Rotrust Nominees Ltd v Hautford Ltd (A Company Registered in the British Virgin Islands)
| Jurisdiction | England & Wales |
| Judge | Sir Terence Etherton Mr,Lord Justice Lindblom,Lord Justice McCombe |
| Judgment Date | 17 April 2018 |
| Neutral Citation | [2018] EWCA Civ 765 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: B2/2016/3608 |
| Date | 17 April 2018 |
[2018] EWCA Civ 765
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
HHJ Collender QC
B/01/CL/455
Royal Courts of Justice
Strand, London, WC2A 2LL
THE MASTER OF THE ROLLS
Lord Justice Mccombe
and
Lord Justice Lindblom
Case No: B2/2016/3608
Philip Rainey QC (instructed by Trowers and Hamlins LLP) for the Appellant
Tiffany Scott QC (instructed by Thomson Snell and Passmore LLP) for the Respondent
Hearing date: 21 March 2018
The appellant, Rotrust Nominees Limited (“Rotrust”) is the freehold owner of a terraced building at 51 Brewer Street, London W1 (“the Property”). The Property is part of a block of contiguous properties, including 39–61 (odd numbers) Brewer Street, also owned by Rotrust (“the Soho Estate”).
The Property is subject to a lease made on 4 April 1986 for a term of 100 years from 25 December 1985 (“the Lease”). Clause 3(19) of the Lease contains a tenant's covenant not to apply for planning permission without the prior written consent of the landlord, such consent not to be unreasonably withheld. The respondent, Hautford Limited (“Hautford”), is the current tenant under the Lease.
Rotrust's predecessor in title to the Property refused consent for Hautford to apply for planning permission to change the use of the first and second floors of the Property from office use, or use ancillary to retail use of the ground floor, to residential use. Rotrust has continued to refuse consent. They have done so on the grounds that such change of use would increase the prospect of successful enfranchisement under the Leasehold Reform Act 1967 (“the LRA”) and, in addition, such enfranchisement would damage Rotrust's management of the Soho Estate. The issue in these proceedings is whether that refusal was unreasonable.
Rotrust appeals the order dated 11 August 2016 of His Honour Judge Collender QC, sitting in the County Court at Central London, declaring that Rotrust has unreasonably withheld consent and that Hautford is entitled, notwithstanding such refusal, to make the planning application.
Background
The Judge's judgment contains a comprehensive statement of the facts. For the purposes of this appeal, the following account of the background is sufficient.
The Lease was granted for a premium of £200,000 and reserved a peppercorn rent. At the date of the trial it had just under 70 years remaining.
Hautford has been the tenant since 1998.
Clause 3(11) of the Lease contains the following tenant's user covenant:
“Not to use the Demised Premises otherwise than for one or more of the following purposes (a) retail shop (b) offices (c) residential purposes (d) storage (e) studio PROVIDED however that nothing herein contained shall imply or be deemed to be a warranty that the Demised Premises may in accordance with all Town Planning Law and Regulations now or from time to time in force be used for the purposes above mentioned.”
Clause 3(19) of the Lease contains the following tenant's planning covenant, so far as relevant:
“To perform and observe all the provisions and requirements of all statutes and regulations relating to Town and Country Planning and not to apply for any planning permission without the prior written consent of the Landlord such consent not to be unreasonably withheld …”
The Property, including a basement, extends over six floors. It comprises a retail unit on the ground floor with four storeys above. The ground floor and basement are, in area, much greater than any of the upper floors.
The present authorised planning uses of the Property are: for the basement and ground floor, retail; for the first and second floors, office/ancillary; and for the top two floors, residential.
There is an underlease of the Property, under which the tenant is currently Romanys Limited (“Romanys”). The underlease is for a term ending on 30 September 2023. Romanys trades as ironmongers from the basement and ground floors. The first and second floors were previously used by Romanys for storage and as a staff room. Romanys' underlease is a business tenancy.
The third and fourth floors have been used from time to time for residential purposes since the commencement of the lease, although they have been vacant for substantial periods since 1998.
At present, approximately 25% of the Property is residential. If the first and second floors were to be used for residential purposes, the proportion would rise to approximately 52%.
