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Consent To Assignment

Question: My tenant wants to sublet a company of poor financial status. Do I have to consent?

Not necessarily. A landlord may refuse consent if it has genuine concerns about the effect that a weak subtenant might have on the value of its investment, even where the prospect of those concerns being realised is small, according to the Court of Appeal in NCR v Riverland Portfolio (2005).

This reversed and earlier High Court decision, which had held that the covenant strength of a prospective subtenant was not sufficient grounds for refusal, because of the head tenant’s continuing liability to the landlord.

It was accepted in this case that the subletting would have no effect on the value of the landlord’s interest during the remaining six years of the term, as there was a little risk of the head tenant defaulting or becoming insolvent in that time.

However, the landlord produced evidence that, if the subtenant exercised its statutory right to renew at the end of the term, the value of the reversion would be £500,000 less with the sublease in place than without it.

This was accounted for by both the poor covenant strength of the subtenant and the possibility of reletting the building in parts at a higher rent. It did not matter that the assessments of its future value were speculative. The issue was whether the landlord’s concerns about the subtenants covenant strength were reasonable, which they were.

However, if your tenant’s sublease is to be contracted out and your tenant is otherwise financially sound, it would be difficult to refuse consent on the grounds of the subtenants covenant strength, since in practice, you will rarely have to deal with them and all liabilities will be met by your tenant.

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