Landlord and tenant law - Purpose and effect of an alienation covenant

Learning Outcomes

After studying this article, you will be able to explain the function and legal effect of alienation covenants in leases, distinguish between absolute, qualified, and fully qualified covenants, and apply the statutory and common law rules governing landlord’s consent to assignment or subletting. You will also be able to analyse typical scenarios and advise on the enforceability and practical implications of alienation clauses for SQE1-style questions.

SQE1 Syllabus

For SQE1, you are required to understand the purpose and effect of alienation covenants in leases, including the statutory and case law controls on assignment and subletting. In your revision, focus on:

• the different types of alienation covenants (absolute, qualified, fully qualified) and their legal consequences
• the statutory modification of qualified covenants by the Landlord and Tenant Act 1927, especially s 19(1)
• the principles for determining when a landlord may reasonably withhold consent to assignment or subletting
• the procedural requirements for seeking and granting landlord’s consent
• the remedies available for unreasonable refusal or delay in giving consent

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following best describes a fully qualified alienation covenant?
   1. It absolutely prohibits assignment or subletting in all cases.
   2. It allows assignment or subletting only with landlord’s consent, which cannot be unreasonably withheld.
   3. It allows assignment or subletting without any landlord involvement.
   4. It requires landlord’s consent, which may be withheld for any reason.
2. Under a qualified covenant against assignment, what is the effect of s 19(1) of the Landlord and Tenant Act 1927?
   1. The landlord’s consent can be withheld for any reason.
   2. The landlord’s consent cannot be unreasonably withheld.
   3. The tenant may assign without consent.
   4. The covenant becomes void.

3. True or false? A landlord can refuse consent to assignment solely because they personally dislike the proposed assignee.

Introduction

Alienation covenants are a standard feature of leases, restricting or regulating a tenant’s ability to transfer (assign) or sublet their leasehold interest. These covenants are important for both landlords and tenants, as they balance the landlord’s interest in controlling who occupies the premises with the tenant’s need for flexibility. The law imposes limits on the operation of such covenants, especially regarding the landlord’s ability to withhold consent.

Types of Alienation Covenants

There are three main types of alienation covenants found in leases:

• Absolute covenants: prohibit assignment or subletting entirely.
• Qualified covenants: prohibit assignment or subletting unless the landlord consents.
• Fully qualified covenants: prohibit assignment or subletting unless the landlord consents, and such consent is not to be unreasonably withheld.

Key Term: alienation covenant
A clause in a lease restricting or regulating the tenant’s ability to assign, sublet, or otherwise transfer their leasehold interest.

Key Term: absolute covenant
A lease clause that completely prohibits assignment or subletting by the tenant under any circumstances.

Key Term: qualified covenant
A lease clause that prohibits assignment or subletting unless the landlord gives consent, but does not specify any reasonableness requirement.

Key Term: fully qualified covenant
A lease clause that prohibits assignment or subletting unless the landlord gives consent, and expressly states that consent is not to be unreasonably withheld.

Key Term: landlord’s consent
The formal approval required from the landlord before a tenant may assign or sublet the lease, where the lease contains a qualified or fully qualified alienation covenant.

Statutory Modification: Landlord and Tenant Act 1927

Section 19(1) of the Landlord and Tenant Act 1927 modifies any qualified covenant against assignment, subletting, charging, or parting with possession by implying a term that the landlord’s consent cannot be unreasonably withheld. This means that, in practice, most qualified covenants are treated as fully qualified covenants.

Landlord’s Consent and Reasonableness

Where the lease requires landlord’s consent to assignment or subletting, the landlord must act reasonably in deciding whether to grant or withhold consent. The landlord cannot refuse consent for reasons unrelated to the landlord and tenant relationship or for arbitrary or discriminatory reasons.

Key Term: reasonableness (in landlord’s consent)
The legal standard requiring the landlord to have valid, lease-related grounds for refusing consent to assignment or subletting, rather than acting capriciously or for irrelevant reasons.

Worked Example 1.1

A tenant wishes to assign their lease to a financially stable business, but the landlord refuses consent because the proposed assignee operates a different type of business than the current tenant, even though the lease allows such use.

Answer: The landlord may only refuse consent if the proposed use would breach the lease or otherwise adversely affect the property. If the lease permits the proposed use, and the assignee is suitable, refusal based solely on business type may be unreasonable.

Worked Example 1.2

A lease contains a qualified covenant against subletting. The tenant applies for consent to sublet part of the premises. The landlord does not respond for two months.

Answer: The landlord must respond to a request for consent within a reasonable time. Unreasonable delay may be treated as an unreasonable withholding of consent, entitling the tenant to proceed or claim damages.

Operation and Effect of Alienation Covenants

Absolute Covenants

Absolute covenants are rare in modern commercial leases, as they are restrictive and may be subject to challenge. Courts will interpret such clauses strictly, but will not rewrite the lease to insert a reasonableness requirement unless required by statute.

Qualified and Fully Qualified Covenants

Most leases contain qualified or fully qualified covenants. Under s 19(1) of the Landlord and Tenant Act 1927, a qualified covenant is treated as fully qualified, so the landlord cannot unreasonably withhold consent. The landlord may impose reasonable conditions, such as requiring the outgoing tenant to pay legal costs or provide an authorised guarantee agreement (AGA) in commercial leases.

Reasonable Grounds for Refusal

The landlord may reasonably refuse consent if, for example:

• the proposed assignee or subtenant is of doubtful financial standing
• the proposed use would breach the lease or damage the property
• the assignment or subletting would adversely affect the value or management of the premises

However, refusal based on personal dislike, discrimination, or to extract a premium is not reasonable.

Procedure for Seeking Consent

The tenant must apply in writing for consent. The landlord must respond within a reasonable time, stating any conditions or reasons for refusal. Failure to respond promptly may itself be unreasonable.

Remedies for Unreasonable Refusal or Delay

If the landlord unreasonably withholds consent or delays, the tenant may:

• assign or sublet without consent (in some cases)
• claim damages for breach of covenant
• seek a court declaration that consent has been unreasonably withheld

Exam Warning

If a lease contains an absolute covenant, s 19(1) of the Landlord and Tenant Act 1927 does not convert it into a qualified or fully qualified covenant. The landlord may still prohibit assignment or subletting entirely unless the lease or statute provides otherwise.

Revision Tip

When answering SQE1 questions, always identify the type of alienation covenant and check whether statutory controls on reasonableness apply.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• Alienation covenants restrict or regulate a tenant’s ability to assign or sublet a lease.
• There are three main types: absolute, qualified, and fully qualified covenants.
• Section 19(1) of the Landlord and Tenant Act 1927 implies a reasonableness requirement into qualified covenants.
• The landlord must not unreasonably withhold consent to assignment or subletting where required.
• The landlord must respond to requests for consent within a reasonable time and give valid, lease-related reasons for refusal.
• Remedies are available to tenants if consent is unreasonably withheld or delayed.

Key Terms and Concepts

• alienation covenant
• absolute covenant
• qualified covenant
• fully qualified covenant
• landlord’s consent
• reasonableness (in landlord’s consent)