Tue 06 May 2014

What is a respectable and responsible sub tenant?

Most modern commercial leases include some form of wording to allow landlords the ability to vet new tenants or sub tenants before permitting their existing tenants to assign or sub-let. This, in very basic terms, is designed to ensure that the new tenant or sub tenant has the ability to pay the rent and to keep the property in good repair.

The standard test for a prospective new occupier often includes the requirement that it be "respectable and responsible" - but what does that phrase actually mean when you are dealing with a limited company?

Burger King case

There have been a few court judgements which have addressed this issue and a recent Scottish case, Burger King Limited v Castlebrook Holdings Limited has given us some helpful guidance.

In this case, Burger King wanted to sub-let a property in Kilmarnock to a newly incorporated company, Caspian Food Retailers Limited ("Caspian").   Burger King were unable to evidence any track record for the sub-tenant because the company had not yet commenced trading.  Instead, their application for consent relied on the fact that one of the company directors had other successful business interests and in fact other successful Burger King franchises. Burger King's landlords refused consent to the  proposed sub-letting on the basis that Burger King had failed to provide evidence that the proposed sub-tenant (as opposed to the successful director who ran the company) was "respectable and responsible".

The court agreed with the landlords and dismissed Burger King's claim but noted that, had they provided material demonstrating even a first few successful months of trading and landlord's references for Caspian, it might have been difficult for the Landlords to justify refusing consent. 

What is responsibility and respectability?

In terms of defining the meanings of the words themselves, "respectability" in the court's view referred to the manner in which the company in question conducted its business and its reputation, and "responsibility" was held to refer to the financial capacity of the Company.

In this case no supporting evidence was provided in relation to Caspian, because there was none, and so the landlords and the court, took the view that the test had not been met and that the information on the director, a separate legal entity, was irrelevant. 

Entities with no trading history can struggle to satisfy landlord requirements

Whilst it may not come as a huge surprise to most that, in the words of 80's pop duo Mel and Kim, a company with no trading history ain't never gonna be respectable (or responsible…ouch), this decision makes clear that in most cases:

  • a landlord faced with the prospect of an assignee or sub-tenant with no track record is entitled to refuse consent unless a suitable guarantee, deposit or other deal sweetener is on offer and
  • the track record of related entities is not something that a landlord need take into account when making its decision.

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