Landlord reasonably withheld consent to planning application

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The Supreme Court (SC) has ruled, by a majority of three to two, that a landlord (L) was reasonable to withhold consent to a tenant’s (T’s) planning application, where the additional residential use contemplated by that application would increase the risk of a successful enfranchisement claim under the Leasehold Reform Act 1967 (LRA 1967). In reaching this conclusion, the SC reversed the decision of the Court of Appeal (CA).

The property was a terraced building with six floors (Property). Historically, the basement and ground floors had been used for retail, the first and second for offices or ancillary retail purposes and the third and fourth floors were residential. However, the user clause in T’s lease (clause 3(11)) allowed the whole or any part of the Property to be used for a variety of purposes, including residential, with no qualification.

Under clause 3(19) of the lease (clause 3(19)), landlord’s prior consent was required to any planning application (such consent not to be unreasonably withheld). T requested L’s consent to apply for planning permission to change the use of the first and second floors to residential. L refused, primarily because the additional residential use would increase the risk of the property being enfranchised under the LRA 1967 and reduce the value of L’s reversion.

Both the County Court and the CA found for T. The SC, however, allowed L’s appeal. Lord Briggs, giving the majority judgment, held that the CA had made an error in law when it held that L could not reasonably use clause 3(19) for this purpose. Clauses 3(11) and 3(19) must be read together; residential use was only permitted in the Property to the extent that it was permitted by planning law. Applying the principles set out in Ashworth Frazer v Gloucestershire City Council [2001] 1 WLR 2180, L’s refusal of consent was reasonable, particularly given the economic consequences for L.

Lady Arden and Lord Wilson, dissenting, disagreed with the majority’s interpretation of the lease. The purpose of clause 3(19) was not to enable L to cut down the user clause, which was a valuable element of the lease. The original parties to the lease would have been aware of the LRA 1967 and could have agreed further protections.

This decision, by a bare majority, demonstrates the compelling arguments on both sides of this debate, particularly with regards to the relationship between the lease clauses. The result will be welcomed by landlords, as it appears to provide a potential way to prevent enfranchisement, even where a lease allows unqualified residential use. However, tenants will be disappointed, especially where reliance has been placed on a flexible user clause for enfranchisement potential.

Case: Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd [2019] UKSC 47 (30 October 2019) (Lord Briggs, Lord Carnwath, Lord Hodge, Lady Arden and Lord Wilson).

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