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Unreasonable refusal of consent to change of use

Published February 2017

In this case a tenant, Hautford Limited (“Hautford”), sought a declaration that its landlord, Rotrust Nominees (“Rotrust”) was unreasonably refusing consent to the making of a planning application for change of use.  Hautford is the tenant of 51 Brewer Street, London W1 (“the Property”) under a lease of the whole building dated 4th April 1986 for a term of 100 years from 25th December 1985 at a peppercorn rent (“the Lease”).  Residential use is permitted under the Lease.

The Property is a terraced property in Soho which extends over 6 floors and Hautford sub-let the whole of it to Romanys Limited which trades as an ironmonger from the basement and ground floors.  The first and second floors (“floor 1” and “floor 2” respectively) had until shortly before trial been used for some years by Romanys for storage and as a staff room.  The third and fourth floors (“floor 3” and “floor 4”) had been used for residential purposes since the commencement of the Lease albeit that until shortly before trial they were vacant.

Romanys wished to be able to rent out all the upper floors to residential tenants in order to maximise their income from the Property.  Residential use is permitted under the Lease.  All four floors were refurbished by Romanys by the time of trial and had been fitted out for residential use.  Floors 3 and 4 were at the time of trial sub-let on an assured shorthold tenancy.  However in order to use floors 1 and 2 for residential purposes planning consent had to be obtained for change of use.  By clause 3(19) of the Lease the Claimant covenanted:

“…not to apply for any planning permission without the prior written consent of the Landlord such consent not to be unreasonably withheld”

Hautford sought the consent of Rotrust to a planning application for permission to use floors 1 and 2 for residential purposes.  Rotrust refused consent on the ground that to give consent may facilitate a claim by Hautford to acquire the freehold of the Property under the Leasehold Reform Act 1967 (“the 1967 Act”).  Rotrust stated that it wanted to retain control of the Property for estate management purposes as it forms part of a block of properties in Rotrust’s freehold ownership called “the Soho Estate”.

Rotrust alleged that if a claim under the 1967 Act were successful there would be damage to the reversion as it would be deprived entirely of its freehold interest in the Property, and that there would also be an adverse impact on the value of its investment in the Soho Estate.

There are four decided cases which consider the specific question whether a landlord has reasonably refused consent to assignment or alteration on the ground that to give consent would enable the tenant more easily to make a claim to enfranchise.  Two of the cases were decided in the Court of Appeal in 1976 without reference to one another (Norfolk Capital Group Ltd v Kitway Ltd [1977] 1 QB 506 and Bickel v Duke of Westminster [1977] 1 QB 517).  In both the Court of Appeal concluded that it was reasonable to withhold consent to assignment on the basis of feared enfranchisement.

The third is a decision of the County Court in Mount Eden Land Ltd v Bolsover Investments Ltd which is not reported.  The Judge at first instance decided that consent had been unreasonably withheld to alterations to develop residential flats and permission to appeal was refused by Stuart Isaacs QC [2014] EWHC 3523 (Ch).  Rotrust objected to Hautford relying on the decision of Mr Isaacs QC as it said it was not properly citable under Practice Direction (Citation of Authorities) [2001] 1 WLR 1001.

The fourth is the decision of HHJ Cowell at first instance in Henley v Cohen which is also not reported (dated 28th September 2011) where the Judge concluded that consent had not been unreasonably withheld to alterations to create a flat.

The Judge in the present case considered the general principles applicable to disposition and alteration covenants that are applied when determining reasonableness in the context of applications to the landlord for a change of use.  He found that Rotrust had acted unreasonably in withholding consent to the planning application.  He considered that the purpose of the covenant was to protect the lessor from the possible effect of an application because as the owner of the land it could be subject to enforcement action if there were a breach of a planning obligation.  He accepted the argument that the purpose of the covenant is not to enable the lessor to restrict or limit the permitted residential use under the Lease.  He concluded that Rotrust’s was seeking to achieve a collateral purpose, i.e. the imposition of a restriction on use that was not negotiated.  The original lessee paid a premium for the grant of the Lease as did Hautford on its the assignment.  Those premiums will have been negotiated in light of the use to which the tenant would be entitled to put the Property.

He also accepted the argument of Hautford that the decisions in the Court of Appeal cases are properly explained by the fact that the leases in those cases were entered into well before the 1967 Act was passed so it could not have been in contemplation of the parties at the time they were negotiated.  In the present case, in leasing the property without a restriction on any part of the building’s use for residential purposes, Rotrust must have known that there was a real prospect that a successful claim to enfranchise could be made by a qualifying tenant.

Rotrust has obtained permission to appeal the decision, which can be found [here / on our website].

Tiffany Scott acted for the successful Claimant.

 

 

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