UK: Licences for Alterations (Property Dispute)

A recent Court of Appeal decision¹ has provided a set of guidelines to be applied where a tenant makes an application for licence for alterations.

The guidelines will also apply where section 19(2) of the Landlord & Tenant Act 1927 operates. This section implies into a covenant prohibiting the making of improvements without licence or consent, a proviso that such licence or consent is not to be unreasonably withheld.

Previously the test for reasonableness had been set out in a case which concerned an application for licence to assign (the Louisville principles) and there was a lack of case law illustrating what was reasonable in relation to the refusal of consent for specific issues which arise concerning licences for alterations.

The landlords were the freehold owners of premises. The ground floor was let on a long lease which contained a provision that the landlords would not unreasonably refuse consent to alterations. Consent was refused. The Court of Appeal held that the landlords had acted reasonably in doing so and gave guidance on such applications.

When the landlords purchased the freehold the premises were described as comprising a ground floor lock-up shop unit having A3 takeaway use. A3 use is the planning category for the sale of hot food on or off the premises.

Even before the landlords purchased the freehold, they had become aware that the tenants wanted to convert the ground floor into a restaurant. A representative of the landlords wrote to the tenants stating that he was aware that they had applied to the council for permission to convert the ground floor premises. The letter objected to the proposed alterations on the ground that the removal of load bearing walls could have an impact on the flats above. Planning permission was granted and again the landlords’ representative wrote stating that the works were not acceptable to the landlords. In the information provided by the tenants there was nothing to say that if contractors found the walls to be load bearing they had to stop work. There was no provision for what would happen in that event.

The landlords’ representative responded to the application for a licence referring to the structural problem that would arise from the structural changes to load bearing walls and because the proposed ultimate use would impinge upon their amenity.

The tenants commenced proceedings against the landlords claiming that the landlords had unreasonably refused consent to the proposed alterations and seeking declaratory relief.

1. The purpose of the consent is to protect a landlord from alterations and additions which would damage his property interests.
2. A landlord is not entitled to refuse consent on grounds which have nothing to do with his property interests.
3. It is for a tenant to show that the landlord has unreasonably withheld his consent to the proposals. Implicit in that is the necessity for the tenant to make sufficiently clear what his proposals are. It is not necessary for a landlord to give conditional consent or provide suggested solutions to a problem with the application.
4. It is not necessary for a landlord to prove that the conclusions which led him to refuse consent were justified, if they were conclusions which might be reached by a reasonable landlord in the particular circumstances.
5. It may be reasonable for a landlord to refuse consent to an alteration or addition to be made for the purpose of converting the premises for a proposed use even if that use were not forbidden by the lease. However, it may be unreasonable if the proposed use was a permitted use and the intention of the tenant in acquiring the premises to use them for that purpose was known to the freeholder when the freeholder acquired the freehold.
6. While a landlord need usually only consider his own interests, there may be cases where it would be disproportionate for a landlord to refuse consent having regard to the effect on himself and on the tenant respectively.
7. Consent cannot be refused on the grounds of pecuniary loss alone. The proper path for the landlord to adopt in such circumstances is to ask for a compensatory payment.
8. In each case it is a question of fact depending on all the circumstances whether the landlord, having regard to the actual reasons which impelled him to refuse consent, acted reasonably.

The Court will consider two questions, firstly what was the actual reason for refusing consent. This is a subjective inquiry to find out what was in the mind of the landlord at the time of the refusal of consent. The second question is whether the reason was reasonable or unreasonable and this is an objective inquiry.

Whilst the Court of Appeal accepted that the fact that the proposed use as a restaurant was not prohibited by the lease, this did not prevent a landlord refusing consent reasonably to alterations to be made for the purpose of that use. However, in this case the refusal was unreasonable as the landlord appeared to have been aware at all times that was the proposed use which the tenant intended.

Nevertheless, the Court found that a landlord has the right to refuse, even unreasonably, any alteration or addition which trespasses on property retained by him.

It would, however, be open to the tenants who had unsuccessfully sought the consent of the landlords in this case to apply again with other proposals taking account of the structural issues.

© RadcliffesLeBrasseur

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.