Private housing estate – Estate governors controlling management scheme – Respondent owning freehold of property on estate – Respondent applying for consent for loft conversion – Consent refused – Arbitrator holding consent unreasonably refused – Whether arbitrator applying correct test – Appeal allowed
In 1974, the court made an order, under section 19 of the Leasehold Reform Act 1967, approving a management scheme for the Dulwich Estate. This gave the trustees powers of management over the estate, which comprised approximately 4,000 privately owned houses. The scheme permitted no material alteration to the external appearance of an estate property without the prior written consent of the appellant estate manager. Such consent was not to be unreasonably withheld.
The respondent freeholder had obtained planning permission for a loft conversion to create a spare bedroom. However, the appellant refused consent under the management scheme on the ground that a proposed side dormer window did not comply with the guidelines for loft conversions and would cause more than a trivial prejudice to the interests of the estate as a whole.
The matter was referred to arbitration. The arbitrator determined that the appellant’s refusal was unreasonable because, on balance, the beneficiaries of the management scheme would not be significantly disadvantaged were the proposal to be allowed. The appellant applied for an extension of time to appeal and leave to appeal.
Held: The appeal was allowed.
It was appropriate to grant an extension of time and leave to appeal when considering the inevitable effect on future applications of allowing a side dormer window and the potential effect in future arbitrations of permitting the arbitrator’s decision to stand if it was, on analysis, wrong. Moreover, there was a potentially wider implication for other schemes under the 1967 Act and, possibly, under the Leasehold Reform, Housing and Urban Development Act 1993. The matter was also of general public importance, albeit on a localised scale: Kalmneft JSC v Glencore International AG [2002] 1 All ER 76 applied.
The test to be applied was whether the appellant’s decision was reasonable, not whether, in the arbitrator’s opinion, consent should have been given. The appellant’s position was analogous to that of a landlord considering a tenant’s application for consent to an assignment. Applying that analogy in the instant case, an estate manager would be acting reasonably in having regard only to the interests of the estate unless the disproportion between the benefit to the estate and the detriment to the applicant was such that it would be unreasonable for approval to be withheld: Estates Governors of Alleyn’s College of God’s Gift at Dulwich v Williams [1994] 1 EGLR 112; [1994] 23 EG 127 and International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 EGLR 39; (1986) 277 EG 62 applied.
In the instant case, the arbitrator had erred in law. He had reached his own decision in respect of the relative disadvantages that would be suffered by the beneficiaries of the scheme and by the respondent respectively. Further, the basis upon which he had conducted his balancing exercise was not legitimate because he had already concluded that the appellant’s refusal of consent fell within a general band of reasonableness: Mosley v Cooper [1990] 1 EGLR 124; [1990] 23 EG 66 distinguished.
Since it was not clear from the face of the award what the arbitrator’s decision would have been had he applied the correct test, it was not appropriate for the court to vary the order. The matter would therefore be remitted to the arbitrator.
Timothy Dutton (instructed by Charles Russell LLP, of Cheltenham) appeared for the appellant; the respondent did not appear and was not represented.
Eileen O’Grady, barrister
