Landlord found unreasonable in refusing consent to tenant’s planning application

In the case of Rotrust Nominees Ltd v Hautford Ltd, 2018, the Court of Appeal concluded whether a landlord could reasonably refuse a tenant’s planning application to change the use of a commercial property to residential, if doing so would impact upon the landlord’s reversionary interest.

The Facts:-

Rotrust Nominees Limited is the freehold owned of a building in Soho (“the property”), along with a number of similar properties in the area.  Hautford Ltd has held a 100 year lease for the whole of the property since 1998, with approximately 70 years remaining.

The current authorised planning permission uses for the property are: the basement and ground – retail space; the first and second floor – office/ancillary; and the top two floors – residential.  This means that presently, only approximately 25% of the property is residential.

The tenant, wishing to use the first and second floor for residential purposes instead of office/ancillary use, requested the landlord’s permission to apply for a change of planning use for these floors. This would effectively increase the residential use in the property to 52%, enabling them to apply to enfranchise pursuant to the Leasehold Reform Act 1967. The tenant admitted this was one reason for submitting the planning application.

The landlord argued the application was unacceptable and refused the tenant’s application for consent for planning permission.

Notable clauses  of the Lease:-

The lease contained the following important provisions:

Clause 3(11): “Not to use the Demised Premises otherwise than for one or more of the following purposes (a) retail shop (b) offices (c) residential purposes (d) storage (e) studio PROVIDED however that nothing herein contained shall imply or be deemed to be a warranty that the Demised Premises may in accordance with all Town Planning law and Regulations now or from time to time be used for the purposes above mentioned.”

Clause 3(19): “To perform and observe all the provisions and requirements of all statutes and regulations relating to Town and Country Planning and not to apply for any planning permission without the prior consent of the landlord such consent not to be unreasonably withheld…”

The first-instance decision:-

The landlord argued that changing the use of the building as per the tenant’s request would increase the prospect of successful enfranchisement under the Leasehold Reform Act 1967 and damage their management of the Soho Estate. They submitted that, the purpose of Clause 3(19) (requiring the landlord’s consent to a planning application), was to protect the landlord from damage to their reversionary interest.

The Judge at first instance however, determined that the landlord had acted unreasonably based on the finding that the purpose of Clause 3(19) was not to restrict or limit permitted use under Clause 3(11) and refusing consent would impose such restrictions on the tenant.

Appeal

The landlord appealed the decision. The landlord argued that given the tenant’s admission that one of the purposes of the planning application was to increase the tenant’s chances of making a successful enfranchisement claim, the landlord should not be held to be unreasonable for refusing consent.

The Court of Appeal held that the test for assessing reasonableness is an objective one, starting with the express wording of the lease itself.  That being so, clause 3(11) expressly authorised the residential use of the entire property. To restrict or refuse consent to change the use of certain floors to residential was unreasonable, notwithstanding that to do so increased the tenant’s chances of enfranchisement. The fact the landlord owned adjacent premises was also irrelevant.

Commentary:-

This case confirms that a landlord cannot refuse consent for a tenant to apply for planning permission to gain a collateral advantage (e.g to protect against enfranchisement) if a lease expressly allows for full or partial residential use.

A landlord wishing to limit the opportunity for the tenant to seek enfranchisement must ensure it expressly states this within the lease.

For further information please contact the Real Estate Disputes Team at Hamlins.