Reasonably Withholding Consent
Lease covenants that require landlords to act reasonably when tenants seek their consent (known as "fully qualified" covenants) are common. Working out whether the landlord is entitled to withhold consent in these circumstances can however be difficult, particularly when circumstances have changed since the lease was originally drafted.
In the case Sequent Nominees Ltd v Hautford Ltd [2019] UKSC 47 the Supreme Court recently considered this point in relation to a property in Soho comprising a ground floor and basement shop with four upper floors. The top two floors had been in residential use since the property was leased in 1986 and the tenant wished to convert the first and second floors to residential use as well. The lease allowed residential use of those floors, but the tenant needed the landlord's consent to apply for planning permission. The landlord refused to give consent on the grounds that doing so would risk the property being enfranchised.
The tenant argued that this was unreasonable and the High Court and Court of Appeal agreed, finding that the landlord could not use the consent requirement in relation to planning permission to effectively restrict the permitted use agreed under the lease. The Supreme Court, however, felt that rigid analysis of the text of the lease itself was the wrong approach. Instead, the Supreme Court found that the key questions were (1) whether the reasons for refusal were related to the landlord-tenant relationship, and (2) whether the reasons were reasonable, as opposed to correct or justifiable, based on the particular facts of the case. Those principles had already been established by the House of Lords in Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180.
The Supreme Court confirmed that the potential damage to the value of the freehold reversion from the risk of enfranchisement was clearly related to the tenancy and a reasonable ground to refuse consent based on the facts of this case.
Landlords should continue to exercise proper caution when faced with requests for consent under fully qualified covenants, but can take comfort that "reasonable" means reasonable.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
