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You are here: BAILII >> Databases >> The Law Commission >> RENTING HOMES 2: CO-OCCUPATION, TRANSFER AND SUCCESSION (A Consultation Paper) [2002] EWLC 168(2) (22 August 2002) URL: http://www.bailii.org/ew/other/EWLC/2002/168(2).html Cite as: [2002] EWLC 168(2) |
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Part II
obtaining Consent
2.1
In Parts III, V and VI we
consider a number of situations in whichs a
requirement to obtain consent will be requiredbefore a transaction can go ahead.d–e.g.
the consent of a landlord to the creation of a sub-occupation agreement–will
be considered. For example: whether an occupier is entitled to add a new
occupier to a joint occupation agreement, whether an occupier can create a
sub-occupation agreement, whether an occupier is entitled to exchange his
or her agreement with
another person are all circumstances whichwill, we suggest, depend on the giving of
consent by the landlord.[1]
In Part IV we also raise the question of whether there are some circumstances
where a landlord should have to consent to the introduction of a lodger.[2]
2.2 Where consent is required, the further question will arise as to the circumstances in which the person from whom consent is sought can properly withhold that consent.
2.3
To avoid constant
repetition of the arguments, we have hopeought it willould assist the reader if weto discuss the question of
consent separately. I,t can then be assumed that – unless the context
otherwise requires – the principles set out in this Part will apply in
any case where there are consent requirements.
2.4 Three issues are considered:
(1) How should requirements to seek consent be structured?
(2)
When should the withholding
of consent be permitted? Wwhat
(3)
WwWhat
should be be the effect of ignoring any
requirement to obtain consent?
2.5
A key issue under theThe current law on
the assignment of leases and sub-letting contains a number of provisions relating to the
question whether the landlord’s consent is needed. The starting point is
the agreement. But contractual terms are supplemented by statutory provisions,
which relate in particular to the restrictions, if any, there are on
the landlord’s ability to withhold any such consent.
2.6
As in other areas of
housing law, the general common law and land law aresupplemented by a number of specific
housing-related statutory
provisions. Provisions in the Rent Act 1977, the Housing Act 1985, the
Housing Act 1988 and the Housing Act 1996 deal, in a variety of ways, with the circumstances
in which sub-letting
and/or assignment are permitted, and the consequences of failure to obtain
requisite consents. These rules are themselves affected
by the Landlord and Tenant Act 1927 and the
Landlord and Tenant Act 1988. The result
is a patchwork of provisions that is confusing, even for experienced practitioners.
2.7
our possible situationsprese
exist:
(1)
Nno consent is
needed and therefore a tenancy can be freely assigned or sub-let;.
(2)
tThere
is an absolute prohibition, so that no lawful assignment or sub-letting can
occur.;
(3)
Cconsent is needed
but it cannot be unreasonably withheld (a “fully” qualified covenant); and.
(4)
cConsent
is needed but it can be unreasonably withheld (a “merely” qualified covenant).
We deal with each of these situations in turn.
2.8 At common law the tenant is able to assign or sublet without consent if there is no express covenant which prohibits the tenant from doing it. In practice, it is rare for a professionally drafted lease or tenancy agreement not to include an express covenant dealing with the question of assignment and sub-letting.
2.9 The only statutory intervention which prohibits the imposition of a requirement for the giving of consent is found in section 93(1)(a) of the Housing Act 1985. This gives secure tenants an absolute right to take in lodgers without the consent of the landlord.[3]
2.10 By contrast with a tenancy, a licensee – who has only a personal interest in the property – will usually have no power to assign or sub-let unless the power to do so is expressly given.
2.11
Under the current law,
absolute prohibitions on the making of assignments or sub-letting are
valid, save in three cases ofwhere rights
for secure tenants which are implied by statute and
cannot be over-ridden.[4]
The provisions of the Landlord and Tenant Acts 1927 and 1988, which apply to
qualified prohibitions, do not apply to absolute prohibitions.[5]
2.12 Even where there is an absolute prohibition in a tenancy agreement, there is nothing to stop a landlord agreeing to an assignment or sub-letting. For this reason absolute covenants against assignment or sub-letting are popular with private residential landlords’ advisers, in that they give the landlord a great deal of flexibility. The landlord can depart from the strict terms of the prohibition when they so wish.
