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Supreme Court rules freeholder entitled to withhold consent from leaseholder

In Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) (Appellant) v Hautford Ltd (a

company registered in the British Virgin Islands) (Respondent) [2019] UKSC 47 the Supreme Court has ruled that a freeholder was entitled to withhold consent for a leaseholder to apply for planning permission on the basis that it might reduce the value of the property.

The freeholders are the landlords of a West End building in Soho, a six-storey terraced building. The Respondent is the current tenant by way of a lease granted in 1986. The sub-tenant, Romanys Ltd, runs an ironmongers’ shop from the basement and ground floor.

A fully qualified covenant in the lease states that while the tenant may use any part of the building for (among other things) retail, offices or residential purposes (although the landlord gives no warranty that this complies with planning rules), the tenant cannot apply for planning permission without the landlord’s consent, such consent must not be “unreasonably withheld”.

The first and second floors of the building were previously used as office space and storage. Despite the existing planning permission precluding residential use, the sub-tenant converted the first to fourth floors into self-contained residential flats. The tenant sought consent to apply for a change of use in planning permission.

However, believing a change in use to damage its own financial interests, the former landlord (the Appellant’s predecessor in title) refused to give consent. This they argued would mean the majority of the building would be residential which could lead to the tenant compulsorily acquiring the freehold under the Leasehold Reform Act 1967 - and it was this increased risk of enfranchisement that might devalue the landlord’s property.

Believing this refusal to consent to be unreasonable the tenant challenged the refusal. The County Court, the High Court and Court of Appeal all found for the tenant. However Supreme Court by a 3-2 majority (Justices Lord Briggs, backed by Lord Carnwath and Lord Hodge) allowed the landlord’s appeal. Dissenting judgements were made by Lady Arden and Lord Wilson.

The Supreme Court found that on the undisputed facts, the landlord was acting reasonably in protecting the value of its property. This case is a landmark case for commercial landlords and can be seen as a reversal of a recent spate of decisions that have found withholding consent to alter, assign or change use on the grounds of an enfranchisement risk to not be a reasonable ground for refusal.

Posted on 4 December, 2019 by Ortolan

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