Know Your Tenant: A Landlord’s Guide To Assignment
Posted by Susan Hart on 20th October 2011
In this current economic climate, it is important to ensure that, on any letting of a property, the landowner is as certain as he can be that the tenant will be able to fulfil his obligations. Thus, checks on creditworthiness and experience must be made before the commencement of the tenancy. If concerned, the landlord can require a third party to act as guarantor, or for a rent deposit to be paid, allowing the landlord to use the money deposited, in case of default.
However, the landlord should take as much care over the provisions in the agreement dealing with the tenant’s ability to assign. This is because once the tenancy is assigned, the landlord will be dealing solely with the assignee.
Can a tenant assign?
Every tenant has the right to assign his tenancy without reference to the landlord, unless the agreement provides otherwise. This is one good reason for ensuring that every tenancy is in writing and includes a covenant about assignment.
Such a covenant may be:
- absolute, i.e. the tenant cannot assign at all; or
- qualified, i.e. the landlord’s consent is required to the assignment.
Business tenancies
For short term business tenancies, the landlord should press for an absolute covenant. However, most business tenants will want the right to assign, with the consent of the landlord, such consent not to be unreasonably withheld. With tenants being a scarce commodity, the landlord must consider this request seriously.
If the landlord agrees to this suggestion without further qualification, then he must be aware that the reasonableness or otherwise of his consent will be determined pursuant to established legal principles. These make it clear that the landlord cannot refuse consent on grounds that have nothing to do with the relationship of landlord and tenant or the subject matter of the lease. A landlord can, however, refuse consent if he reasonably believes that the proposed assignment will lead to breaches of the tenancy.
But a well advised landlord will also ensure that the lease contains provisions allowing the landlord to impose conditions for agreeing to any assignment. These conditions would usually allow the landlord to require one or more of the following before consenting to the assignment:
- a guarantor;
- a rent deposit;
- that the outgoing tenant guarantees the performance of the new tenant.
Thus, the landlord should be able to ensure that he is not unduly disadvantaged if he is persuaded by the tenant to agree to a qualified covenant.
Farm Business Tenancies (FBTs)
In practice, most FBTs will include an absolute covenant against assignment.
However, if the landlord is persuaded to include a qualified covenant, then the reasonableness or otherwise of the landlord’s reasons for refusing consent will be referable to arbitration under the Agricultural Tenancies Act 1995. The legal principles which have evolved in relation to business leases, as referred to above, are likely to be relevant in assessing the reasonableness of any refusal of consent to assign.
Furthermore, the landlord should be able to impose the same conditions in the FBT as are used in business leases to require a guarantor, a rent deposit or the existing tenant to stand as guarantor, as a pre-requisite of giving consent.