2.13 A “qualified” prohibition is one which prohibits assignment or sub-letting unless the landlord’s consent has first been obtained. Two types of qualified prohibition may be identified:
(1) A “fully qualified” prohibition is where consent is required, but it cannot be unreasonably withheld.
(2) A “merely qualified” prohibition. Such a clause merely requires the landlord’s consent; it does not impose any restrictions on the withholding of that consent. Thus under such a clause consent may, quite legitimately, be unreasonably withheld.
2.14
In practice, merely qualified
prohibitions are usually deemed to be fully qualified by virtue of section 19
of the Landlord and Tenant Act 1927.[6]
In other words the landlord is only entitled to withhold consent where it would
be reasonable to do so. The Landlord and Tenant Act 1988 adds to this and
applies to all fully qualified prohibitions, whether drafted as such or deemed
to be such by the 1927 Act.[7]
It, imposes duties on the landlord to
give a written decision (with reasons for any refusal) within a reasonable time
of receipt of a written request for consent. It also imposes liability in
damages for failure to comply with this duty.
2.15 Under section 15 of the Housing Act 1988, a merely qualified prohibition on assignment and sub-letting is implied into periodic assured tenancies (on which the landlord has not taken a premium and in which there is no express prohibition). The Landlord and Tenant Acts 1927 and 1988 do not apply to this particular category of implied prohibition.[8] Therefore in such a case, the landlord can unreasonably refuse consent to the assignment of a periodic assured tenancy.
2.16 We think there is scope for simplification of these options.
2.17
As will is apparent from
the above analysisappear, there is in practice very
little difference between an absolute prohibition and a “merely qualified”
prohibition. The first does not require the landlord to do anything; the latter
does require the landlord to take the step of saying no, but this can be done
on any grounds whatsoever. Thus the outcome is the same.
2.18
In either case, and
notwithstanding the term in the agreement, there is nothing to prevent the
occupier from asking the landlord to ignore the term and allow him or her to
take the step concerned. At the same time, t,he
landlord has complete freedom to choose whether or not to allow the occupier to
take the relevant step. In such circumstances, we consider that it would be
appropriate to assimilate the two.
2.19
For the purpose of this
paper, we, describe this as the landlord’s veto.o.[9]
2.21 When we refer to a consent term, in this paper, we mean a term that allows the landlord to refuse consent only where it is reasonable to do so. The question of reasonableness is discussed below.[10] There will be particular circumstances in which additional factors will need to be taken into account.[11]
2.24 We provisionally propose that three standard possibilities should be recognised:
(1)
nNo
requirement for consent;
(2) a requirement that the landlord gives consent, which can only be withheld on reasonable grounds;
(3) a landlord’s veto.
These will be contained in the occupation agreement as appropriate.
2.25 We further provisionally propose that the relevant term in the agreement should provide that any request for consent should be made in writing and that proof of service, for example by recorded delivery, should be obtained.
2.26
The situations in which one
or other of these positions should be a compulsory term, which cannot be
amended,, or a default term, which can be, is
considered in the following parts of this paper.
2.27 As will be seen, in most cases where we propose that the occupier can only do something with the landlord’s consent, our standard position is that consent can only be refused on reasonable grounds. The obvious difficulty with the concept of reasonableness is that there can be considerable scope for argument as to what is or is not reasonable.
2.28 There is a great deal of case law on the question of reasonableness and unreasonableness, but most of this derives from the law relating to commercial leases. These involve taking into account rather different considerations from those which are likely to affect the granting of consents in relation to residential occupation agreements. We do not think that principles developed in the context of business leases should automatically be applied in the residential context.
2.29 We have considered whether we should attempt a detailed statutory definition of the concept of reasonableness. However, we have concluded that this would be just as likely to generate argument as leaving the question of reasonableness to the courts.
2.30 What is important is that an appropriate balance should be struck between the interests of landlords and the interests of occupiers in deciding whether or not consent should be granted or may properly be withheld. We have concluded that this should, in the last resort, be an issue that is left to the courts, just as the question of the reasonableness of making an order for possession is a question that is left to the courts.
