Just when exactly is consent given? Recent Court ruling helps provide (un)certainty…
This article was included in the Winter 2011 issue of Informer- the real estate newsletter
The issue of consent (usually that of a third party, such as a superior landlord) is key to the progress and completion of many transactions.
However, the question of exactly when consent is given is not always obvious. This is important for the progress and success of the transaction but also otherwise affects parties’ rights and liabilities – such as the right to terminate/escape from a contract.
Is consent always given at the time a licence (granting consent) is completed? After all, don’t solicitors always remind people that it's not a done deal until … well, until it’s a done deal? Alternatively, is consent given at an earlier point in time, prior to completion of a formal licence – for example when consent in principle has been given? Or does it depend?
The answer is, of course, that it depends on the wording of the contract. There have, however, been several recent examples of the Courts showing a willingness to hold that consent is granted at the point that an ‘in principle’ decision has been reached, even though in practice this is often a long time before formal completion takes place.
In the recent case of BT v Rail Safety and Standards Board, the landlord and (prospective) tenant entered in an agreement to grant an underlease which was conditional upon obtaining the superior landlord’s consent for both the underletting and for some alterations. If completion had not occurred by a long stop date, either party could terminate the agreement. The contract defined "Superior Landlord’s Consent" as consent ‘by way of the Licence to Underlet’ and ‘by way of the Licence for Alterations’. By the time the long stop date was reached, the documents had not been completed, but were effectively ready for completion. The licences were in agreed form and had been executed by all the parties (except the tenant’s signature on the licence for alterations). The tenant, having changed its mind about the transaction, tried to terminate the agreement. The landlord disputed its ability to do so and claimed that superior landlord’s consent only needed to be consent in principle to satisfy the provisions of the agreement (and not a completed Licence).
The Court agreed and the attempted termination was held to be invalid.
Given the particular wording of the contract, some might find the decision surprising. Nevertheless, whilst cases will still turn on their particular facts, other cases have come to similar conclusions. In Mount Eden v Prudential (2007) a “subject to licence” consent which expressly required completion of a formal licence for alterations to be effective was nevertheless held be amount to requisite consent. Similarly, in Alchemy Estates v Aster (2008,) an e-mail from a landlord’s solicitor granting consent in principle but stating that the consent was not to be treated as requisite consent was also held to be sufficient.
So the issue of consent appears increasingly to be an exception to the rule that a deal is not done until the parties have signed on the dotted line (and thereafter completed!). Crystal clear drafting will still be followed, but parties should bear in mind that, if open to interpretation, the contract wording might be read in a somewhat strained fashion in order to find that consent has been given.
Tips to avoid potential pitfalls
- insert express obligations upon parties to execute and thereafter enter into licences to avoid an argument that they need not do so.
- insert express provisions to ensure that parties cannot terminate if they are in breach of their obligations
- be clear on the drafting – if you want consent to mean a formally completed licence – clearly say so (although not all parties will want this).
Article by Chris Hill, Associate in the Property Litigation Practice at Fieldfisher.