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Without admitting that an enfranchisement claim would then necessarily succeed, the refusal letter continued: The effect of a successful claim to enfranchise would not merely damage the reversion; it would deprive our client of its reversion in the Premises entirely. FAC |
Furthermore, it would deprive our client of control for estate management purposes of the block containing the Premises, which would have an adverse impact on the value of our clients investment in the block. FAC |
It is common ground on the pleadings in the litigation which ensued that one purpose of the respondents contemplated planning application was indeed to improve its prospects of a successful claim for enfranchisement. FAC |
Tuesday Ones refusal of consent under clause 3(19) was the casus belli for this litigation. FAC |
The respondent was successful, both at trial and in the Court of Appeal, in its contention that consent to its intended planning application had been unreasonably withheld. FAC |
The respondents success turned upon a perception by both the courts below (although for slightly different reasons) about what was and was not, as a matter of construction of the Lease, the purpose of clause 3(19). FAC |
In his careful and comprehensive judgment Judge Collender put it this way: I accept that the purpose of the covenant at clause 3(19) of the lease is to protect the lessor from the possible effect of an application for planning permission, because as the owner of the land, it could be subject to enforcement action if th... |
I accept the argument that it is not to enable the lessor to restrict or limit the permitted use under clause 3(11). RLC |
In my judgment, the lessors refusal of consent under clause 3(19) is unreasonable because thereby they are seeking to achieve a collateral purpose, ie the imposition of a restriction on use that was not negotiated and is not included within clause 3(11). RLC |
Giving the leading judgment in the Court of Appeal ([2018] Ch 603) Sir Terence Etherton MR agreed generally with the judges reasoning. RLC |
In his view, the key reason why clause 3(19) could not be construed as having been intended to permit the landlord to refuse to consent to an application for planning permission for a use authorised by clause 3(11) which increased the risk of enfranchisement was because any third party, other than the tenant, could app... |
At para 49 he put it this way: If Rotrust were correct in its argument, Hautford would be precluded from applying for planning permission to enable Hautford to use the first and second floors for residential purposes for the 70 or so years remaining of the original 100- year term so long as Rotrust was the landlord or ... |
Hautford would be precluded from doing so, even though any third party would be free at any time to make such an application and, if made and successful, Hautford could take advantage of the planning permission. RLC |
Indeed, that would have been the position from the first day of the 100-year term. RLC |
It seems inconceivable that this was the intention of the original parties to the lease. RLC |
Both the courts below regarded the appellants additional estate management reason for refusing consent as insufficient to render that refusal reasonable. RLC |
The judge held that the effect of the loss of one freehold within the terrace upon enfranchisement could largely be remedied by the imposition of freehold covenants under section 10(4) of the 1967 Act, and the Court of Appeal upheld that analysis. RLC |
In this court it was sensibly conceded by the appellant that, regardless whether section 10 afforded a complete remedy for the loss of this one freehold within the terrace in estate management terms, this could not on its own be a sufficient ground for a reasonable refusal of consent. RLC |
The Law Ratio |
The substantial body of case law which assists the court in determining whether a particular refusal of consent under a fully qualified covenant is unreasonable is not, subject only to one matter, significantly in issue on this appeal. Ratio |
Rather, the outcome turns on whether the courts below were correct in their identification of the limited purpose behind clause 3(19) of this particular Lease. Ratio |
It is therefore appropriate to set out the relevant principles relatively briefly. Ratio |
The only contentious question of principle is whether the cases (and there are several) which suggest that a landlord may reasonably refuse consent under a fully qualified covenant to the doing of something by the tenant which increases the risk of enfranchisement are limited to covenants in leases granted before the p... |
Both the courts below considered that this was so: see para 63 of the judges judgment and para 53 of the judgment of the Master of the Rolls. Ratio |
The summary of the relevant principles which best combines completeness with conciseness is to be found in the judgment of Balcombe LJ in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513, at 519H- 521E. Although the seven principles there set out are directed to the reasonableness... |
