Landlord entitled to withhold its consent to a tenant applying for a planning permission where the landlord’s interest in the reversion would be affected
On 30 October 2019 the Supreme Court decided the case of Sequent Nominees Ltd v Hautford Ltd. The decision will be of interest to landlords and tenants who either own or rent residential or mixed-use premises.
The case concerned a long lease of a 6-floor terraced building in London’s Soho area. The landlord owned the building, along with most of the rest of the buildings along that part of the street. The tenant used the ground floor and basement premises for retail use, the first and second floors as storage/staffing areas and the top two floors as occasional residential use.
The tenant converted the top two floors into self-contained flats and wanted to turn the first and second floors into flats too.
The tenant’s lease contained a provision which said that the tenant could not apply for any planning permission without the landlord’s prior consent, which was not allowed to be “unreasonably withheld”.
The tenant asked for consent to make the changes and the landlord withheld its consent arguing that if the first and second floors were converted into residential use, then because most of the building would be residential in nature, there was a very real risk that the tenant(s) would acquire rights to be able to acquire the building itself, known as “enfranchisement”.
The landlord also argued that because it owned most of the rest of the terrace, that it would be difficult to manage its estate in a cost-effective manner without control of that building, and also that the value of its wider estate would be diminished without this building forming part of it.
In a 3-2 majority judgement that will largely be welcomed by landlords, the Supreme Court decided that it was reasonable for the landlord to refuse its consent to the planning application due to the increased risk of enfranchisement (the Court did not consider the argument made by the landlord that estate management would be made more difficult, which may in itself be telling on that point).
Technical arguments were advanced on both sides relating to the construction and wording of the lease, but in making the decision Lord Briggs stated that “a down to earth factual analysis of the economic consequences to the landlord of giving or refusing the requested consent in the present case plainly suggests that a refusal is reasonable”.
Landlords and tenants are strongly advised to consider the risks of, and rights to, enfranchisement during their lease negotiations and to ensure that particular attention is given to drafting lease clauses where consent is required.
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