Informed Consent & Unauthorised Change of Use
Victoria Bottomley of our litigation team recently posted a popular blog on the subject of change of use from commercial to residential. In this follow up piece, Victoria provides a cautionary note based on a recent County Court judgment, which saw the lease of a shop validly forfeited for change of use to two studio flats, a breach of a covenant without the landlord’s consent.
With increasing consideration of the sustainable and viable conversion of vacant commercial premises for residential purposes, the recent decision by the County Court in the Zash Properties Ltd v Mayworth Ltd & Landau Consulting & Investments Ltd case provides a timely reminder on the issues of consent, breach of covenant and relief from forfeiture.
Zash (the landlord) was the freeholder of a three-storey building, The top two floors each contained a flat let by the landlord on assured shorthold tenancies and the ground floor was let as a shop on a 999-year lease. That lease contained a user covenant, prohibiting use otherwise than as a shop without the landlord’s consent, such consent not to be unreasonably withheld.
The commercial tenant, Mayworth, converted the ground floor shop into two studio flats without consent, and marketed each of them on long sub-leases. On learning of the conversion, the landlord served a s.146 notice and issued forfeiture proceedings. Shortly after this Mayworth assigned the lease to a third party, who then assigned the lease to Landau.
It was argued that the s.146 notice was invalid and that the landlord was not entitled to forfeit on the basis that s.168 of the Commonhold and Leasehold Reform Act 2002 (CLRA 2002, s 168) applied and had not been satisfied. This applies to a landlord under a long lease of a dwelling, and would prohibit the service of a s.146 notice without an admission or determination that a covenant had been breached.
On this argument, Landau also applied for relief from forfeiture on the basis that permission for the change to residential use could not have been reasonably withheld on the basis of the rights afforded to long residential leases.
The Court’s Decision:
The judge found in favour of the landlord on both points, holding that the lease had been validly forfeited and granting relief on condition that the premises were reinstated to commercial use. It is noteworthy that CLRA 2002, s 168 did not apply to the premises because they were not “used or intended to be used as a separate dwelling” and therefore did not apply to a long lease of multiple dwellings. It was further noted that the lease was for a shop, not a dwelling, and it could not be said that the demised premises were a ‘separate’ dwelling, because the premises comprised two independent studio flats.
On the matter of relief from forfeiture, this would be granted on terms that the premises were reinstated as a shop, along with payment of compensation and costs.
This case not only highlights the precedence of the lease in determining the nature and purpose of the premises, but also emphasises that CLRA 2002, s 168 does not apply to a long lease of multiple dwellings, which in this instance, preserved the issue of the s.146 notice and helped mitigate both points of the argument. Landlords should note that if presented with similar challenge, that engagement and communication with tenants and leaseholders on conversion, along with a mutual understanding of the definitions within applicable statutes will help ensure they can provide informed consent.
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