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Reasonable refusal: When can a landlord refuse a tenant’s application for planning permission?

Form P1 - Application for permission to develop land Print publication

26/09/2018

Nick Cannon offers his practical insight following the recent Court of Appeal judgment in Rotrest Nominees v Hautford Ltd [1], on the Leasehold Reform Act 1967 (LRA) and its effect on consent and user covenants in modern leases.

Case

The tenant had a 100 year lease of a building on Soho, granted in 1986. The building was mixed use for planning purposes including retail, office and residential elements (on the top two floors only). Crucially, the lease permitted residential use anywhere in the building.

The tenant wanted to convert the whole of the building to residential use and, eventually, to acquire the freehold by enfranchisement under the LRA. However, only the top floors of the building had planning permission for residential use. The tenant therefore needed to apply to the local authority for planning permission for change of use for the rest of the building. The lease stipulated that the tenant would need the consent of the landlord in order to make an application for planning permission, such consent not to be unreasonably withheld.

No planning permission or landlord’s consent was required for the works so the tenant refurbished the building. The tenant then applied to the landlord for consent to apply for planning permission. The landlord promptly refused on the grounds that full residential use may facilitate a claim for the freehold under the LRA.

Court of Appeal decision

Historically, the courts have found refusal of consent for this reason to be reasonable. However, in these past cases, the leases in question were granted prior to the introduction of the LRA. In this case the court noted that the lease was granted when the LRA was in force and both parties had agreed a lease that permitted residential use throughout. The court considered that the landlord must therefore have accepted the risk of the tenant converting the whole of the property to residential. To argue that the consent clause could restrict the use of the property would be a “re-writing” of the user clause. The court therefore determined that the landlord refusing consent on this basis was unreasonable.

Practical insights

  • Master of the Rolls Sir Terrance Etherton said the court needed to “ascertain the purpose of the covenant intended by the original parties to the lease“. As the covenant expressly authorised residential use throughout the building, it was not designed to prevent the remainder of the building being converted to residential use, even if the same would lead to a claim under the LRA.
  • For mixed use properties, covenants stipulating the permitted uses of the property must be carefully drafted so as not to imply that the landlord automatically consents to residential use anywhere in the property if this is not the intention of the parties. If this is the intention, landlords need to be aware that such a covenant may allow the tenant to bring a claim for the freehold under the LRA.
  • This is the first reported post-LRA case in which the court has considered the reasonableness of a landlord refusing consent to a tenant’s request to apply for planning permission. Clearly, a risk of enfranchisement will not automatically be considered a reasonable ground for refusing consent.

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[1] [2018] EWCA Civ 765

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