In the recent case of Sequent Nominees Ltd v Hautford Ltd [2019] the Supreme Court addressed the issue of when it is reasonable for a landlord to withhold consent to a tenant’s application under a lease.
The facts
The case concerned a request by the tenant for a change of planning use from commercial to residential. The lease provided that the tenant was “not to apply for any planning permission without the prior written consent of the landlord such consent not to be unreasonably withheld”. At the time of the application approximately 25% of the building was in residential use. The planning consent sought would have changed that to approximately 52%.
The landlord refused consent to the application by the tenant to apply for a planning permission for change of use on the basis that giving consent would make it more likely that there could be a successful enfranchisement claim under the Leasehold Reform Act 1967. This would be a claim to acquire the freehold of a “house” which could have been of substantial financial benefit to the tenant. It was argued that a successful claim would deprive the landlord of its interest in the reversion. The landlord, Sequent, also said it wanted to have control for estate management purposes as the building formed part of a larger block it owned. The landlord argued its refusal was protecting its property interests.
Decision
The Supreme Court (departing from the decisions of the court at first instance and the Court of Appeal) held that Sequent’s withholding of consent was reasonable. The Court adopted Lord Bingham’s principles set out in Ashworth Frazer Ltd v Gloucester City Council [2001].
Those principles are in summary:-
- “a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing to do with the relationship of landlord and tenant in regard to the subject matter of the lease”;
- “the question of whether the landlord’s conduct was reasonable or unreasonable will be one of fact”; and
- “the landlord’s obligation is to show that his conduct was reasonable, not that it was right or justifiable”.
Lord Briggs giving the majority decision said “it cannot possibly be said that seeking to avoid a significant increase in the risk of enfranchisement with consequential damage to the reversion, was something extraneous or disassociated with the landlord and tenant relationship created by the Lease. On the contrary, damage to the reversion is the quintessential type of consideration rendering reasonable the refusal of consent”. Lord Briggs then said that a factual analysis of the economic consequences to the landlord of giving or refusing consent was appropriate.
Why the case is interesting
The case is particularly interesting as it enables tenant rights granted by Parliament to be a potential reason for a landlord to withhold consent to a tenant request thatotherwise they may have to grant. It is important to note that each case depends on the particular circumstances, including the precise wording of the relevant provisions of the lease and the likelihood and extent of potential damage to the landlord’s interest.
The case is also a good reminder of the points to consider when looking at whether it is reasonable to withhold consent.
Michelle Goodrum, Senior Associate at Druces LLP
