177: Can a landlord reasonably withhold consent to a planning application on the grounds of an increased enfranchisement risk?
The answer is yes, following a recent decision of the Supreme Court in Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hauford Ltd  UKSC 47 (30 October 2019).
Facts of the case
The case concerned a mixed use terraced building arranged over six floors. The lower four floors were used for retail and the upper two floors were residential.
The property was demised under a long lease which allowed the property to be used for either residential or commercial use, without qualification (the user clause), and required the tenant to obtain landlord’s prior written consent to make an application for planning permission (the consent clause).
The tenant applied to the landlord for consent to apply for planning permission to change the use of the first and second floors of the property to residential. The landlord refused consent.
Issue before the court
The court was asked to determine whether the landlord had been entitled to refuse consent to the planning application on the ground that the change of use would increase the prospect of a successful claim for enfranchisement under the Leasehold Reform Act 1967, whereby a qualifying tenant of a house may be able to buy the freehold, thus reducing the value of the landlord’s reversion.
The Supreme Court found that reading the user and consent clauses together, residential use was only allowed so far as it was permitted by planning law, and that given the economic consequences for the landlord of allowing the application, its refusal of consent was reasonable.
Points to take from this decision
- When negotiating leases, do not view clauses in isolation;
- Landlords should consider the potential enfranchisement risk at the outset; and
- A possible loophole (as yet untested in the courts) to circumvent the consent clause – if a planning application were to be made by a third party, and relied on by a tenant.