2.31 This does, however, raise the question whether the discretion of the courts to determine what is or is not a reasonable refusal of consent should in any way be structured. We suggest that in particular contexts, there should be a further refinement of what constitutes reasonableness.[12] We would welcome views on whether the general test of reasonableness should be the subject of a structured discretion and if so whether there are particular factors the courts should be required to take into account. These might include, for example, the likely ability of a new occupier to be able to pay his or her share of the rent; or the likelihood that they will behave in a responsible way if they take up occupation in the premises.
2.32 We provisionally propose that what is meant by “reasonable” should not, in general, be statutorily defined.
2.33 We invite views on whether the discretion of the court to determine reasonableness in this context should be statutorily structured, and if so what factors should be taken into account.
2.34
There will be particular
instances in whichwhere it will be
necessary to consider specific matters will be required to
be considered in reaching a decision on reasonableness.
2.35
For example, in contexts
where a requirement to give consent is contained in a default term, the parties
will be free to agree an alternative term, which
specifiesd
factors that must be taken into account in determining reasonableness. A
failure to consider those factors could lead to the conclusion that consent was
unreasonably withheld.
2.36 One of the problems that arises in practice is that the person from whom consent is required may simply ignore any request for consent. It is already the law that in the case of tenancies to which the Landlord and Tenant Act 1988 applies the person to whom application for consent is made must reply within a reasonable time.[13] This duty may be enforced as a claim in tort for breach of statutory duty.[14]
2.37 We think that it is not unreasonable to propose an extension of these provisions to our proposed scheme, so that a continued failure to respond to a request for consent should not prevent the occupier from taking the step concerned.[15] The question remains whether the period within which the requirement to give consent should be satisfied should remain simply “reasonable” or whether it should be more precisely defined. Our preliminary view is that a more precise definition would be more useful.
2.38
We provisionally propose that it should be a compulsory
term in the agreement that where a a person , whose
consent to a transaction is required , failss
to respond within a given period to a request for consent, this should
be regarded as an unreasonable refusal of consent, so that the requisite
consent should be deemed to have been given.
2.39 We invite views on what that appropriate period should be.
2.40
We also think that where a landlords areis
entitled to refuse consent they should provide reasons for refusal;.
oOtherwise
the occupier will find it hard to judge whether or not the refusal is
reasonable. It will also be of assistance to the occupier if the landlord is
required to state their reasons for refusal in writing. Again this provision is
already found in the Landlord and Tenant Act 1988;[16]
the principle should therefore be extended to all agreements falling within our
proposed scheme.
2.41
We provisionally propose that where a
landlords
think they have reasonable grounds to refuse consent, they should be required
to inform the occupier of the reasons why consent was refused.
2.42
We invite views on whether the landlord should be required
to provide a written statement of reasons, and, if so,
whether this should be a universal requirement to apply in all cases or one that
only arises where the occupier asks for it.
2.43 The further question remains of what the sanction should be on the landlord who, having been asked for a statement of reasons, fails to produce one. The most draconian sanction is to provide that the landlord who fails to provide reasons, or fails to provide the correct reasons,[17] should be deemed to have provided reasons that failed to demonstrate that the withholding of consent was reasonable. This approach would be consistent with our provisional proposal where the landlord has failed to respond within a defined time period.[18]Alternatively, or in addition, the current remedy – an action in tort for breach of statutory duty – could be made available.
2.44 We invite views on the sanction that should be applied to the landlord who fails to provide a written statement of reasons, following a request – properly made – so to do.
2.45
TheUnder the present law, is
that transactions in breach of covenants against assignment or
sub-letting ,– whether
absolute, merely qualified, or fully qualified – , do
not prevent there being an
valid assignment or sub-letting being valid.[19]
Instead they render the tenant[20]
liable to eviction for the breach of the agreement. Statutory provisions may
result in the tenancy being taken outside relevant housing legislation, so that a
tenant loses his/her protective housing status.[21]
Statute may also prevent the tenancy coming back into protection again even
after the unlawful transaction has ended..[22]
2.46 We accept that this situation is necessary in the context of commercial leases or long leaseholds. But we think that – for the purpose of housing law – the present state of the law is unnecessarily confusing.
