Change of use

Planning permission

Consent to apply for planning permission required

Sequent Nominees Ltd (formerly Rotrust) v Hautford Ltd

[2019] UKSC 47

Summary

By a 3:2 majority the Supreme Court has held that a landlord was reasonable in withholding its consent to the tenant making a planning application for change of use, as required under the lease, where such change would significantly enhance the tenant’s enfranchisement prospects.

Facts

This case concerns a 100-year lease of a 6-storey building in Brewer Street, London W1. Hautford is the tenant; Rotrust Nominees is the landlord and Romanys is the sub-tenant of whole.

The lease restricts use of the premises to:

“...one or more of the following purposes (a) retail shop (b) offices (c) residential purposes (d) storage (e) studio...”. The lease also provides that the tenant not “apply for any planning permission without the prior written consent of the Landlord such consent not to be unreasonably withheld”.

At the time of trial, the top two floors of the building had planning consent for residential use, the basement and ground floor were authorised for retail use and the first and second floors were authorised for office/ancillary use.  Approximately 25% of the building was in residential use.  Hautford wished to make a planning application to change the use of the first and second floors of the building to residential use.  If that application were successful, approximately 52% of the building would be in residential use.

Issues

The question before the Supreme Court was whether the landlord was reasonable in refusing its consent to the tenant’s application to apply for planning permission. The landlord’s concern was that giving its consent would increase the prospect of a successful claim by Hautford to enfranchise under the Leasehold Reform Act 1967.

First Decision and Court of Appeal Decision

The Court of Appeal (in upholding the first instance decision):

  • Confirmed that the general principles, as to whether consent has been reasonably withheld, are set out in Iqbal v Thakrar [2004] 2 EGLR 21 (CA), which in turn refers back to the guiding principles set out in International Drilling Fluids Ltd v Lousiville Investments (Uxbridge) Ltd [1986] Ch 513;
  • Held that in refusing consent the landlord was seeking to obtain a collateral advantage as “in leasing the property without a restriction on any part of the buildings use for residential purposes, the lessor must have known that there was a real prospect that a successful claim to enfranchise could be made by a qualifying tenant”
  • Distinguished Norfolk Capital Group Ltd v Kitway Ltd [1977] 1 QB 506 (CA) and Bickel v Duke of Westminster [1977] 1 QB 517 on the basis they concerned leases that pre-dated the 1967 Act

Supreme Court Decision

The Supreme Court overturned the Court of Appeal’s decision by a 3:2 majority. Lord Briggs gave the majority judgment (with Lord Carnwath and Lord Hodge agreeing). In Bickel, Lord Denning had warned against an overly refined construction of the lease as at the time of its grant and had stressed the need to address reasonableness by reference to the facts as they exist at the date of the tenant’s application. According, the Supreme Court held, the lower courts had:

“treated the question whether consent had been unreasonably refused as effectively determined by an erroneous construction of the Lease, contrary to Lord Denning’s guidance in the Bickel case. They therefore made an error of law which requires this court to consider the matter afresh, upon the same undisputed facts”

Referring back to the principle that:

“a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease”

the Supreme court held that:

it cannot possibly be said that seeking to avoid a significant increase in the risk of enfranchisement, with consequential damage to the reversion, was something extraneous to or dissociated with the landlord and tenant relationship created by the Lease. On the contrary, damage to the reversion is the quintessential type of consideration rendering reasonable the refusal of consent”

Lady Arden disagreed, upholding the reasoning in the lower courts, adding that a landlord can only look to protect its own interests:

“but only when that is within the purposes for which the lease permits him to use the power to refuse consent. On my interpretation of the lease, the power to refuse consent to a planning application was not granted to enable the landlord to cut down the user clause”.

She added that her reading of Bickel was that Lord Denning gave considerable weight to the fact the lease had been entered into before the 1967 Act had been enacted.

 

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