Landlords' consent: when can landlords refuse for fear of enfranchisement?
A recent case has updated the law on refusing consent (to assign, sublet, change use etc) on the basis that the tenant might acquire the freehold: it will be harder to do so in some modern leases. And the judgment also shows surveyor witnesses how not to deal with a trial…
Hautford v Rotrust Nominees was decided last year but has only recently been publicised. The tenant had a lease for 100 years, from 1985, of a building in Soho. It was mixed use, with retail, office and residential parts.
Critically, the lease allowed residential use anywhere in the building. The tenant wanted to convert the whole of the building to residential and, ultimately, wanted to enfranchise (the right for some tenants to buy the freehold of houses). But only the top floors had planning permission for residential, so the tenant needed to apply to the local authority. Under the lease, they needed the landlord's consent to make that application, which was not to be unreasonably withheld.
The tenant refurbished the building and carried out the conversion. It then applied to the landlord for consent to make the planning application for change of use.
The landlord promptly refused because full residential use might facilitate a claim by the tenant to acquire the freehold.
Was the landlord reasonable?
In the past, court cases had held that refusals of consent, for this reason, were reasonable. The landlord might therefore have felt confident in its approach. But the leases in those old cases were granted before the enfranchisement legislation was introduced. The compensation for landlords at that time was also much less favourable. Courts therefore sympathised with landlords who felt ambushed by their tenants' new rights and wanted to retain the status quo.
When Hautford's lease of the building in Soho was granted, however, the enfranchisement laws were already in place. Knowing about the legislation, the original parties had nevertheless agreed a lease that expressly permitted residential use throughout. So the original landlord must have accepted the risk of a tenant converting to residential, and then potentially acquiring the freehold. Refusing on that basis was therefore unreasonable.
It's a firm principle that it's not reasonable for landlords to try to use an application to improve their position in a way that's 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.
The judge also criticised one of the surveyors who gave evidence at the trial. He said his memory was 'somewhat sparse', he had not familiarised himself with the file, and not all the papers had been disclosed. Witnesses are regularly caught out in this way, but with good guidance on trial preparation, it can easily be avoided.