2.47
FWtherefore or
the purposes of our scheme, we think that where
the occupier has made an arrangement with a new person to occupy the premises,
contrary to the landlord’s veto, or without obtaining the requisite consent,
the following consequences should flow:
(1)
Anythat
agreement entered into without the required consent should stillbe valid as between the
parties to the unauthorised agreement.
(2) As against the occupier who entered the unauthorised agreement, the landlord should have the right to take proceedings for possession on the ground that a term of the occupation agreement had been broken.
(3) As against the person who imposed the veto or who had reasonably refused consent, any purported transaction made in breach of a veto or a term requiring consent should not be valid. Thus a landlord would not be bound by the consequences of a transaction carried out by an occupier in the teeth of a veto or where consent had been reasonably withheld.
2.48 We provisionally propose that the occupation agreement should make clear that any transaction carried out by the occupier, which was either contrary to the landlord’s veto or subject to consent which has been reasonably withheld, will expose the occupier to the possibility of possession proceedings for breach of the occupation agreement, and will not bind the landlord.
2.49 Where necessary consent is not obtained, the effect is that the occupier will continue to be the occupier, but the position will be different as between an unlawful sub-occupier and an unlawful assignee.
2.50 An unlawful sub-occupation agreement will take effect in the way agreed between the sub-occupier and the occupier, who becomes the sub-occupier’s landlord. But on termination of the head agreement, the head landlord will not be bound by the sub-occupation agreement as they have not consented to it.
2.51 By contrast an unlawful purported assignment will not take effect in the way agreed between the purported assignor and assignee. Instead the occupier (the purported assignor) will continue as such, while the purported assignee (if they move in) will merely be the occupier’s guest.[23] If the occupier or the landlord terminate their agreement, there will be no question of the landlord having to accept the purported assignee as an occupier at that point, as the agreement to which the purported assignee tried to become a party will have ended.
2.52 The head landlord can, in unlawful assignment or sub-occupation agreement cases, decide to give their consent on discovering what has happened. An assignment involves an immediate change for the landlord, in that they start treating the new person as the occupier, whereas in a sub-occupation agreement the head landlord’s legal position does not alter until the termination of the head agreement. Where a head landlord takes rent directly from a purported assignee, knowing of the attempted unlawful assignment, then they should be taken to have consented to it. The assignment should become effective from that point.
2.53 The position is more complex where the head landlord continues to take rent from the occupier despite knowing of an unlawful sub-occupation agreement. We want to avoid the creation of a new category of “tolerated but unlawful sub-occupier”, where the landlord permits an unlawful sub-occupation agreement to continue for an indeterminate period, which will not be binding on the landlord at the termination of the head agreement.
2.54 Under the current law a landlord might be taken to have waived the breach by continuing to accept rent from the occupier in full knowledge of the unlawful sub-occupation. We believe the current detailed rules on waiver, and remedy of breaches in forfeiture cases, are not appropriate in our new scheme. Instead repossession for breach will be subject to reasonableness, which will more appropriately deal with issues relating to repossession against the original occupier.
2.55 Under our new scheme we believe that the potential problem of landlords artificially claiming that they did not realise that they did not know they were receiving rent from a new occupier, and thus claiming that they had not given their consent to the new arrangement can be avoided. Where this has happened, at the point when the head agreement is terminated, the sub-occupier could then argue that the degree of delay on the part of the landlord was such as to amount to the unreasonable refusal of consent (in that the head landlord had lived apparently happily with the situation for all this time) so that the allegedly unlawful sub-occupation agreement was really lawful. While there should not be a rule requiring the landlord to refuse rent from, or take possession proceedings against, the occupier in order to maintain their refusal of consent to a sub-occupation, their failure to take any action might be used as evidence that their refusal was contrived or otherwise unreasonable.
2.56 So long as the original occupier’s agreement is not terminated, the landlord will not have any direct relationship with the unlawful occupier. The only effect on the landlord of the unlawful occupation will therefore be that it will entitle the landlord to take action for damages (or eviction) for breach of contract against the original occupier, rather than against the unlawful occupier.
