There's no profit in alienation consents

A recent High Court decision shows that landlords would be wrong to imagine that recovery for the costs of dealing with requests for consent to assign and sublet will be other than modest.

Most leases contain a covenant obliging the tenant to pay the landlord’s reasonable costs of processing applications. Even in the absence of an express provision, a landlord’s usual control over alienation – its consent must be obtained and can be given subject to reasonable conditions – may amount to something similar.

A fertile ground for disagreement is the question of what is a reasonable fee. Landlords and tenants tend to see things differently. What has been missing is an authoritative yardstick giving both sides a feel for what, objectively, is a reasonable fee. That gap may be filled by the decision in No.1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2016] EWHC 2438 (Ch).

The case concerned various issues in relation to conditions imposed by a landlord of a large development in relation to proposed assignments of high-value residential apartments in a prime location. One issue was the landlord’s insistence on £1,250 for its legal fees. In support of its position the landlord:

• Explained that work which might fall within the claimed fee included: liaising with managing agents to ascertain whether there were any breaches, contacting the assignor’s solicitors,preparing a draft licence to assign (it used a standard form document), considering amendments, and getting the approved licence engrossed;

• Said that the work was carried out by an experienced £400-per-hour in-house solicitor; and

• Relied on quotations from two external firms of £1,350 and £1,500.

The county court judge was unpersuaded and held that a reasonable fee was just £350. The landlord appealed.

On appeal Henderson J was unmoved. Endorsing the view expressed in Proxima GR Properties Ltd v McGhee [2014] UKUT 0059 (LC), he held that the purpose of a charge for a landlord’s consent to a disposition is to reimburse its reasonable expenses of considering whether to grant consent; it may not be used as a source of profit. Moreover, the fee must be related to the costs of the routine enquiries or administrative tasks appropriate in most cases. He had no hesitation in upholding the ‘robust and sceptical approach’ taken by the court below:

• The work entailed standard administrative tasks only;

• The £400 rate was excessive as it was unnecessary for someone senior to undertake the work; and

• The quotations were irrelevant: they concerned charges for a ‘one-off’, whereas, given its bulk ownership, for the landlord the exercise was repetitive.

The court acknowledged that each case must be considered on its own facts and expressed some doubt that other cases necessarily gave a ‘good indication’ of what a reasonable fee may be generally. However, despite that reservation, the decision provides the following strong pointers:

• The process of granting a licence will, without more, be treated as routine;

• It will not justify use of a high-grade fee earner;

• Certainly in the case of a landlord with a sizeable portfolio, the recurrent nature of the exercise will depress the cost;

• A reasonable fee will be modest, in the low hundreds; and

• If a landlord wants to justify more, it must show exactly what was done, by whom, and the time spent – and show that this was necessary and appropriate.

The West India Quay result is broadly in line with a pattern from tribunal decisions in Holding & Management v Norton [2012] UKUT 1 (LC) (£40); Freehold Managers v Piatti [2012] UKUT 241 (LC) (£165); Crosspite Ltd v Sachdev [2012] UKUT 321 (LC) (£165); and Proxima (£95). If anything, West India Quay is actually a high-water mark.

Although the decision cannot be determinative of other cases, it provides welcome guidance regarding the relevant considerations and the sort of maximum figure that one can expect in a typical case. In giving a restrictive steer, it should deter landlords from making unrealistic claims to markedly higher sums and practitioners will be aware of the useful parameters to which they can work in the majority of (straightforward) cases.

Landlords inclined to go for more must bear in mind the risks. The burden is on the landlord to demonstrate the fees are reasonable. Further, as West India Quay discovered, insistence on an excessive charge can mean that the refusal of consent to assign is unreasonable and the tenant is free to assign without that consent: a heavy price indeed.

Martin Dray and Kester Lees, pictured, are barristers at FalconChambers

@FalconChambers1 www.falcon-chambers.com

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