Most if not all commercial leases restrict what a tenant can do, and in other cases, the tenant can act only with the landlord’s consent.
Not surprisingly, a whole body of case law has built up around when refusal is reasonable and when it is not. There is already a long list of examples where refusal has fallen into one category or the other. But it is not always and obvious and the issue is often far from straightforward.
The issue was starkly highlighted in a recent Supreme Court case.
The highest judges in the land were split on the issue 3 to 2.
The case was Sequent Nominees Limited v Hautford Limited.
The case involved a request by the tenant for the landlord’s consent to making a planning application. The consent was refused. The landlord’s obligation was not to unreasonably withhold consent and the tenant took the landlord to court for refusing consent. The tenant won in the Court of Appeal but lost in the Supreme Court – a very small margin of loss.
The tenant had a lease of a six story building involving mixed use, residential and commercial. Retail at the bottom and offices on top. The tenant decided to convert the office to residential, as it often the case with this type of property. The tenant did not need consent to change of use but did need consent to making a planning application. The landlord’s concern was that residential use would undermine its freehold ownership because the tenant or the occupiers of residential flats could apply to buy the freehold under leasehold enfranchisement legislation. The right to buy the freehold might have been a small risk to the landlord but it did exist if the property was redeveloped. The tenant has other arguments based on the fact that it did not need consent to bring about a change of use.
The decision in favour of the landlord contained some useful pointers:
An increased risk of enfranchisement was sufficient reason to refuse consent.
A good reason to refuse consent is to protect the value of the landlord’s reversion.
The lease and thus the tenant’s obligations must be considered as a whole and a positive right given to the tenant might be off-set by another right given to the landlord that gives the landlord certain rights of control over what the tenant can do under the lease.
Please contact Don Peel or our Dispute Resolution team on 0115 988 8777 for help and advice.