The Court of Appeal has decided that a landlord's refusal of consent to an application for planning permission was unreasonable, because the landlord was seeking to achieve a collateral purpose.

Background

Two points of law are of relevance to this case:

  • Where a landlord unlawfully withholds consent, a tenant is entitled to take the action for which it applied for consent, or to apply to court for a declaration that it may do so;
  • Under the Leasehold Reform Act 1967 (LRA) a 'qualifying tenant' of a house may become entitled to buy the freehold of the building. If it were to do so, its lease would then merge with the freehold.

Facts

In Rotrust Nominees Ltd v Hautford Ltd, Rotrust was freehold owner of a terraced building in London. Hautford Ltd was tenant of the building under a long lease granted in 1986. At the time of the appeal, there was a little under 70 years left to run on the lease.

The building comprised six floors, all sublet to Romanys Ltd. Romany traded as ironmongers from the ground floor. It had used the first and second floors for storage and a staff room and the third and fourth floors had been used for residential purposes. However, between 2013 and 2015, Romany fitted out the first to fourth floors for residential use.

The lease allowed the tenant to use the property for "one or more of the following purposes (a) a retail shop (b) offices (c) residential purposes (d) storage (e) studio.". (clause 3(11)).

It also provided that the tenant was "not to apply for any planning permission without the prior written consent of the Landlord such consent not to be unreasonably withheld" (clause 3(19)).

Hautford applied to Rotrust for consent to apply for planning permission to change the use of the first and second floors of the property to residential use.

Rotrust's predecessor in title, and later Rotrust, refused consent. Rotrust's reason for refusal was because the change of use might improve Hautford's prospects of making a future claim to purchase the freehold of the building, due to a greater proportion of the building being used for residential use. Such enfranchisement would mean loss of title to the freehold and this would undermine Rotrust's management control of its overall estate which included neighbouring buildings.

First instance decision

At first instance the judge held that Rotrust had been unreasonable in refusing consent. He had to consider

  • what was in the reasonable contemplation of the parties to the lease in agreeing the requirement to obtain consent?; and
  • that a landlord could not withhold consent in order to obtain a collateral advantage.

He found that in refusing consent, Rotrust was trying to obtain the collateral advantage of imposing a restriction on use that was not in the lease. The lease was completed after the LRA had come into force and so if the parties had intended to prevent enfranchisement, they should have said so expressly. Rotrust appealed.

The appeal

The Court of Appeal dismissed the appeal and again held in favour of Hautford. It said:

  • There appears to have been no reported case concerning the reasonableness of refusing consent to a tenant's application for consent to apply for planning permission. However, the principles that apply in assessing reasonableness as the same as those applicable in relation to applications for consent for assignment and subletting;
  • It is for the tenant to satisfy the court that the landlord is being unreasonable;
  • The starting point is to ascertain the purpose of the requirement for consent. The proper interpretation of clause 3(19) needed to be considered in the context of the lease as a whole and the background against which it was created. The purpose of this clause was to protect the property interests of the landlord;
  • It was plain that the purpose of clause 3(19) was not to preclude residential use of the first and second floors in order to prevent enfranchisement under the LRA. Clause 3(11) expressly authorised residential use of the whole property;
  • If Rotrust's refusal of consent were valid, Hautford would be prevented from applying for planning permission to use the first and second floors for residential use for the remaining term of the lease. This was even though an application for planning consent could be made by anyone else. It was inconceivable that this was the intention of the original parties to the lease;
  • The fact that planning permission would enhance the prospects of success of an enfranchisement application made no difference to the court's analysis; the point was what the lease said, not what the consequences would be;
  • The judge at first instance was right to say that wider management considerations could be addressed adequately by the insertion of restrictive covenants in any later transfer of the freehold should there be a successful claim for enfranchisement.

Permission to appeal to the Supreme Court was refused. Hautford was, therefore, free to go ahead and apply for planning permission.

This decision will be disappointing for landlords, but the outcome reflects that the lease already permitted residential use; the court rightly decided it would have been improper to curtail that permission.

It is a further reminder that leases need to be reviewed carefully, and future potential uses considered and addressed at the point at which the lease is drafted. If either party has a concern that needs to be addressed, that must be done at the outset. Failure to do so means uncertainty and, all too often, litigation.

Rotrust Nominees Ltd v Hautford Ltd [2018] EWCA Civ 765