If a party to an agreement is obliged to obtain consent from another party before exercising its rights or embarking on a course of action, what will be the position if the agreement omits to specify that such consent must not be unreasonably withheld? Will the party, whose consent is required, have an unfettered right to withhold its consent in such circumstances?
It would be unwise to assume so. There is certainly no general principle of law that, when a contract requires one party to obtain the consent of another, there is an implied term that such consent should not be unreasonably withheld. However, the courts may, if they deem it necessary, imply a provision to that effect to give business efficacy to a contract.
The proceedings in Town Quay Developments Ltd v Eastleigh Borough Council [2008] EWHC 1922 (Ch); [2008] PLSCS 234 concerned the effect of a provision in a transfer reserving rights to construct a road and lay services across the land transferred. Before exercising those rights, the landowner was obliged to obtain consent from the council, to whom the land was transferred.
The landowner applied for consent to construct a roadway to provide access to a residential development. The council claimed that it had an unfettered right to reject the application, and cited the strength of local opposition to the density of the proposed development and the potential increase in volumes of traffic as reasons for refusing permission for the new road.
The High Court overruled the council. It held that the rights were reserved in the context of a commercial property transaction to enable the landowner, and its successors, to obtain access to any future development on its land at any time during the next 80 years. The landowner had not been paid for the land transferred to the council and, if the council was correct, the rights reserved in the transfer were of no commercial or practical value to the landowner because it had given away a ransom strip.
The council was, in effect, arguing that it could negate the rights reserved in the transfer arbitrarily, capriciously and irrationally. However, the rights were subject to a further condition that the landowner must comply with the provisions of a development brief for the area in which the land was situated. A right to refuse consent arbitrarily for any reason, or for no reason at all, would render that requirement redundant. Consequently the requirement for the council’s consent was subject to an implied provision that such consent would not be unreasonably withheld.
The local residents’ concerns, while genuine and strongly held, were not objectively justified. Consequently, the council’s decision to refuse consent on the basis of their concerns, although well intentioned, was arbitrary and irrational and, therefore, unreasonable.
However, each case will be decided on its own facts and parties would be well advised to stipulate that consent should not be unreasonably withheld (if that is what they intend).
Allyson Colby is a property law consultant