It is unnecessary to set them out here because, in Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180 they were, without being disapproved, helpfully condensed by the House of Lords into three overriding principles. Ratio |
At paras 3 to 5 (on pp 2182-2183) Lord Bingham of Cornhill said as follows: The first (Balcombe LJs second principle) is that a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the... |
Thirdly: The landlords obligation is to show that his conduct was reasonable, not that it was right or justifiable. PRE |
As Danckwerts LJ held in Pimms Ltd v Tallow Chandlers Co [1964] 2 QB 547, 564: it is not necessary for the landlords to prove that the conclusions which led them to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances .... Subject always to the first pr... |
There are few expressions more routinely used by British lawyers than reasonable and the expression should be given a broad, common sense meaning in this context as in others. Ratio |
At para 67, (on p 2201), Lord Rodger of Earlsferry said this: The test of reasonableness is to be found in many areas of the law and the concept has been found useful precisely because it prevents the law becoming unduly rigid. PRE |
In effect, it allows the law to respond appropriately to different situations as they arise. PRE |
This has to be remembered when a court is considering whether a landlord has unreasonably withheld consent to the assignment of a lease. PRE |
He continued by endorsing the passage from Tredegar v Harwood to which Lord Bingham had earlier referred. PRE |
Both Lord Bingham and Lord Rodger placed particular emphasis upon the following dicta of Lord Denning MR in Bickel v Duke of Westminster [1977] QB 517, at 524: The words of the contract are perfectly clear English words: such licence shall not be unreasonably withheld. PRE |
When those words come to be applied in any particular case, I do not think the court can, or should, determine by strict rules the grounds on which a landlord may, or may not, reasonably refuse his consent. PRE |
He is not limited by the contract to any particular grounds. PRE |
Nor should the courts limit him. PRE |
Not even under the guise of construing the words. PRE |
(Emphasis added) PRE |
The Ashworth Frazer case is, again, about refusal of consent to an assignment. Ratio |
Nonetheless, the general statements of principle which it contains are equally applicable to a refusal of consent to an application for planning permission, and need no further refinement or elucidation as general principles. Ratio |
The Bickel case was one of those in which it was held reasonable for a landlord to refuse consent to the doing of something by the tenant which would cause or increase a risk of enfranchisement. Ratio |
Another, referred to by the Court of Appeal, is Norfolk Capital Group Ltd v Kitway Ltd [1977] QB 506. Ratio |
In both cases the relevant lease was granted before the passing of the 1967 Act, and the judgments were handed down by differently constituted Courts of Appeal within ten days of each other in mid-1976. Ratio |
Taking the (slightly earlier) Kitway case first, the issue was whether the landlord could reasonably refuse consent to an assignment by a limited company (which could not enfranchise) to a private individual (who could after five years residence). Ratio |
All three members of the court gave judgments, and it is impossible to discern in any of them a process of reasoning along the lines that it was only because the lease was granted prior to the coming into force of the 1967 Act that it was reasonable for a landlord to have regard to the risk of enfranchisement in refusi... |
On the contrary, all three members of the court appeared to have regarded such a reason for refusal as eminently reasonable, subject only to authorities in Rent Act cases about normal and abnormal assignments which, in the event, they held not to be applicable. Ratio |
At p 511 Megaw LJ said: If one were asked, without having been taken into any legal authorities relating to the matter, whether or not, in the circumstances which I have outlined, it was unreasonable for the landlords to refuse their consent when the consequences of giving that consent and of the assignment being made ... |
At p 515 Brown LJ said: If there were no authorities, I think, like Megaw LJ, that there could be no doubt that the landlords refusal here was entirely reasonable. PRE |
Geoffrey Lane LJ added, at p 516: Now, what are the facts here? Mr Barnes concedes that the value of the landlords reversion is less if there is a possibility of any of the mews houses being enfranchised. PRE |
There is clearly such a possibility, and accordingly the value of the landlords reversion is less. PRE |
That being so, it would be a strange landlord indeed who gave his consent to the proposed assignments. PRE |
