Consent clauses requiring that approval which will “not be unreasonably withheld” appear in almost every finance transaction.
B32 Investments Pty Ltd v The Owners – Strata Plan 81539 [2026] NSWSC 160 provides useful guidance on how these clauses are assessed in practice – and what lenders should be mindful of when exercising consent rights.
In this case the mortgage could be substituted for alternative security only with the mortgagee’s consent, with such consent ‘not to be unreasonably withheld’. The Court considered whether the refusal of consent met that standard.
How the Court Approaches “Unreasonably Withheld” Consent
The decision confirms a structured and commercially grounded approach:
- The burden of proof – establishing unreasonableness rests on the party who alleges the consent was unreasonably withheld.
- The test is objective – what a reasonable person would have done in the exact circumstances in question, having regard to all relevant facts.
- The decision-maker may take its own interests into account – when deciding whether to grant or refuse consent.
- Reasons are not frozen in time – a decision-maker is not restricted to the reasons initially given when refusing consent and may rely on additional reasons later.
- Motivation matters – evidence of bad faith or improper purpose may weigh against the decision-maker.
The Court’s analysis reinforces that consent decisions are not judged in a vacuum. Context, commercial rationale and process all matter.
What this means for lenders
From a lender perspective, the decision is a reminder that courts focus first on whether the decision itself was reasonable in the circumstances. Clear commercial judgment sits at the centre of that assessment. Careful documentation of the decision-making process matters because it evidences how that judgment was reached.
If consent is to be withheld, lenders should ensure that:
- the commercial rationale is clearly identified and defensible
- relevant risks and interests have been properly considered
- the decision‑making process is deliberate, coherent, and meticulously documented
- records of the decision, supporting material and communications are securely retained
This is not about over‑engineering decisions. It is about ensuring that consent rights – often drafted to preserve flexibility and optionality – are exercised in a way that aligns with how courts assess reasonableness.
Our Perspective
At Kingston & Partners, we approach consent provisions with enforcement and dispute scenarios in mind, even at the documentation stage. Clauses are drafted to preserve lender optionality, and advice is framed around how decisions are likely to be scrutinised if tested.
When issues arise mid‑transaction or post‑settlement, disciplined decision‑making and clear records can materially strengthen a lender’s position.
If you would like to discuss how consent clauses operate within your loan documentation – or how decision‑making processes can be structured to withstand scrutiny – speak with our team at advances@kingstonandpartners.com.au
Disclaimer
This article is current as at March 2026. It is general in nature and does not constitute legal advice. Specific advice should be obtained for your particular circumstances.