It is not unusual for tenants to look at alternative uses for commercial property space. But, if the lease requires premises to be used for a specific purpose – is it possible for a tenant to modify or discharge this restriction without first obtaining the landlord's consent?
The Upper Tribunal (UT) in England & Wales has the power to modify or discharge restrictive covenants affecting land under section 84 of the Law of Property Act 1925. This power extends to restrictions in leases for a term of up to 40 years, following the expiration of 25 years of that term. This power was recently tested in the case of Blackhorse Investments (Borough) Ltd v London Borough of Southwark [2024] UKUT 33 (LC).
Background
The tenant occupied The Black Horse pub pursuant to a long lease granted by the local authority. The premises ceased operating as a pub in 2019. In 2020, the tenant obtained planning permission from the local authority to demolish the pub and construct a mixed-use building.
The lease contained certain covenants which restricted the tenant's ability to fulfil the planning permission, which had been granted. The tenant therefore applied to the UT to modify and discharge the restrictive covenants relating to permitted user, keeping open, obtaining licences, alienation and alterations. The UT granted the order.
The decision on appeal
The landlord appealed, challenging the UT's jurisdiction to grant such an order. The UT order was set aside for a number of reasons, generally finding that many of the clauses were positive in nature and therefore outside the scope of Section 84. For example, the related clauses requiring the tenant to trade and keep open as a pub and to use reasonable endeavours, were positive obligations and the UT therefore had no jurisdiction to modify them.
Further, the clause restricting assignment of any part or parts of the demise did not concern the activity conducted on the land. It was not a restriction as to the user of the land and the UT, therefore, had no jurisdiction to modify it under section 84.
The case acts as a reminder to commercial landlords and practitioners alike, to ensure careful drafting around positive and restrictive covenants in leases that may be utilised for future changes in use of property.
If you are a commercial landlord or tenant dealing with changes to use of property, or you have queries or concerns about how these issues may impact you or your business, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies' contact.
