Additional costs when assigning, subletting or seeking licences

A frequent and understandable area of contention in commercial leases relates to additional and often unforeseen costs demanded by Landlords or their agents. I have lost count of the amount of times tenant clients are flabbergasted and infuriated by what they say as a form of legalised blackmail. Licence to assign The scenario often arises

Home » James Swede » Additional costs when assigning, subletting or seeking licences

A frequent and understandable area of contention in commercial leases relates to additional and often unforeseen costs demanded by Landlords or their agents.

I have lost count of the amount of times tenant clients are flabbergasted and infuriated by what they say as a form of legalised blackmail.

Licence to assign

The scenario often arises where a tenant wants or needs to transfer (assign) the lease, or to sub-let or to carry out some alterations to the premises.

Invariably and for understandable reasons, almost every commercial lease will have clauses which only permit the above activities with the approval of the landlord, often under a clause which in principle permits these activities, subject to a right of veto based on “reasonableness”.

It is not uncommon in these situations for solicitors for the landlord or managing agent to submit an invoice for hundreds of pounds and in some cases, over £1,000.00 for work associated with consent.

Tenant clients will often ask – “what on earth have they done to merit such a fee ?” and in some cases I agree with them.

The difficulty in these situations is often :-

  1. The tenant needs to get the transaction through fast and so it is often better to pay through gritted teeth
  2. There can sometimes be confusion as to what work has been done to merit the fee sought
  3. It is hassle challenging the fees at the Leasehold Valuation Tribunal

A recent case neatly illustrates the above :-

In Holding and Management (Solitaire) Ltd v Norton the Managing Agents sought to charge £755.00 plus VAT fee as a reasonable charge. The tenants were especially aggrieved in this case because the Agents had carried out the same exercise for multiple other tenants, which should have reduced costs and also because the lease stipulated a fee for registration of subletting of only some £3.00/

At the Tribunal, the outcome was that the Agents were awarded £165.00 plus VAT, something of a victory for both sides. On the one hand, the fees charged were very significantly reduced, on the other hand, the Tribunal found that work had been undertaken by the Agents which was far more than just registering the document.

Can the landlord refuse licence to assign?

With lease assignments, the landlord will often want to carefully consider the bona fides and solvency of the prospective new tenant, including taking up references and other financial checks. The lawyer will need to check the lease and may or may not be involved in the tenant checks or other legal work.

What tends to infuriate tenants is when they see the licence to assign or for subletting or alterations. Of itself, this is a generally quite standard 2-3 page legal document which shouldn’t take more than a hour to prepare. If the landlord’s solicitors is charging £1,000.00 plus VAT, it is understandable that a tenant feels annoyed about this.

The difficulty in these situations is compounded by the fact that the Landlord will often require that his, her or it’s legal fees are agreed at the outset, when there is no visibility for the tenant on actual work done. The Landlord’s solicitors will generally require a solicitors undertaking from the tenants solicitors to be responsible for costs up to a certain level, and in turn, a tenant’s solicitors will not be able to give such an undertaking, which creates personal liability, unless he or she has the funds in client account from the tenant.

In summary, it is possible to challenge these costs but there are often reasons why a tenant is hamstrung in doing so, for practical more than legal reasons.  At least tenants should be forewarned of these extra costs so they can budget accordingly.

jswede-sb If you need advice on commercial leases, contact me or perhaps go to this page. 

James Swede • Property law

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