Most landlords reserve the right to approve tenants’ planning applications and usually agree that approval will not be unreasonably withheld. There do not appear to be any authorities dealing specifically with the principles applicable in such circumstances. However, in the recently reported case of Hautford Ltd v Rotrust Nominees Ltd [11 August 2016], a county court judge did have to decide whether a landlord had acted reasonably when it refused a tenant’s request for permission to submit a planning application for a change of use.
The building in question was situated in London. There was a large retail unit on the ground floor, with a basement below it. There were offices on the first and second floors of the building and the two top floors, comprising approximately 25% of the floor area, were used for residential purposes.
The tenant freely admitted that it hoped to enfranchise and, in order to do so, needed to show that the property could reasonably be called a “house”. The lawful use of areas of a building and the proportions of residential to non-residential use are very important factors in such cases. Consequently, the tenant wanted to double the residential floor space in the building by turning the offices into residential accommodation. It had already obtained the landlord’s permission for, and made, the physical alterations needed for its proposed new use, and did not need the landlord’s consent for the change of use itself, thanks to the breadth of the user clause in its lease.
The landlord wanted to retain ownership and control of the property – not least for estate management purposes, because the premises formed part of a block – and argued that it was, in any event, reasonable to guard itself against the possibility that the tenant might qualify for enfranchisement if the use changed. It cited authorities dealing with refusals of licences to assign and underlet, but the judge distinguished them on the ground that the leases in the cases cited to him were granted before tenants became able to enfranchise.
The judge stated that it was necessary to consider the purpose of the covenant when the parties entered into it and what they reasonably contemplated at that time. Landlords are not entitled to ignore the contractual provisions in their leases and to refuse consent in order to improve their position or to acquire a commercial benefit for themselves, even though this might be in the interests of good estate management. It followed that the landlord could refuse to allow the tenant to make a planning application to protect benefits obtained from the covenant relating to planning, but was not entitled – under the guise of considering an application for a licence to apply for planning permission – to try to improve on the lease.
The lease allowed the tenant to use all or any part of the premises for residential purposes, even though legislation enabling tenants to enfranchise was in place when the lease was granted. The planning covenant had been inserted to protect the landlord from enforcement action as a result of any breaches of planning legislation and it was not reasonable to exploit it to prevent the tenant from making economic use of the premises in a manner permitted by the lease.
Allyson Colby, property law consultant
