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Supreme Court rules to offer protection to landlords from enfranchisement

A recent Supreme Court decision has increased landlords’ powers to resist tenants potentially claiming enfranchisement, explains dispute resolution law expert, Vicky Khandker.

‘Claiming enfranchisement’ is a tenant’s right to purchase the freehold of property that they occupy provided that they meet certain criteria, as set down in the Leasehold Reform Act (LRA) 1967. The Supreme Court, in Sequent Nominees Ltd (formerly Rotrust Nominees Ltd) v Hautford Ltd [2019] UKSC 47, ruled on 30 October 2019 that a landlord had acted reasonably in refusing to grant consent to its tenant to apply for planning permission for change of use, to residential, of two floors of a six-storey building in Brewer Street, London.

This decision overturned the decisions of the County Court, High Court and Court of Appeal by a majority of three justices to two.

The 1986 lease contained a covenant that the tenant would not apply for any planning permissions without the landlord’s consent. This is classed as a ‘fully qualified covenant’ by virtue of the additional requirement on the landlord that the consent is ‘not to be unreasonably withheld’. The landlord refused permission on the basis that residential use would significantly increase the tenant’s prospects of claiming enfranchisement under the LRA 1967.

Background

The tenant rented all six storeys of the building. The observed permitted uses in terms of planning were that the basement and ground floor were retail space, the middle two floors were office/ancillary and were used in part as a staff room, all of which related to the retail use below, and the top two floors were residential.

The tenant undertook works to the building converting the middle two floors into self-contained flats for residential use, then sought permission from the landlord to apply for planning permission for change of use accordingly. When the landlord refused to give its permission, the tenant brought a claim on the grounds that the refusal was unreasonable.

Issue

Clause 3(19) of the lease required that permission be sought from the landlord before applying for planning alterations. Clause 3(11) of the lease contained a general list of permitted uses for the building as a whole, which included residential. It was on this point that Lady Arden and Lord Wilson offered dissenting views, stating that the landlord was unreasonably withholding consent since the refusal would have the effect of re-writing this clause.

However, Lord Briggs in his majority judgment explained that the lower courts had made an error of law in construing that clause 3(19) was incapable of providing protection against enfranchisement and set out his reasoning that although clause 3(11) undoubtedly created a vulnerability to enfranchisement, it was entirely reasonable for the landlord to want to protect itself against that possibility.

Impact

It must be noted that Lord Briggs made clear in his judgment that over-refining the rules in such cases was an erroneous approach and that decisions must be made by a careful analysis of the facts and by assessment of the merits of each individual case. That said, this decision undoubtedly increases a landlord’s ability to act decisively to strengthen its position against the threat of enfranchisement, particularly in claims brought in relation to leases made post-1967 with full awareness of the need to protect against such eventualities.

Should you require any advice on any aspect of commercial leases, or on enfranchisement, our specialist Property Disputes Team can happily advise. Please contact Vicky Khandker or Ellie Crofts in the first instance.

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For more information, please contact Vicky Khandker on 01789 206123 or via email.