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Lawbite: Changing with the times – refusing consent to residential use

  • United Kingdom
  • Litigation and dispute management
  • Real estate
  • Real estate litigation

19-11-2019

Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd [2019] UKSC 47

The Supreme Court has overturned the decision of the two lower courts and held that a landlord was reasonable to withhold its consent to the tenant’s application in a case concerning two potentially competing leasehold covenants.

A six storey, mixed use building in Soho was let on a single lease. The permitted user was wide, including retail, offices and residential. Only the top two floors had planning consent for residential use. The tenant wanted to turn the middle two floors into flats as well but it first required planning permission to do so.

The lease required the tenant to obtain landlord’s consent (not to be unreasonably withheld) to make a planning application. It applied but the landlord refused on the ground that  residential use on the middle floors would make it more likely that the tenant would successfully apply to buy the freehold (“enfranchise”). This enhanced likelihood would damage the value of the landlord’s interest.

The lower courts held that the landlord’s decision was unreasonable because it was seeking to secure a collateral benefit – the residential user was, after all, permitted by the lease.

The Supreme Court had to determine how the two apparently competing provisions should be resolved. It found that they must be read together.  As such the user clause permitted the tenant to use the various parts of the building for the uses set out in the user clause but only so far as they were permitted to be used for those purposes by the planning system. Against this context the landlord was entitled to refuse consent and, based on its concern about enfranchisement, had been reasonable.

Key points

- The Supreme Court made the determination on a majority of three to two

- It held that the correct approach was to start by looking at what the clause expressly permits the landlord to decide.  The next step is to consider whether, on an objective test, the landlord has been reasonable

- This was in contrast to previous authorities which came from a starting point of what the parties intended would be reasonable on the grant of the lease

- On the question of reasonableness, the lower courts had determined, and it was not in dispute, that the applicable principles on reasonableness for consent to planning applications are the same as those applicable to cases relating to consent for alienation – clearly the correct position but, useful confirmation

- Here, the Court felt that the risk of enfranchisement was sufficiently related to the relationship of landlord and tenant (being a key consideration when assessing the reasonableness of a decision to refuse consent), and the economic impact on the landlord was a classic and permissible matter within its decision making

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