We are used to hearing about disputes about whether a landlord has unreasonably withheld its consent to something that a tenant wanted to do e.g assign or sub let or do some work to the let property. It is much more unusual to see a challenge by a landlord to the withholding of consent by a tenant. This is a rarer occurrence largely because most leases don't require the tenant's consent for many actions of the landlord - it is usually the other way round.
The most common exception is further development by a landlord on an existing shopping centre, retail park, office complex or other multi occupancy facility. In such cases, the consent of the current tenants is sometimes required.
In this recent case, the tenant refused consent and the court agreed that it was not being unreasonable in so doing.
The case involved the Corstorphine Road Retail Park in Edinburgh. McDonalds is one of the tenants - and its unit has a drive-thru lane (as I can verify from my own site visits!).
The landlord (Aviva) had reached an agreement with Costa to build a new free standing retail unit for Costa with a drive-thru lane to that unit. This new unit was to be constructed on part of the existing car park. However, the McDonalds' lease provided that the landlord could only pursue this arrangement with Costa with McDonalds' consent, "such consent not to be unreasonably withheld or delayed".
McDonalds entered into lengthy discussions with Aviva and obtained a report from an expert about the impact of the proposed new Costa operation. That report said that the change would result in a smaller car park, which would be unable to cope with demand at peak times and that the car park would not then be fit for purpose. As a result it would have a detrimental impact on the operation of the McDonalds and materially adversely affect its trade.
The expert for Aviva had said that the reduced car park would still provide sufficient capacity. This contrary opinion had been shown to McDonalds.
Aviva argued that McDonalds had been unreasonable in refusing consent, as it had only relied on the report it had obtained and not taken account of the contrary view expressed in the report commissioned by them.
The Court decided that consent had not been unreasonably withheld and gave this reasoning:
- The onus was on Aviva to demonstrate that the refusal was unreasonable.
- The court did not have to decide whether it agreed with the refusal of consent or with the reasons for that refusal.
- McDonalds did not need to demonstrate that the advice provided by its expert was correct or to justify the conclusions upon which the decision to refuse consent was based.
- The only question was - had McDonalds acted in a reasonable manner? McDonalds was entitled to rely on the advice of its expert. There was no obligation on McDonalds to balance Aviva's interests against its own, as any detriment to Aviva was not disproportionate to the detriment that McDonalds feared would affect its business should the work proceed.
- Aviva had not proved that any reasonable tenant would have granted consent. On the contrary, the court was satisfied that, in the light of the expert advice it had received, the conclusions which underpinned McDonalds' decision were open to it to make, and that McDonalds had acted in a reasonable manner.
Landlords and Tenants might now focus more on such clauses
This is a significant case from the point of view of landlords and tenants - and might result in prospective landlords and tenants paying a little more attention to such provisions in new leases.
Whilst each case of this nature will be considered on its own merits, it seems likely that without anything express in the lease, the court will allow a tenant to take account only of matters that would prejudice the tenant's position (without regard to the landlord's position), unless there is significantly disproportionate detriment to the landlord.
Landlords might now resist any tenant say in future variations to common parts or might place the priority on the landlord's interest, perhaps requiring the tenant to have to demonstrate disproportionate detriment to its interest before it is entitled to refuse consent.
Finally, this is a case to reassure anyone who would prefer not to have to wait in an even longer queue next time they have the pleasure of stopping for a drive-thru McDonalds at Corstorphine Retail Park.
If you would like to discuss these issues further, please contact us.