145: Landlord found to unreasonably withhold consent to a tenant’s application to change the use of a property

In Rotrust Nominees Limited v Hautford Limited [2018] EWCA Civ 765 the Court of Appeal dismissed an appeal by a landlord against a decision that consent had been unreasonably withheld on an application to change the use of two floors of a property from offices to residential. This was unreasonable even when the reason for withholding consent was that change of use would entitle the tenant to bring a claim for enfranchisement ie a right for a qualifying tenant to buy the freehold.

Facts

The tenant held the interest in a 100 year lease of a six storey building. Under the lease, the permitted use was as a retail shop, offices, residential, storage and studio. The first and second floors were used as offices and underlet on business tenancies with market rate annual rents, whilst the third and fourth floor were used as residential accommodation. The ground floor and basement were used as retail and an ironmongery business.

The tenant informed the landlord that in accordance with the Leasehold Reform Act 1967 they wished to acquire the freehold title to the Property. At the time only two of the six floors were used for residential purposes and so the landlord dismissed this application as the building could not be considered a ‘house’. The tenant agreed and this application went no further.

Subsequently the first to fourth floors of the Property were refurbished. The tenant applied to the landlord for consent to change the use of the first and second floor of the Property to residential, and submit the required planning application to the local authority for change of use. The change would mean that the proportion of the Property used for residential purposes would be greater than 50%.

The landlord refused consent on the basis that the change of use might result in the tenant being able to bring a successful application to acquire the freehold of the Property and this enfranchisement would diminish the landlord’s interest in the property. The landlord also withheld consent as an enfranchisement could undermine the management and control of the wider Soho Estate where the property was located.

Judgment

The High Court concluded that the landlord had unreasonably withheld consent to change of use. Consent to change the use of part of the Property to residential was a right that a tenant or assignee of the lease could legitimately expect to obtain when they purchased the leasehold interest.

The landlord was unhappy with this decision and appealed. The Court of Appeal confirmed that the tenant had been successful in proving that the landlord had been unreasonable when their consent was withheld, and that the judge had made no error in principle or incorrect finding based on the facts of the case.

Comments

This case is a useful commentary on change of use as it is the first reported case where the courts have been asked to consider if a landlord was unreasonable in refusing consent for a different use of a property. In addition, the case has made it clear that a possible enfranchisement claim by a tenant cannot necessarily be relied upon as a ground for appealing against the change of use.