The Supreme Court* recently ordered a landlord – who acted on “one-sided” and “ill informed” information – to reverse its decision to deny consent to a lease assignment.
D sold her aircraft hangar at a country Queensland airstrip, to A. There was no formal documentation and no landlord consent to the assignment of the lease of the land on which the hangar was built.
The lease stipulated that the tenant must obtain the consent of the landlord’s board for any proposed alterations and to any assignment. A, who had never read the lease and was unaware of the need to obtain consent, constructed an exit door in the rear of the hangar and did some landscaping.
The landlord issued a notice to remedy breach of covenant requiring D to reinstate the hangar to its original condition and to eject A from the premises. Subsequently, A applied to the board for consent to the assignment and to the alterations.
The board refused consent to the assignment on the somewhat tenuous basis that it was not satisfied that A could pay the $65 per year rent. It also believed A had given untruthful responses to its queries. On this basis and notwithstanding that A had reasonable explanations, the landlord reached the conclusion that A was dishonest and therefore an unsuitable assignee.
A applied to the court for relief under section 121 of the Property Law Act which requires that landlords must not unreasonably refuse consent to an assignment request.
The court held that the board had “rushed to judgment without analysis of the respective positions”. Her Honour ruled that landlords have a responsibility to exercise the “considerable power” they have over approval of assignments, reasonably.
In this instance, she reasoned, the board was required to “analyse events calmly” and allow A an opportunity of addressing its concerns and take into account reasonable explanations that were provided. Had the board “fully informed itself”, it would have approved the assignment, “for to do otherwise would not have been reasonable”.
Although this case related to an assignment, the same principles apply to any decision made by landlords in circumstances where the lease provides that it must “act reasonably” or “not unreasonably refuse consent”
* Ayres v Donaldson & South East Queensland Sports Aircraft Club Inc (Qld Sup Ct March 2009)
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