In Rotrust Nominees Limited v Hautford Limited  EWCA Civ 765 a landlord had unreasonably withheld consent to a tenant's application for consent to apply for planning permission for increased residential use. The freeholder's concern that change of use might facilitate a claim for enfranchisement was irrelevant as was the related issue of the effect of enfranchisement on the wider management of the estate.
Rotrust was the freehold owner of a block of properties on Brewer Street, Soho, of which 51 Brewer Street (the "property") formed part.
Hautford was the current tenant under a lease granted in 1986 for a term of 100 years from 25 December 1985 (the "lease").
The tenant's user covenant in the lease was widely drawn and permitted one or more of retail, office, residential, storage and studio use (the "tenant's user covenant").
The lease also included a covenant on the part of the tenant not to apply for any planning permission without the prior written consent of the landlord, such consent not to be unreasonably withheld (the "tenant's planning covenant").
The current authorised planning uses of the property were retail for the basement and ground floor, office/office ancillary for the first and second floors and residential for the two top floors.
In April 2015 Hautford applied to Rotrust's predecessor in title for consent to apply to the planning authority for change of use of the first and second floors to residential. The then freeholder refused, on the grounds that change of use might facilitate a claim by Hautford to acquire the freehold of the Property under the Leasehold Reform Act 1967 (the "1967 Act") and that enfranchisement would damage the reversion and undermine management control of the wider estate.
Hautford applied to the county court for a declaration that the landlord was unreasonably refusing consent to the making of the planning application.
The County Court judge decided that consent had unreasonably been withheld.
The Court of Appeal noted that there did not appear to be any reported cases on the reasonableness of a landlord withholding consent in relation to a tenant covenant not to apply for consent for planning permission. There was no doubt, however, that the court should apply the principles relevant in the case of a tenant's application not to assign or sublet without the landlord's consent, not to be unreasonably withheld (and that was not disputed by the parties).
Decided authorities might be helpful but were case-specific. Even minor differences in the factual context could be critical.
As in the case of any dispute relating to the true meaning of a contract, the starting point was to ascertain the purpose of the covenant intended by the original parties to the lease.
The question was whether, in the context of the lease as a whole and the relevant factual circumstances in which it was made, the purpose of the tenant's planning covenant included precluding the residential use of the first and second floors in order to prevent enfranchisement of the property under the 1967 Act.
In the judgment of the Master of the Rolls it did not.
The tenant's user covenant expressly authorised the use of the property as residential. It was not subject to a proviso that residential use was subject to landlord's consent.
The landlord had argued that the tenant's user covenant should be read with and subject to the tenant's planning covenant. This was "no more and no less than" a re-writing of the covenant so as to make it subject to a proviso that landlord's consent was required to use for residential parts of the property not then in residential use.
The landlord's approach was also impractical because it was open to any person to apply for planning permission to change the use of the property.
If Rotrust were correct, Hautford would be prevented from applying for planning permission to use the first and second floors for residential purposes for the remaining 70 years of the term. A third party, however, would be free to make the application and, if successful, Hautford could take advantage of the permission. That would have been the position from day one of the lease.
It made no difference that planning permission would enhance the tenant's prospects of enfranchisement because of the increase in the residential floor area. Cases relied on by the landlord where the landlord had reasonably refused consent for fear of enfranchisement involved leases granted before the 1967 Act existed. Hautford's lease, by contrast, had been granted against the legislative background of the 1967 Act and the user covenant expressly permitted residential use.
Even if the landlord's concern about the effect of enfranchisement on the proper management of the wider estate was relevant, the landlord could rely on section 10(4) of the 1967 Act, which provided for restrictive covenants to be included in the transfer of the freehold.
The landlord's appeal was dismissed.
The Court of Appeal's decision is good news for tenants, confirming that that there is no general principle that a landlord is entitled to withhold consent to assign, alter or change the planning use for fear of enfranchisement.
The article first appeared in our Real Estate Bulletin - September 2018.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.