A review of the recent decision in Rotrust v Hautford
If a lease contains a tenant covenant “not to apply for planning permission without the permission of the landlord, such consent not to be unreasonably withheld or delayed,” what are the considerations that a court will give to whether a landlord’s refusal is unreasonable?
This was the question before the Court of Appeal in Rotrust Nominees Ltd v Hautford Ltd  EWCA Civ 765 (17 April 2018).
The case related to a London property extending over six floors with ground and basement used for retail; offices on the first and second floors; with residential on the top two floors.
A lease had been granted of the whole building in 1986 for 100 years. The parties to the action were the current freeeholder, Rotrust, and the tenant of the whole building, Hautford.
The tenant’s user covenant in the lease was:
“Not to use the Demised Premises otherwise than for one or more of the following purposes (a) retail shop (b) offices (c) residential purposes (d) storage (e) studio PROVIDED however that nothing herein contained shall imply or be deemed to be a warranty that the Demised Premises may in accordance with all Town Planning Law and Regulations now or from time to time in force be used for the purposes above mentioned.”
The tenant’s planning covenant, was:
“To perform and observe all the provisions and requirements of all statutes and regulations relating to Town and Country Planning and not to apply for any planning permission without the prior written consent of the Landlord such consent not to be unreasonably withheld …”
Hautford had sought landlord’s consent to allow Hautford to seek planning permission for change of use of the first and second floors from office/ancillary to retail use to residential use. Rotrust’s predecessor and, in turn, Rotrust, had refused consent on the grounds, firstly, that such use would increase the prospect of successful enfranchisement and in addition, such enfranchisement would damage Rotrust’s management of its wider estate. The county court had held these reasons to be unreasonable and so Rotrust appealed that decision.
There have been no reported cases relating to reasonableness of a landlord’s refusal of consent pursuant to a tenant’s covenant not to apply for planning permission without the landlord’s consent, such consent not to be unreasonably withheld. However, all parties agreed that the general principles relating to consent to assignment or subletting without the landlord’s permission, such consent not to be unreasonably withheld, applied. The tenant needed to show that the landlord was being unreasonable in refusing consent to the proposed planning permission; the test of reasonableness is an objective test; and it was accepted also that the freeholder would not have been unreasonable in refusing consent if their decision was one which a reasonable landlord might have reached in the circumstances, even though other landlords might have decided otherwise.
However, despite representations on behalf of the freeholder to the contrary, the Court of Appeal accepted that the freeholder’s appeal against the county court’s decision should be dismissed.
The reasoning was as follows.
- The Court of Appeal considered whether the planning covenant’s purpose included precluding the residential use of the first and second floors in order to prevent enfranchisement. It concluded that this was not its purpose. This was because the tenant’s user covenant expressly authorised the use of the entire property as residential. While this was subject to a proviso that the use allowed by the user covenant did not imply that such use would be permitted by planning law, there was no proviso that residential use for the whole or any part of the Property was subject to the landlord’s consent. To suggest otherwise (as the freeholder sought to do) would simply amount to a re-writing of the user clause.
- In support of that, the Court of Appeal pointed out that anyone, not merely a tenant or someone with an interest in the property, can apply for planning permission. So, if the freeholder’s argument was correct, it could, on the one hand, prevent Hautford from applying for planning permission to use the first and second floors for residential purposes. However, on the other hand, if a third party successfully applied for such permission, Hautford could take advantage of that permission.
- It made no difference that change of use of the first and second floors would substantially enhance the prospects of success in an enfranchisement application: the lease was granted against the legislative background of the enfranchisement legislation and the user covenant expressly authorised use of the entire property for residential purposes.
- Earlier cases cited by the freeholder, in which it had been held that the landlord had not been unreasonable in refusing consent to an assignment to a person who would be entitled to enfranchise were distinguished because in those earlier cases the leases had been granted before the enfranchisement legislation had been enacted or even contemplated.
- As to the freeholder’s argument that it was reasonable to refuse consent because enfranchisement of the property would adversely affect the proper management of its wider estate, there was no scope for reaching a different conclusion merely because any particular landlord for the time being happens to own the adjoining or neighbouring property in the area. In any event, wider management considerations could be sufficiently met by the insertion of restrictive covenants in the transfer of the freehold, which was catered for within the enfranchisement legislation.
For those reasons, the appeal was dismissed. That being the case, the county court’s declaration that Rotrust had unreasonably withheld consent was correct, with the consequence that Hautford is entitled, notwithstanding Rotrust’s refusal, to make the planning application in any event.