In a recent Supreme Court ruling (by a 3-2 majority) it was decided that upon the facts of this particular case, a freeholder was entitled to withhold consent for a leaseholder to apply for planning permission that might reduce the value of a West End property. Why should a tenant be able to act in such a way as to increase the value of his interest in a property but by doing so cause the landlord a equal and opposite consequential loss?
The case is reported as Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd [2019] UKSC 47 and concerned a six-storey terraced building in Brewer Street, London.
The Facts:
A lease of this building was granted in 1986, which included a covenant that the tenant could not apply for planning permission without the landlord’s consent, which must not be ‘unreasonably withheld’. This is a reasonably standard clause.
Between 2013 and 2015, a sub-tenant converted the four floors into self-contained flats and sought the former landlord’s consent to apply for the necessary planning permission. This was refused on the ground that, if the majority of the building became residential, the tenant would acquire the right to compulsorily acquire the freehold under the Leasehold Reform Act 1967. The argument ran that this would necessarily devalue the landlord’s freehold.
The tenant challenged the refusal on the ground that it was unreasonable, however a recent decision of the Supreme Court now finds otherwise, although Lady Arden and Lord Wilson gave dissenting judgments.
Giving reasons, Lord Briggs said the real issue in the case was whether the courts were correct in construing the lease in such a way as to prevent the landlord from having regard to an increased risk of enfranchisement from residential use. He found that the Court of Appeal had made an error in law in ruling that it made no sense to allow the landlord to refuse planning permission to avoid the risk of enfranchisement, because a third party could apply for the same planning permission free of any such restraint and with the same adverse consequences.
‘A down to earth factual analysis of the economic consequences to the landlord of giving or refusing the requested consent… plainly suggests that a refusal is reasonable.’
Ian Macfarlane
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