Home > News > David Nicholls successfully acted for a commercial landlord in defending a claim by one of its tenants alleging that the landlord had unreasonably refused consent for change of use

Summary

Judgment was handed down in the case of Wong v Sheet Anchor Investments Limited on 21 February 2022 by His Honour Judge Duddridge in the County Court at Southend.  The case concerned a small shopping centre in Wickford, Essex.  Mr Wong was the tenant of a Chinese restaurant and takeaway.  He sought consent under his lease for permission to change the use to that of a pharmacy as part of a proposed assignment.  The landlord refused consent on the grounds that this would adversely affect the tenant mix of the shopping centre.  Mr Wong sought a declaration that consent had been unreasonably refused.  The case is a useful reminder of the principles applicable to applications for change of use and the formalities required for an application for consent to assign.  The case also involved a consideration of the Braganza principle of good faith in circumstances where a lease provides that a landlord may not unreasonably withhold consent.

Commentary

Change of use

It is common for commercial leases to contain restrictions on use.  In this case, there was a qualified covenant prohibiting change of use without the landlord’s consent, not to be unreasonably withheld or delayed.  The only statutory limitation on such covenants is section 19(3) of the Landlord and Tenant Act 1927 that provides that covenants against the alteration of the user of demised premises are subject to a proviso that no fine or sum of money shall be payable for the grant of such consent (although this provision was not relevant in the case in question).

The legal principles that apply when considering whether a landlord has unreasonably refused consent for change of use are the well-known principles set out in International Drilling Fluids v Louisville Investments (Uxbridge) [1986] Ch 513.  Although these were originally formulated in the context of alienation, it has been held that they apply also in the context of an application for consent for change of use (Tollbench v Plymouth City Council [1988] 1 EGLR 79).  The focus of those principles is to ensure that the reason for refusal is to protect the landlord’s property interests.

In this case, the covenant in question contained a specific provision that entitled the landlord to refuse consent if the landlord thought that the proposed change of use would be detrimental to the landlord’s desire to maintain a good tenant mix within the shopping centre.  This was a matter for expert evidence at trial and the Judge preferred the landlord’s expert evidence, which demonstrated that the proposed change of use would adversely affect the tenant mix in the shopping centre.  The Judge therefore concluded that consent for change of use was reasonable and the claim failed.

Formalities for an application to assign

One of the issues in the case was whether the tenant had made an application for consent to assign the lease.  The ‘application’ had been made by email (contrary to the requirements for the service of notices under the lease), it had been made by the assignee not the tenant, and the landlord had not been provided with all the information requested.  The Judge accepted that there was an important distinction between the formal process of applying for consent to assign (as anticipated by, and with the consequences of, the Landlord & Tenant Act 1988), and informal communications that may be a necessary prelude to a formal application.  In this case, the Judge concluded that the tenant had only made informal communications with the landlord in relation to a possible assignment and a formal application, served in accordance with the lease, had not been made.  The Judge also rejected an argument that just because the landlord had continued to communicate with the tenant and the assignee by email did not mean that the formal requirements relating to service had been waived.  It was merely consistent with the informal approach that the tenant had adopted.

Braganza, good faith, and unreasonableness

The tenant argued that the case of Braganza v BP Shipping Limited [2015] UKSC 17 should apply to the question of whether the landlord’s decision was reasonable.  This was a case in the context of an employment contract in which the Supreme Court held that where there was a contractual power to exercise a discretion, then that power had to be exercised in good faith and in accordance with public law principles of reasonableness (e.g. Wednesbury unreasonableness).  The Judge rejected this argument and ruled that the principles in Braganza do not apply in relation to powers arising under lease where different considerations.  This is consistent with the comments of Baroness Hale in Braganza that it was not for the courts to rewrite the parties’ bargain for them.  There is no need to imply a term into a lease in relation to the exercise of a power under the lease where the parties themselves have already decided that the power shall be exercise in accordance with the well-established principles encapsulated by the proviso ‘such consent not to be unreasonably withheld’.

Conclusion

This case is a salutary reminder of the principles applicable to applications by tenants for consent for change of use or alienation, the degree of formality required for an application for consent to assign, and the relevant threshold required to demonstrate that a landlord’s refusal is unreasonable

The author of this article is David Nicholls.

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