2.57 In some cases the landlord will decide to apply for possession against the occupier for the breach of the agreement. In such cases, any unlawful occupiers[24] will be liable to be evicted without separate proceedings when the possession order against the occupier is enforced, just as happens to the rest of the occupier’s household. [25]
2.58 In other cases the original agreement will terminate without the landlord obtaining a possession order. This might be because the landlord follows the abandonment procedure or accepts a surrender from the occupier.[26] Alternatively it might be because the occupier gives notice to quit.[27] Any rights of occupation of the unlawful sub-occupier or the unlawful purported assignee will fall away with the termination of the agreement. The landlord then has a choice of whether to grant a fresh agreement to the unlawful occupier, or to take possession proceedings against them as trespassers.
2.59 Where the landlord starts knowingly accepting rent from the new occupier, they would thereby be deemed to accept the person as a new occupier under a new agreement and would thus be subject to the duty to issue a fresh written agreement. We do not think it right that landlords should have the ability indefinitely to postpone taking proceedings for possession, and in the meantime purporting to collect money in lieu of rent, pending proceedings for possession which do not materialise.[28]
2.60 We accept that it may not be reasonable to expect a landlord to start proceedings on the very day they learn of the existence of the new occupier. We also accept that it may not be reasonable to expect a landlord to refuse payments in these circumstances. We think there should be a period of grace during which the landlord would be entitled to accept money on the basis that it was advance damages for trespass, not rent. However this period should not be an indefinite one. It should only last while the landlord investigates the new occupier, to see whether or not the new occupier is someone the landlord would be willing to take on as the occupier. If the landlord decides not to take the new occupier on but decides instead to take possession proceedings, the period should be extended pending the eviction.
2.61 Any payments made pending a decision on whether to evict should be made purely as a way of advance payment of trespass damages, or by a person who claims to be a lawful occupier and does not want to build up rent arrears.
2.62 If they are made in return for the landlord not proceeding with eviction then they should be seen as rent and lead to the creation of a fresh agreement. The fresh agreement would normally be a type II periodic agreement,[29] so the landlord could evict the new occupier on notice using the accelerated possession procedure.
2.63 If the landlord ultimately decided they were happy with the new occupier, they could replace that agreement with one on the same terms as held by the original occupier (which might have been a type I, or a fixed term, or otherwise on better terms).
2.64 We provisionally propose that after a prescribed maximum period during which the landlord should be able to take such payments without starting possession proceedings, a fresh agreement, covered by our new scheme, should be taken to have been created if, after termination of the original agreement, the landlord accepts payments from an unlawful occupier in return for delaying, or not taking, possession action against them as trespassers.
2.65 We invite views on whether there should be a prescribed maximum period of time during which the landlord should be able to take such payments, without starting possession proceedings, and without being taken to have created a new agreement. Alternatively should it be left as a matter of fact to be determined by the court whether the landlord has agreed to refrain from or delay possession action in return for the payments?
2.66
There may be cases where a
social landlord would not want to enter a long-term type I agreement,
with an unlawful sub-occupier but would be willing to enter a short-term type
II agreement, either to allow them time to move out or while deciding whether
they should have a type I agreement. In CP 162, we
invited views on whether social landlords should have a free choice as to when
they may use the type II agreement;, or
whether there should be a general requirement for them to use type I
agreements, with a statutory list of exceptions.[30]
If the former option were to be preferred, there would be nothing to prevent a
social landlord from making a type II agreement in this situation. On the other
hand, if the use of type I agreements became a general requirement, it would be
necessary, and sensible, to
allow social landlords to let in such circumstances on a type II agreement.
2.67 We provisionally propose that, if there is to be general requirement on social landlords to use type I agreements, one of the exceptional circumstances justifying use of a type II agreement would be where the landlord wished to make a temporary arrangement with a new occupier who has been granted the right to occupy without the landlord’s consent or in breach of a landlord’s veto.
[1]We do not consider here the issues where the head lease is not covered by our new scheme, or where a mortgagee’s consent is required for the granting of a tenancy. These issues are covered in paras 8.64 to 8.73 and 8.58 to 8.63 below.
[2]Para 4.36.
[3]We discuss the right to take in a lodger in Part IV below.
[4]The Housing Act 1985
implies three relevant terms into secure tenancies, which
cannot be expressly overridden: (i) the right to assign by way of mutual
exchange under s92, subject to detailed procedures involving consent; (ii) the right
to take in lodgers without consent under s93(1)(a); and (iii) the right
to sub-let part of the premises with the landlord’s consent under s93(1)(b).
