Exemplary Damages for Unreasonably Withholding Consent

Originally published September 2004

A recent decision of the High Court1 illustrates the circumstances in which exemplary or punitive damages for breach of statutory duty may be awarded to a tenant where a landlord is deemed to have unreasonably withheld consent to assignment of a lease.

The Landlord and Tenant Act 1988

Section 1(3) of the Landlord and Tenant Act 1988 ("the 1988 Act") provides that when a landlord is served with a written application by a tenant for consent to a transaction he owes a duty to the tenant, within a reasonable time to:

Give consent unless it is reasonable not to do so.

Serve on the tenant written notice of his decision specifying any conditions to which the consent would be subject, or reasons for withholding consent.

Pursuant to Section 4 of the 1988 Act, a claim for breach of statutory duty under the 1988 Act may be made the subject of civil proceedings in tort, giving rise to a claim in damages.

The facts of the case

The subject premises were demised to the tenant for a term commencing in June 1994 until March 2004. When licence to assign was sought the premises were under-rented as the rent was £100,000 per annum pursuant to the lease, but an open market rental of the premises on a lease granted at that time could have commanded a rent of between £139,000 and £155,00 per annum. The application for licence to assign was made in January 2002 when the residue of the term was two years. The Claimant tenant marketed the residue of the term, accepted an offer of a premium of £75,000 from the proposed assignee and provided financial information and references concerning the proposed assignee to the Defendant landlord. The Defendant, through its agents, made more and more requests for information which resulted in the transaction being protracted. The proposed assignee decided to withdraw from the transaction and the Claimant commenced proceedings alleging breach of statutory duty. Evidence was put before the court that the Defendant's conduct, through its agents, was tactical as the Defendant could have benefited had the assignment not proceeded.

The Judge considered that in March 2002 the Defendant had all the relevant information to make a decision as to whether to give licence to assign and that this was the latest date when a reasonable time had been given to consider the position. Therefore, the Judge found the Defendant in breach of statutory duty to provide an answer within a reasonable time. He went...