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Landlord Unreasonably Withheld Consent for Tenant’s Planning Application

A great many commercial and residential leases grant rights to tenants that can only be exercised with their landlords’ consent, which cannot be unreasonably withheld – but what exactly does the latter phrase mean? The Court of Appeal considered that issue in a case that broke new legal ground.

bed and breakfastsThe case concerned a six-storey building occupied by a corporate tenant under a 100-year lease. The company wished to apply for planning consent to change the use of the building’s second and third floors from storage to residential. However, the lease contained a tenant’s covenant not to apply for planning permission without the prior written consent of the landlord, such consent not to be unreasonably withheld.

The landlord had refused to grant the required consent on grounds that a successful application for planning consent would significantly increase the proportion of the building that was used for residential purposes. That in turn would boost the tenant’s hopes of employing the leasehold enfranchisement provisions of the Leasehold Reform Act 1967 in order to acquire the freehold of the property.

The landlord owned a large number of properties in the area and viewed leasehold enfranchisement as an undesirable prospect that would impinge on its proper management of the wider estate. After the tenant launched proceedings, however, a judge found that the landlord’s consent had been unreasonably withheld and opened the way for the tenant to lodge the required planning application.

In ruling on the landlord’s challenge to that decision, the Court noted that the case raised novel issues on which there was no previous authority. In dismissing the appeal, it observed that the lease expressly authorised the tenant to use the whole of the building for residential purposes. There was no proviso that residential use of the whole or any part of the property was subject to the landlord’s consent.

In those circumstances, the Court found that the landlord had refused consent for the planning application for the collateral purpose of restricting the tenant’s right to make residential use of the entire building. The reality was that any third party could apply for planning permission to authorise such use and that only the tenant was precluded from doing so without the landlord’s consent. It seemed inconceivable that that was the intention of the original parties to the lease.



 
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