Leases typically require tenants to obtain landlord's consent before carrying out various activities under the lease. Often the landlord will be under an obligation not to refuse consent unreasonably. However what may be reasonable grounds for refusal under one clause of the lease, may not be reasonable when applied to another clause, as the recent case of Hautford Ltd v Rotrust Nominees Ltd demonstrates.
This concerned a six storey building which was let on a 100 year lease. The lease permitted the whole of the building to be used for retail, office and residential purposes. However the building had planning consent for retail on the first two floors, offices on the middle two floors and residential on the top two floors.
Previously the tenant had tried to acquire the freehold by enfranchisement, but this was successfully opposed as only 25% of the building was used for residential accommodation. The tenant subsequently converted the middle two storeys into flats and sub-let them to residential occupiers, all of which was permitted under the lease. The tenant then applied for the landlord's consent to make an application for planning permission to change the use of the middle two storeys to residential.
The landlord refused consent on the grounds that such a change of use would enhance the tenant's ability to acquire the freehold by enfranchisement. The landlord cited a number of cases where it had been reasonable for a landlord to refuse consent where it would damage the landlord's title to the property. However the Court decided that the landlord had acted unreasonably. The purpose of the restriction on making planning applications was to protect the landlord from enforcement action by the planning authority. Unlike the cases cited by the landlord, the lease had been granted after the enfranchisement legislation had been introduced and if the landlord had been concerned to prevent enfranchisement, that should have been addressed expressly when the lease was being negotiated. The landlord could not use the planning clause to achieve the collateral advantage of preventing part of the building being used for a purpose already expressly authorised by the lease.
The Court of Appeal will hear the landlord's appeal in November 2017. Until then, when considering any application for consent, landlords should bear in mind what the original objective of the parties was in agreeing a particular clause of the lease and ensure that the grounds of any refusal of consent are properly associated with that objective.