These terms are not implied into introductory tenancies.
[5]See para 2.14 below. Even where there is an absolute prohibition, an unlawful assignment will still be valid, although in breach – see para 2.45 below.
[6]This provides that consent may not be unreasonably withheld.
[7]The Act derived from a report of the Law Commission, Leasehold Conveyancing (1987) Law Com No 161.
[8]Sees15(2)
Housing Act 1988, s 15(2).
[9]In a 1985 general report
on covenants in landlord and tenant law generally in 1985 – , which
was followed by Leasehold Conveyancing (1987) Law Com No 161 and in part taken
up in the Landlord and Tenant Act 1988 – , we
criticised merely qualified covenants as “an anomalous and misleading staging
post” between absolute and fully qualified prohibitions.,
and wWe recommended that they should “be
eliminated altogether from this area of the law”. See Codification of the
Law of Landlord and Tenant: Law Com 141 “Covenants
Rrestricting
Ddispositions,
Aalterations
and Cchange
of Uuser” (1985) Law Com No 141 at para
4.70.
[10]See below paras 2.27 to 2.44.
[11]See for instance the questions discussed in paras 3.35 to 3.36 and 3.56 below.
[12]See eg the discussion at paras 6.29 to 6.37 below, in relation to consent to mutual exchange.
[13]Landlord and Tenant Act 1988 s 1. Consent may be given subject to conditions; if withheld, written reasons for refusal must be given. Where the recipient of an application is not the person able to give the consent, that person is under a duty to pass it on to the person who can give the consent: s 2. Where a tenant has granted an interest to another, and that other wishes in turn to grant a further interest, but this cannot be done without the consent of the head landlord, a similar duty to give consent within a reasonable time is imposed: s 3.
[14]Ibid,s 4.
[15]A similar issue
arises in relation to the duty on the landlord to provide an address: seeCross-refer
to CP 162, para 6.79.#
[16]Landlord and Tenant Act 1988, s 1(3)(b)(ii) and s 3(2)(b)(ii).
[17]This might occur in a large office where a set of reasons relevant to one case was inadvertently sent to another; in such a case it might be thought that the draconian solution suggested would be too severe.
[18]See para 2.36 to 2.39.
[19]See Governors of the Peabody Donation Fund v Higgins [1983] 1 WLR 1091.
[20]Who will be the head tenant in a case of unlawful sub-letting, and the assignee in a case of unlawful assignment.
[21]See Housing Act, 1985 s 91(2) and s 93(2), and Housing Act 1996 s 125(5)(a) and s 125(6).
[22]Give statutory
reference: Housing Aact 1985, s 91(2) and s 93(2)#. Note that there is
no equivalent provision in the Housing Act 1988.
[23]This will only give the purported assignee a right to sue the purported assignor for damages, as it will not give any right to override the landlord’s refusal of consent so as to make the purported assignment effective. If the purported assignee starts paying the rent to the occupier, then an unlawful sub-agreement will be created instead of the purported assignment. If the landlord stops receiving rent they can be expected to check why. If the landlord knowingly takes rent from the purported assignee, then they may effectively be giving consent – see below paras 2.52 to 2.55. There will only be a problem if the landlord can be deceived into taking rent from the purported assignee in the belief that it is from the occupier.
[24]Whether they are unlawful sub-occupiers, or are no more than guests of the occupier following an ineffective unlawful assignment.
[25]Who would have been served with notice of the possession proceedings at the property where possession was sought on a discretionary basis – see our proposals at 3.115 to 3.123.
[26]See CP 162, paras 10.62, 10.65.
[27]See CP 162, para 10.49.
[28]Where a person occupies property as a trespasser, the land owner is entitled to compensation for this occupation. The technical term is “mesne profits”, or payments in relation to the property for the trespass. Although the sums thus payable are often the same as the rent would be, they are not classified as “rent” so as to ensure that the trespassers cannot argue that they are a tenant of the land owner. The payment for occupation would be classified as “advance damages for trespass” in cases where an action for trespass had not yet been commenced, but could be.
[29]See below on social landlords.
[30]CP 162, para 11.4 to 11.15.
