Kate Andrews looks at the case of 89 Holland Park Management Ltd v Hicks  EWCA Civ 758, where the Court of Appeal reviewed the grounds for reasonably refusing consent under a restrictive covenant.
Ms Sophie Hicks, an award-winning architect, is the freehold owner of the site in question: land at the rear of 89 Holland Park.
89 Holland Park (the building) comprises five flats held on long leases to separate leaseholders.
Each of the leaseholders is a shareholder in 89 Holland Park Management Ltd (the company), which owns the building. The company retains possession of the common parts and external structure of the building but is otherwise interested in the building only as reversioner.
This case confirms the grounds for refusing consent can take into account a full spectrum of considerations
Ms Hicks intended to build a house on the site. The proposed structure was a single-storey glazed building, described as a glass cube, constituting an entrance to two floors below street level.
The restrictive covenant on the site prohibits the owner from certain actions without the consent of the freeholder of 89 Holland Park. These include:
- (a) making an application for planning permission (clause 2(b) of the relevant deed)
- (b) commencing works (clause 3 of the relevant deed).
Previous litigation between the parties concluded that approval cannot be unreasonably withheld.
On 4 November 2016, Ms Hicks applied to the company for approval under both covenants: clauses 2(b) and 3.
On 20 January 2017, the company refused approval under both clauses. The reasons for refusal under clause 2(b) were:
- architectural design, aesthetics and heritage
- damage to / destruction of the trees
- loss of amenity during the proposed works
- construction issues.
The refusal under clause 3 was because the company considered that more information was required relating to the construction; therefore the material supplied did not fulfilconstitute the “definitive plans” required by that clause.
Following the refusal of consent in 20162017, Ms Hicks issued proceedings to challenge a previous decision made in 2013 (89 Holland Park (Management) Limited (and others) v Sophie Hicks  EWHC 391 (Ch)), which held the leaseholders had the right to enforce the restrictive covenant.
First instance decision
The first instance judge held the company’s interest lay in the common parts and external structure of the building only (relying on Iqbal v Thakrar  EWCA Civ 592 andCryer v Scott Brothers (Sunbury) Ltd (1988) 55 P & CR 183). The judge found the company was not entitled to refuse consent on the basis of aesthetics, disruption caused by construction, or the risk of damage to or destruction of trees (other than to the extent that the risk of such damage or destruction might adversely affect the structure of the building or the value of the company’s reversionary interest).
The first instance judge went on to say that concerns about the structural impact of the proposed development were a free-standing reason on which the company was potentially entitled to rely, however, there was a critical distinction between a request for approval under clause 2(b) and a request under clause 3.
Accordingly, the judge granted a declaration that consent under clause 2(b) had been unreasonably withheld, but the company was entitled to withhold consent under clause 3, as insufficient information had been provided in relation to the structural issues.
The company appealed. It claimed the first instance judge was wrong to find that the company could not take the leaseholder’s views into account (and therefore could not withhold consent on aesthetic grounds).
Court of Appeal decision
The primary issue the Court of Appeal had to decide was the grounds upon which the company could reasonably withhold consent. In particular, the court looked at whether:
- the company was entitled to take the leaseholders’ views into account when granting or refusing consent
- a refusal on aesthetic grounds was permissible
- the first instance judge was correct to hold that a refusal under clause 3 (but not clause 2(b)) was reasonable due to a lack of information relating to structural issues.
1. Taking leaseholders’ views into account
The Court of Appeal dealt, firstly, with whether the first instance judge was right to conclude that the company could not take account of the leaseholders’ interests.
In doing so, the Court of Appeal considered the first instance judge’s reliance on Cryer. It held the true principle of Cryer was that the covenantee was only entitled to considertake into account matters that affected the land with the benefit of the covenant; in Cryer there were no other interests involved in the land which had the benefit of the covenant. Further, the Court of Appeal held that “the Vendor’s property” being described in the covenant was as a physical entity, not the vendor’s interest in that property.
Accordingly, the company was entitled to take the leaseholders’ interests into account.
2. Refusing permission on aesthetic grounds
The Court of Appeal then went on to consider whether aesthetics were relevant at all and, if so, whether the company could refuse consent on those grounds.
The Court of Appeal considered the authorities (including Lambert v FW Woolworth & Co Ltd (No 2)  Ch 883, which the first instance judge had distinguished from this case) and held that the covenant in this case was between neighbours – and neighbours have a legitimate interest in the appearance of what is built next door to them.
The court further held there was sufficient authority to say that a company could refuse consent on aesthetic grounds, just as an individual might, and it would be irrational to hold otherwise.
The Court of Appeal held that – under the “guise of construing the words” – the first instance judge fell into a trap when approaching the question of reasonableness, by referring to the original purpose of the covenant and formulating rigid rules for what the covenantee could or could not take into account (which he ought not to have done).
3. Prioritising the grounds for refusal
The Court of Appeal did not overturn the first-instance finding that it was reasonable to refuse for structural reasons under clause 3. It did, however, state that, on the basis of the first instance judge’s findings, the aesthetic reasons were the most important and if the structural issues had not been put forward as a reason for refusal, the company could have still withheld consent on aesthetic grounds. As a result, the decision at first instance was set aside.
The Court of Appeal did not assess whether the question of aesthetics in this case was, on the facts, a reasonable refusal for consent. That question was referred back to the lower court for determination; the Court of Appeal simply decided that the company could take aesthetics, including the leaseholders’ views on the same, into account when granting or refusing consent.
This case will be of interest to all practitioners when considering the effect of restrictive covenants which require consent not to be withheld unreasonably. It will also be relevant when advising:
- developer clients seeking consent to build
- those who have the benefit of a covenant and seek to rely on it to prevent construction.
This case confirms the grounds for refusing consent are wide and can take into account a full spectrum of considerations. As a result of Hicks, this is true even where consent is required from a person / entity who does not occupy the property that has the benefit of the covenant – and/or whose interest in the property is limited to a reversionary interest. The person giving consent essentially has the same reasons to refuse permission, no matter the extent of their interest in the property (subject to the particular facts and circumstances).
Had the decision of the Court of Appeal been different, it may well have provided more of a lifeline for developers. This group would have relished a decision precluding an investor-freeholder from refusing consent / approval on the basis of matters which do not impact the value of the reversion. However, the decision favours those with the right to rely on a restrictive covenant to protect the aspect and environment of their property.
Whether or not this case will have any real, practical impact remains to be seen. Even where planning restrictions by a local authority are relaxed, developers may well face a further challenge where covenants such as these exist.
To avoid the issue entirely, practitioners acting for developers may wish to consider carefully whether there are any grounds under section 84 of the Law of Property Act 1925 by which the restrictive covenant in question can be discharged or modified.