Applications for change of use: Whether a landlord unreasonably withheld consent to an application for change of use (Sequent Nominees Ltd v Hautford Ltd – 2019

The Supreme Court considers a Court of Appeal decision in an important case concerning interpretation of contracts, concluding that the court should consider reasonableness according to the relevant facts at the date of the request for consent.

The background

In Sequent Nominees Ltd v Hautford Ltd [2019], a 100-year lease of a 6-floor building was granted in 1986 for a premium with peppercorn rent. The respondent, Hautford, was the current tenant and the appellant Sequent remained the original landlord (albeit with a name change). The lease contained a covenant restricting use of the premises to either (or a combination of) a retail shop, offices, residential purposes, storage or a studio. The tenant covenanted not to apply for planning permission without the consent of the landlord, such consent not to be unreasonably withheld.

The tenant wanted to make an application for planning change of use, the effect of which would allow 52% of the building to be residential. The landlord refused to grant permission on the basis that the ability to increase the residential percentage would give the tenant greater chances of success in an enfranchisement claim. The landlord wished to retain control of the building, arguing that its refusal to grant consent protected its interests in the reversion and prevented damage to its value.

The Court of Appeal had upheld the decision of the High Court, finding that the landlord had acted unreasonably in refusing consent. They stated that if the landlord could refuse consent on these grounds, this would alter the effect of the user covenant, which at the time the lease was granted allowed for mixed use, meaning that the tenant could not use the whole of the building for residential occupation.

The decision

The Supreme Court, by a majority of 3 to 2, overturned the Court of Appeal decision. The landlord’s grounds for refusal to grant consent in protecting its reversion was a reasonable consideration.

The user covenant should be read together with the covenant requiring the tenant not to apply for planning permission without consent, meaning that the tenant’s use of the premises is restricted to uses permitted by planning and the planning covenant contained in the lease.

When considering reasonableness in a claim such as this, the court should consider the facts at the date the consent is requested, including whether the refusal to grant consent is sufficiently connected with the relationship between landlord and tenant at that time, and not an interpretation of the lease at the time it was granted.

Advice and action

In this helpful authority for landlords, the Supreme Court determines that the premium paid for leases such as this will often reflect the versatility of the user covenant in the tenant’s favour.

Covenants such as those contained in this lease are often standard boilerplate provisions, and landlords may wish to conduct a valuation exercise of their properties in light of this decision, whereby a tenant’s use of a property may be restricted by the planning clause even if a user clause appears to grant the desired uses.