Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd

The Supreme Court has handed down judgment in Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd [2019] EWCA Civ 765 overturning decisions of the High Court and the Court of Appeal. A majority of three to two found that a commercial landlord had refused a tenant’s application for consent to apply for planning permission reasonably.

Background

H is tenant of a six-storey building on Brewer Street in Soho under a lease granted in 1986. Clause 3(11) of the lease permits use of the premises for one or more of the following purposes: retail, offices, residential, storage, and studio. However, no warranty was given that such usage would comply with planning regulations.

By clause 3(19) H covenanted not to apply for any planning permission without S’s prior written consent, “such consent not to be unreasonably withheld”.

The permitted use of the premises, for planning purposes, had been as follows: ground floor and basement: retail; first and second floors: office /ancillary; third and fourth floors: residential.

Between 2013 and 2015, H’s sub-tenant carried out and H paid for the conversion of each of the four upper floors to self-contained flats. S’s predecessor in title was aware of these works but had reserved the right to refuse consent to an application for change of use of the first and second floors.

Such an application was refused on the basis that if most of the premises was residential, H would gain the right to acquire the freehold under the Leasehold Reform Act 1967. H alleged that such a refusal was unreasonable.

The High Court and the Court of Appeal

Both the High Court and the Court of Appeal agreed with H. At first instance, HHJ Collender QC held that the refusal was unreasonable as it sought to achieve a collateral purpose, namely a restriction on use of the premises not included in clause 3(11).

The Master of the Rolls, giving the leading judgment in the Court of Appeal, found that clause 3(19) could not have been intended to permit refusal of consent to an application for planning permission for a use authorised by clause 3(11).

The Supreme Court

Lord Briggs, delivering the majority opinion, referred to the principles to be followed when considering if consent has been withheld reasonably, as summarised by Lord Bingham in Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180:

• A landlord is not entitled to refuse consent on grounds which have nothing to do with the landlord and tenant relationship;
• The decision must rest on the particular facts of each case and a decision made on the facts must not be elevated to a principle of law; and
• The landlord’s obligation is to show its conduct was reasonable (ie a decision that might be reached by a reasonable man in the circumstances) not right or justifiable.

In relation to the first principle, Lord Briggs held that an attempt to avoid the risk of enfranchisement and the consequential damage to the landlord’s reversion cannot be disassociated with the landlord and tenant relationship and is the “quintessential type of consideration rendering reasonable the refusal of consent”.

With respect to the second principle, reference was made to the judgment of Lord Denning in Bickel v Duke of Westminster [1977] QB 517 (approved in the Ashworth Frazer case) in which he said that in determining reasonableness a landlord “is not limited by the contract to any particular grounds”. The future circumstances in which a request for consent may be made are “infinitely various”.

Reasonableness therefore should be assessed by reference to the facts as at the date of the tenant’s request and not what was within the contemplation of the parties at the time of the grant of the lease (some may find this somewhat at odds with the judgment of the Supreme Court in Arnold v Brittan [2015] UKSC 36 which emphasised that in interpreting a written contract the Court is “concerned to identify the intentions of the parties” to that contract).

On the facts, it was held that clauses 3(11) and 3(19) must be read together and not subject to an attempt to identify the original purpose of clause 3(19). As such, H could use for residential purposes only those parts of the premises which, from time to time, were permitted by the planning regime for those purposes. The lease therefore did not confer an unqualified right of residential use.

As to the third principle, Lord Briggs concluded that S’s refusal was clearly reasonable.

Dissenting Opinion

Lady Arden and Lord Wilson disagreed with the majority. In Lord Wilson’s Judgment, clause 3(11) was a bespoke clause which specifically permitted unqualified residential use of the whole of the premises. Whereas clause 3(19) was a boilerplate clause. He held that if S could withhold consent to a planning application for residential use then clause 3(11) would be deprived of its substantial effect and effectively be rewritten. In his view, an express grant of permission for residential use cannot be overridden by an unfocussed provision regarding planning applications. This negates the permission for residential use which was granted and for which the landlord received consideration.

Conclusion

This is a decision landlords will welcome. Particularly those seeking to avoid enfranchisement, which (subject to the facts of a case) the Supreme Court has held is a reasonable basis for withholding consent.

Also, in this instance a user clause that appeared to grant the tenant a wide degree of latitude was held to be restricted. Both landlord and tenants (and their advisors) may now wish to review their own user clauses. They may find that a use of premises thought to be permitted under a lease is similarly limited. If so, this could have consequences for the premiums payable on a future assignment.

If you require further information about anything covered in this briefing note, please contact Graham Anderson, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2019