Can a landlord refuse consent for change of use on the basis that a tenant might acquire the freehold?
The recent case of Hautford v Rotrust Nominees has updated the law regarding the entitlement to refuse consent (to assign, change use or sublet for example) on the basis that the tenant might acquire the freehold.
The tenant had a 100 year lease of a mixed use building in Soho, London that comprised retail, office and residential.
The lease allowed for residential use anywhere within the building and the tenant wanted to convert the whole of the building to residential and then, ultimately, wanted to purchase the freehold of the building.
Only the top floors of the building had planning permission for residential use and so an application to the local authority for permission to convert the remainder of the building into residential was required.
The tenant required the landlords consent pursuant to the terms of the lease to make this application which was not to be unreasonably withheld.
After the tenant had refurbished and converted the building they applied to the landlord for consent to make the planning application for change of use.
The landlord refused on the grounds that full residential use might facilitate a claim by the tenant to acquire the freehold of the building.
Did the Landlord act reasonably?
Historically there has been authority suggesting that refusal by a landlord on this ground is reasonable, the difference here being that those earlier authorities were made before the relevant enfranchisement legislation was fully implemented.
When the tenants lease of the building in Soho was granted, the enfranchisement laws had already been introduced. In the knowledge of that legislation the original parties to the lease had nevertheless agreed terms that expressly permitted residential use throughout the building. Therefore it was decided that the original landlord under the lease must have accepted the risk of a tenant converting to residential, and then therefore would have been alive to the fact that they could potentially acquire the freehold. It was therefore decided that the landlord acted unreasonably by refusing consent.
It is a firmly accepted principle that it is unreasonable for a landlord to try to use an application to improve their position in a way that is not permitted by the lease. The judge decided that the landlord was trying to do just that: attempting to use the need for planning consent to restrict the wide user clause.
The landlord has appealed and the case is due to be heard in November 2017.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.