A landlord was not entitled to rely on a qualified covenant against alterations to resist changes that might be a forerunner to leasehold enfranchisement.

Can a landlord refuse a tenant’s application for permission to make alterations that could pave the way for the tenant to use the leasehold enfranchisement legislation to purchase the freehold from them? Landlords will be dismayed to discover that, while it may be reasonable to take this possibility into account, they will not necessarily be entitled to withhold consent because of their concern that they could ultimately be disenfranchised. Mount Eden Land Ltd v Bolsover Investments Ltd [2014] PLSCS 200 concerned an office building, which was let under a 999-year lease granted in the early 1900s. The lease did not prohibit residential use, but did contain a covenant that prohibited the tenant from altering the premises without the landlord’s consent. The landlord rejected the application for permission to convert the building into 16 residential flats on several grounds. It claimed that the tenant’s proposals would change the tone of the area and make parking more difficult. It was also concerned that there could be objections from the occupiers in the vicinity and that the alterations might be a prelude to collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993. The trial judge accepted that it had been reasonable for the landlord to consider the potential for enfranchisement, but decided that the landlord had unreasonably withheld its consent because the possibility that the tenant would seek to enfranchise was wholly speculative. The tenant had yet to decide whether to let the flats on leases that would qualify for the purposes of the legislation and, even if it did, it was far from certain that the requisite number of tenants would band together to acquire the freehold. The Court of Appeal has upheld the judgment, even though the landlord drew its attention to previous decisions, in Norfolk Capital Group v Kitway Ltd [1977] 1 QB 506 and Bickel v Duke of Westminster [1977] 1 QB 517, that landlords had reasonably refused to consent to assignments that would have enabled the proposed assignees to take advantage of the Leasehold Reform Act 1967. Reactions to the case will vary – and practitioners will be keen to see the full judgment, as and when this becomes available, in order to analyse the decision more fully and to assess any risks, or opportunities, arising as a result. However, each case will turn on its own particular facts, since the court must decide as a question of fact – and not law – whether a landlord is acting reasonably or not. It may be that the court in Mount Eden was influenced not just by the apparently speculative nature of the landlord’s concern and long length of its reversion, but also by the fact that the tenant had made an application for a licence for alterations, as opposed to asking for a licence to assign. The rules that apply to such applications are very different – and it is worth remembering that tenants have a statutory right to improve their properties, even though their leases contain absolute prohibitions against alterations, if they can satisfy the conditions laid down in section 3 of the Landlord and Tenant Act 1927. One thing is clear. The lesson that emerges from this case is that landlords will not always be able to use covenants against alterations to block changes that could create the right conditions for leasehold enfranchisement. Allyson Colby is a property law consultant