The refusal of the landlords in the present circumstances was eminently reasonable. PRE |
In the Bickel case the tenants, a friendly society not in occupation, requested consent to assign the lease to their sub-tenant, who was. PRE |
This gave rise to the likelihood that, five years later, the assignee would be entitled to enfranchise. PRE |
In a later part of the passage approved by Lord Bingham and Lord Rodger in the Ashworth Frazer case (quoted above), Lord Denning continued, at [1977] QB 517, 524D: The landlord has to exercise his judgment in all sorts of circumstances. PRE |
It is impossible for him, or for the court, to envisage them all. PRE |
When this lease was granted in 1947 no one could have foreseen that 20 years later Parliament would give a tenant a right to buy up the freehold. PRE |
Seeing that the circumstances are infinitely various, it is impossible to formulate strict rules as to how a landlord should exercise his power of refusal. PRE |
This passage from Lord Dennings judgment is not to be read as meaning that it was only because the lease was granted prior to the coming into force of the 1967 Act that the landlord could reasonably refuse consent to an assignment, on the grounds of an increased risk of enfranchisement. Ratio |
On the contrary, Lord Denning was simply saying that the landlord could do so in spite of the fact that such a risk could not have been within the contemplation of the parties at the time of the grant of the lease, so that it could not have been a purpose for which the covenant against assignment had originally been so... |
He used the risk of enfranchisement as an example of the infinitely variable circumstances in which the landlord has a choice to consent or refuse consent, illustrative of the need to address the reasonableness of a refusal by reference to the facts as they are at the date of the tenants request. Ratio |
It was a warning against addressing the reasonableness of a refusal by reference to an over-refined construction of the lease as at the time of its grant, something which Lord Denning called the guise of construing the words. Ratio |
The thinking that a fully qualified covenant may not entitle a landlord to refuse consent because of an increased risk of enfranchisement where the covenant is contained in a lease granted after the passing of the 1967 Act may be based upon the notion that, if the lease itself gives rise to such a risk, then the landlo... |
The lease in the present case was granted after the passing of the 1967 Act, but to a limited company tenant which could not (then) enfranchise. Ratio |
But, as the judge observed, there was no sufficient restriction upon an assignment to a private individual, and that would increase the risk. Ratio |
Furthermore, the permission to the tenant under clause 3(11) to use the whole of the premises for residential purposes might be thought to invite it. Ratio |
It is over-simplistic, and contrary to the principles as laid down in the Ashworth Frazer case, to approach this question in any rigid or doctrinaire way, still less solely by reference to original purposes of the covenant in clause 3(19) which may have been within the contemplation of the parties when the lease was gr... |
It will in every case be a question of fact and degree measured as at the date upon which the relevant consent is sought by the tenant. Ratio |
There will no doubt be some leases granted after the passing of the 1967 Act which render the risk of enfranchisement so great and so obvious that the risk is not materially increased by the tenant doing that for which he seeks the landlords consent. Ratio |
There will be other cases where the alteration in the risk attributable to the giving of consent is substantial. Ratio |
Likewise there will be cases where the landlords reversion is of only nominal value (such as the reversion on a 999 year lease) and others where, notwithstanding reforms to the enfranchisement legislation, the landlord nonetheless reasonably anticipates a real diminution in the value of his reversion occasioned by the ... |
In the present case, it is not in dispute either that the risk of enfranchisement would be substantially increased by the grant of the proposed planning permission, or that the appellants reversionary interest is of real value which would be adversely affected by enfranchisement, notwithstanding a statutory right to co... |
Analysis Ratio |
This appeal does not turn upon any refined analysis of the general principles relating to the reasonableness or otherwise of the refusal of consent under a fully qualified covenant. Ratio |
Indeed, the reasoning in the Ashworth Frazer case is antipathetic to the carrying out of any such process of refinement. Ratio |
Nor is there any real dispute about the relevant facts, applicable as at the date when the respondent requested consent to apply for planning permission. Ratio |
