — under s.16 Landlord and Tenant (Covenants) Act 1995, the outgoing tenant can be required to guarantee the incoming assignee's performance; the AGA expires when the assignee itself assigns; (ii) financial references — bank references, audited accounts, credit reports; (iii) a deed of covenant from the assignee — directly covenanting with the landlord to observe and perform the lease covenants; (iv) guarantor — a creditworthy guarantor for the assignee's obligations; (v) updating lease schedules — schedules of condition for dilapidations, key contacts, permitted use confirmations. The landlord should ensure that consent is not given (and the licence to assign not executed) until all conditions are satisfied. If the assignee is a company, a personal guarantee from the directors may be appropriate where the company has limited financial resources. Landlords should be careful not to impose conditions that are not objectively reasonable — imposing conditions that have no connection to the legitimate purpose of the alienation covenant can expose the landlord to LTA 1988 liability.
- AGA: most common condition; the outgoing tenant guarantees the assignee's performance for the period during which the assignee holds the lease; expires on further assignment
- Financial references: landlord can require bank references, audited accounts, credit reports, and a RICS covenant strength assessment — these must be genuinely assessed, not used as a pretext to refuse
- Deed of covenant: the assignee directly covenants with the landlord to observe and perform the lease — provides the landlord with a direct contractual remedy against the assignee
- Guarantor: landlord can require the assignee to provide a creditworthy guarantor; guarantor's financial standing must be assessed genuinely
- Licence to assign: the formal document evidencing the landlord's consent; must be executed by all parties before the assignment completes; registered at HMRC if the existing lease is registered
Reasonable and Unreasonable Refusals
The courts have developed a substantial body of case law on what constitutes a reasonable and unreasonable refusal of consent to assign. Reasonable grounds for refusal include: the proposed assignee has materially worse financial standing than the existing tenant; the proposed assignee would use the premises for a purpose not permitted under the lease; the proposed assignee has previously breached other leases with the landlord; and the existing tenant is in breach of covenant (though this must be a current breach). Unreasonable grounds include: the landlord simply wants the tenant to remain so it can benefit from the existing tenant's covenant strength; the landlord wants to negotiate new lease terms as a condition of consent (this is generally not a legitimate condition); the landlord's personal dislike of the proposed assignee without objective justification. International Drilling Fluids v Louisville Investments [1986] EWCA remains the leading statement of principle: the landlord's purpose must be to protect its legitimate interests in the subject matter of the covenant.
- Reasonable refusal: materially inferior covenant strength; use of premises outside permitted use; history of breach with the landlord; significant uncommenced redevelopment plans where assignee would benefit from statutory security of tenure
- Unreasonable refusal: wanting to renegotiate lease terms as a condition of consent; personal antipathy without objective basis; wanting to improve the landlord's own commercial position rather than protect legitimate interests
- Leading case: International Drilling Fluids v Louisville Investments [1986] — the refusal must be designed to protect a legitimate interest related to the landlord's position as landlord, not to gain a collateral benefit
- Current breach condition: landlord may refuse consent while the tenant is in material breach of the lease — but must not use the tenant's breach as a pretext to refuse consent for other reasons
- Damages: unreasonable refusal entitles the tenant to damages under LTA 1988 — assessed on the basis of the loss the tenant has suffered as a result of the refusal
Frequently asked questions
Can a commercial landlord refuse consent to assignment?+
In a lease with a qualified covenant (the most common type), the landlord can only refuse consent to assignment on reasonable grounds. The burden of proving reasonableness lies on the landlord. Under the Landlord and Tenant Act 1988, the landlord must respond within a reasonable time and give written reasons for any refusal. An unreasonable refusal entitles the tenant to damages.
What conditions can a commercial landlord impose on assignment?+
A landlord can impose reasonable conditions on consent, including: requiring the outgoing tenant to enter into an Authorised Guarantee Agreement (AGA) guaranteeing the assignee's performance; requiring financial references and a RICS covenant strength assessment; requiring a deed of covenant from the assignee; and requiring a creditworthy guarantor. Conditions must be objectively reasonable and connected to the landlord's legitimate interests.
What is the LTA 1988 and how does it apply to assignment consent?+
The Landlord and Tenant Act 1988 requires a landlord who receives a written application for consent to assignment to respond within a reasonable time, give consent or refuse with specific written reasons, and specify any conditions in writing. Failure to comply entitles the tenant to a damages claim. The burden of proving reasonableness rests with the landlord.
Does the Landlord and Tenant (Covenants) Act 1995 apply in Scotland?+
No — the Landlord and Tenant (Covenants) Act 1995 applies only in England and Wales. In Scotland, original tenants are not automatically released on assignation of a commercial lease — they may remain liable under privity of contract for the full term, depending on the lease terms and whether a release was agreed. Scottish commercial leases should be reviewed by a specialist Scots law solicitor.
What is a licence to assign?+
A licence to assign is the formal document by which the landlord gives consent to the assignment of the lease. It typically records the assignment, sets out any conditions (such as the AGA), and is executed by the landlord, existing tenant, and new tenant. The licence to assign must be completed before the assignment takes effect. If the lease is registered at Land Registry, the assignment must also be registered.