On 4 October 2012 Hautford served on Tuesday One, an unlimited company, which was then the freeholder of the Property, a notice to acquire the freehold of the Property pursuant to the LRA. In response, Tuesday One's solicitors contended that the Property was not a “house, reasonably so called” within the meaning of section 2(1) of the LRA.
Hautford's solicitors responded by withdrawing the notice.
Between 2013 and 2015 Romanys refurbished the four upper floors of the Property. Romany's did not need Tuesday One's consent to do so since there were no structural alterations and there is no tenant's covenant in the Lease requiring the landlord's consent to non-structural improvements. All the upper floors have now been fitted out for residential use.
On 17 April 2015, pursuant to clause 3(19) of the Lease, Hautford applied to Tuesday One for consent to apply to the planning authority for change of use of the first and second floors to residential. That request was refused by letter dated 30 April 2015 on the grounds that change of use might facilitate a claim by Hautford to acquire the freehold of the Property pursuant to the LRA and enfranchisement would damage the reversion and also undermine management control of the Soho Estate.
The proceedings
The claim form was issued in these proceedings by Hautford against Tuesday One on 15 June 2015 in the County Court at Central London seeking a declaration that Tuesday One was unreasonably refusing consent to the making of the planning application.
In its Reply in these proceedings Hautford admitted that one purpose of the application for consent to submit the planning application was to improve the prospects of making a future claim to acquire the freehold.
By the date of the trial the freehold of the Property and the Soho Estate had been transferred to Rotrust, for corporate restructuring reasons unconnected with the claim. Rotrust was substituted as defendant by consent.
In a clear, careful and comprehensive judgment given on 11 August 2016 in the Mayor's and City of London Court the Judge concluded that the landlord's consent had been unreasonably withheld and granted a declaration to that effect.
The following is a brief summary of the Judge's reasoning, which, with no disrespect to his full and careful judgment, is sufficient for the purposes of my decision.
The Judge said (at [32]) that a planning application for change of use to residential would probably be successful; the prospects of success in an enfranchisement application would be substantially enhanced by the proposed increase in residential floor area; and the relative changes in value of the parties' assets related to the lease upon a marriage of the leasehold and freehold interests could fairly be characterised as sums of some real worth.
The Judge noted, as a preliminary matter, that the onus of proof lies on the tenant seeking a declaration that a landlord has acted unreasonably. He said that the test of reasonableness is an objective one, and in that connection he referred to Woodfall's Law of Landlord and Tenant. He said that the general principles were conveniently set out in Iqbal v Thakrar [2004] EWCA Civ 592, [2004] 36 EG 122. He quoted the summary of Peter Gibson LJ in that case of the relevant principles, which Peter Gibson LJ had adapted from cases of consent to assignments and sub-lettings to cases concerning the reasonableness of a landlord's refusal to consent to proposed structural alterations or additions.
The Judge referred to Norfolk Capital Group Ltd v Kitway Ltd [1977] 1 QB 506 (CA) and Bickel v Duke of Westminster [1977] 1 QB 517 as authority, in the context of covenants against assignment or sub-letting, supporting the proposition that it is reasonable to withhold consent to a proposed alienation if the proposed assignee or sub-tenant would be able to qualify for enfranchisement but the assignor or tenant could not. He said that they were an application of the general principle that it is reasonable for a landlord to refuse consent to such an alienation under a lease if it is reasonable to contemplate that there would be damage to the reversion as a result.
The Judge then referred to Mount Eden Land Ltd v Bolsover Investments Ltd [2014] EWHC 3523 (Ch), a case in which some 900 years remained of the term of the lease.
The Judge then referred to Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019, Anglia Building Society v Sheffield City Council (1983) 1 EGLR 57 and Berenyi v Watford Borough Council (1980) 2 EGLR 38 for the propositions that it is necessary, firstly, to consider what was in the reasonable contemplation of the parties to the lease as the purpose of the covenant, and that a landlord cannot withhold consent in order to obtain an uncovenanted or collateral advantage.
The Judge accepted (at [61]) the contention of Hautford that the purpose of the planning covenant in clause 3(19) of the Lease was not to enable the landlord to restrict or limit the permitted use under clause 3(11) and that, in refusing consent, Tuesday One and Rotrust were seeking to achieve the collateral purpose of imposing a restriction on use that was not included...
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