The real issue is whether the courts below were correct in construing the Lease in such a way as to exclude resisting an increased risk of enfranchisement as a legitimate purpose of the right to refuse consent under clause 3(19). Ratio |
In my opinion none of those three strands of reasoning supports the conclusion reached by the courts below. Ratio |
All of them seek to address the question whether the landlords consent was unreasonably withheld by reference to an over- refined attempt to identify a limited original purpose behind clause 3(19), contrary to Lord Dennings dictum in the Bickel case, approved in the Ashworth Frazer case, that it is wrong in principle t... |
Mr Philip Rainey QC for the appellant submitted that nothing in clause 3 and in particular clause 3(11) of the Lease could be treated as a grant because they were all parts of a comprehensive series of interlocking covenants restrictive of use. ARG |
That may be formally correct, but it misses the substance of Miss Scotts point. ARG |
Nonetheless, looking at the question as a matter of substance, it cannot be said that the Lease, read as a whole, conferred an unqualified right on the tenant to use the whole, or any particular part, of No 51 for residential purposes. ARG |
Clause 3(11) must be read with clause 3(19), which required the tenant to perform and observe all the provisions and requirements of the planning legislation. ARG |
Read together, the effect of those two clauses was to permit the tenant to use for residential purposes only such parts of No 51 as were from time to time permitted by the planning regime to be used for residential purposes. ARG |
This might be either because of an established use when the Lease was granted, or because the tenant obtained, with the landlords consent, permission for residential use, or because such permission was obtained by a third party or, by some change in the legislation, residential use became lawful without the need for pl... |
At the time of the grant of the Lease, the tenant could not without breach of covenant use the first and second floors for residential purposes. ARG |
At the time when it sought consent to apply for planning permission for that purpose, residential use of those two floors was still prohibited by the planning legislation, and therefore by clause 3(19). ARG |
As to the judges reasoning, it may well be that one purpose of clause 3(19) was to protect the landlord from liability for compliance with conditions upon which a planning permission requested by the tenant might be granted. Ratio |
But the identification of that specific purpose by no means excludes other purposes for the existence of clause 3(19), or for the use of the landlords right (not unreasonably) to refuse consent. Ratio |
Nothing in the language of clause 3(19) supports the judges identification of a single purpose for its existence within the Lease, and it is simply a non sequitur to say that, because one specific purpose can be identified, no other purpose is permissible. Ratio |
On the contrary the correct approach is to construe clause 3(19) so as to discover what, upon its express terms, it permits the landlord to do and then to decide the question of unreasonableness by asking whether the landlords refusal serves a purpose sufficiently connected with the landlord and tenant relationship, as... |
Turning finally to the Court of Appeals reasoning, it is undoubtedly true that the combination of clause 3(11) and the ability of a third party to seek planning permission for the residential use of the first and second floors of No 51 together created a vulnerability of the freehold to enfranchisement which would not ... |
But the fact that the Lease by its terms rendered the freehold vulnerable to enfranchisement does not mean that a clause like 3(19), which provided a measure of protection against that risk, should be treated as incapable of being used reasonably for that purpose. Ratio |
The fact is that, by the time when the respondent sought consent under clause 3(19), no third party had applied for planning permission for a change of the use of the first and second floors to residential and, so far as this court is aware, no such third party application has been made to date. Ratio |
The result is that, looking at the matter as a question of fact as at the time when the respondent sought consent, the landlords ability to refuse that consent continued to afford a real measure of protection against enfranchisement of the freehold. Ratio |
It follows that the courts below treated the question whether consent had been unreasonably refused as effectively determined by an erroneous construction of the Lease, contrary to Lord Dennings guidance in the Bickel case. Ratio |
They therefore made an error of law which requires this court to consider the matter afresh, upon the same undisputed facts. Ratio |
By April 2015 (when consent was sought) it remained unlawful in planning terms for the first and second floors of No 51 to be used for residential purposes. Ratio |
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