Landlord v Tenant, Residential v Commercial – Supreme Court ruling in leasehold enfranchisement / planning dispute

Buildings in Westminster, LondonIn Sequent Nominees Ltd v Hautford Ltd [2019] the Supreme Court justices have ruled that a freeholder was entitled to withhold consent from a leaseholder who wished to apply for planning permission, based on the leasehold enfranchisement reversion value.

The case concerned a terraced property at 51 Brewer Street, London W1, which is part of the Soho estate. The street was developed in the 17th century by the landowner Sir William Pulteney and first appeared on maps in 1664. The modern Brewer Street is typical of Soho, with a variety of shops, restaurants and entertainment venues.

A 1986 lease attached to the property included a fully qualified covenant, meaning that the tenant could not apply for planning permission without the landlord’s consent, as long as it was not ‘unreasonably withheld’.

Between 2013 and 2015, the sub-tenant converted four of the building’s upper floors into self-contained flats and sought the landlord’s consent that was required to apply for planning permission to change the use from business to residential use. The landlord refused on the grounds that the tenant would then have the opportunity to compulsorily acquire the freehold under the Leasehold Reform Act 1967. An increased risk of such ‘enfranchisement’ would reduce the value of the landlord’s property.

The tenant challenged the refusal on the grounds that it was unreasonable, which was supported by the County Court, the High Court and Court of Appeal. However, the landlord’s appeal has been allowed by the Supreme Court.

Lord Briggs, Lord Carnwath and Lord Hodge agreed that the important issue in the case was whether the courts were correct in interpreting the lease in a way that prevented the landlord from having regard to any increased risk of enfranchisement arising from residential use.

Lord Briggs said that the Court of Appeal had made an error in law, in that it ruled that it made ‘no sense’ to let the landlord refuse planning permission simply to avoid the risk of enfranchisement. This was because a third party could have applied for the same planning permission without such constraint and with the same adverse consequences.

He said: ‘… a down to earth factual analysis of the economic consequences to the landlord of giving or refusing the requested consent in the present case plainly suggests that a refusal is reasonable’. He also confirm that there was no requirement to prove the refusal to be ‘justifiable’ but merely reasonable – which he believed it was.

Lady Arden and Lord Wilson dissented, commenting that they would have dismissed the case, noting a clause in the lease that suggested the tenant had ‘unrestricted right to use the whole of the premises if he wishes to do so for residential purposes’.

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