A common bone of contention for tenants when seeking consent under the terms of their lease relates to the fees demanded by landlords, their solicitors and agents.
Most commercial leases contain a requirement for a tenant to obtain landlord’s consent to various activities, for example assignment or subletting, or the making of alterations to the premises. This enables the landlord to retain a degree of control as to what happens to their premises and ongoing occupation. Any such requirement is often caveated by the requirement for the landlord to act reasonably when considering the tenant’s application.
A landlord has a statutory right to require a tenant to pay any reasonable costs it incurs in connection with any such application*.
Notwithstanding the statutory reference to ‘reasonable costs’ it is often the case that upon making an application for consent a tenant will be met with a request to cover fees which appear excessive in the circumstances. Often a tenant will ask how such fees can possibly be justified as ‘reasonable’, and it is fair to say that in some cases they may have a point.
One of the problems at the outset is that a tenant is asked to provide assurances to cover fees (usually by way of a solicitor’s undertaking in the event they have instructed a lawyer) when the landlord (or their adviser) has at that stage carried out no work. How can a landlord’s solicitor ask for its costs to be covered, for example in the sum of £1000 plus VAT, when they may subsequently only carry out a couple of hours’ worth of work drafting and agreeing a simple form licence?
The first point to bear in mind here from a tenant’s perspective is that any assurance to cover fees (either by way of solicitor’s undertaking or otherwise) should not be a ‘fait acompli’ (i.e. to cover a specific figure) but rather should be limited to a maximum amount. This not only ensures that a tenant’s liability is capped but also provides some scope for argument in the event that the quoted figure subsequently appears excessive given the work ultimately carried out.
On numerous occasions when acting for tenants I have received an invoice from a landlord’s adviser for the exact amount of the capped fee quote, which often bears no resemblance to the time spent on the transaction.
In such a scenario it is not uncommon for a tenant to seek to argue the invoice and request a breakdown of the landlord’s time spent in dealing with the application. After all a landlord is required to justify that the costs incurred are ‘reasonable’ in the circumstances.
That said this is not without difficulty…
1) Querying reasonableness can be challenging given numerous variables – such variables include the hourly rate of the particular adviser dealing with the application. These can vary greatly on a case by case (and geographically) and can affect the time incurred on a particular application considerably. Ultimately the burden of proof in establishing reasonableness is not difficult to achieve from a landlord’s perspective, given these variables.
2) Bargaining power – it is often the case that a tenant needs to push an application through quickly and it is often unthinkable to risk delaying matters by querying the level of costs. It is often better to agree to pay the raised costs rather than risk incurring delays (not to mention ancillary costs) arguing the point.
In the circumstances a tenant is not without recourse in challenging landlord’s costs both at the outset (i.e. prior to providing an undertaking) or at invoice stage. That said from a practical and evidential point of view this often proves an unpalatable way forward, and with this in mind a tenant should be advised to budget accordingly.
* Section 19(1)(a) of the Landlord and Tenant Act 1927