The Court of Appeal has handed down its judgment in Hicks v 89 Holland Park (Management) Limited  EWCA Civ 758, in which the long leaseholders of flats in 89 Holland Park successfully appealed against the decision that they had unreasonably withheld consent to development proposals of the neighbouring property, pursuant to a restrictive covenant.
This decision has some important consequences for the law where consent pursuant to a restrictive covenant can validly be withheld, when it is a requirement that consent can only be withheld reasonably.
Firstly, the facts:
89 Holland Park adjoins a piece of land which had been bought by architect Sophie Hicks at auction. She intended to build a modern property on this land with a glass cube at ground level and a large subterranean level extending across most of the site. The plans have been described as a "gently glowing glass box" but nonetheless were approved by the local planning inspector in 2015.
89 Holland Park is now split into several flats which are owned as long leasehold interests. The long leaseholders each own a share of a management company, 89 Holland Park (Management) Limited, which owns the freehold. Before the property had been sold off as separate leaseholds, in the 1960s the freehold owner (Brigadier Radford) had entered into a restrictive covenant with the then owner of the neighbouring land.
The covenant provided firstly that no application could be made for planning permission until he had approved the designs, and secondly that no works of construction could commence until the detailed specifications and drawings had been approved.
Sophie Hicks and the long lessees of 89 Holland Park have been engaged in litigation for some time to determine how this covenant now applies. It was held in a previous High Court decision (89 Holland Park (Management) Limited (and others) v Sophie Hicks  EWHC 391 (Ch)) that although the covenant was expressed to benefit the freehold owner of 89 Holland Park, those deriving title under that interest were also entitled to the benefit of covenant - which included the long lessees.
In 2016, Ms Hicks applied to 89 Holland Park (Management) Limited for consent to her proposed development and in January of 2017, the plans were rejected in a 10-page letter detailing numerous reasons for the rejection. Crucially, those included aesthetic reasons and the loss of amenity of the trees, which the development would impact upon. The long lessees relied on the earlier High Court decision that they were entitled to the benefit of the covenant in forming their decision.
Ms Hicks challenged this. They may have the benefit of the covenant, she said, but that only gives them the right to enforce the requirement that approval is sought from the freeholder before any works can commence. It does not, however, entitle them to consider their own personal opinions and only the impact that the works might have on the freeholder (the shell company that owned only the common parts of the property) could be taken into account.
The High Court agreed with this in principle and held that in practice the only reasons that 89 Holland Park could have for validly withholding consent were that the works would have a detrimental effect on the structure of the physical property, or the value of the reversionary interest.
The Court of Appeal disagreed.
The Appeal Decision
In a unanimous decision, the High Court decision was overturned on the basis that HH Judge Pelling KC had incorrectly held that the only relevant interest for the purposes of giving or withholding consent was the freeholder's.
Lewison LJ found that it had already been established that the long leaseholders had the benefit of a restrictive covenant and this meant that their interests were relevant factors that could be taken into account in providing or withholding consent.
Quoting Lewison LJ directly, "I consider that the inescapable conclusion is that the decision-maker considering whether or not to approve plans is entitled to take into account the interests of those with the benefit of the covenant".
Are aesthetics a relevant consideration?
Not only this, but Lewison LJ also determined that aesthetic factors could be taken into account: "in my judgment a neighbour has a legitimate interest in the appearance of what is built next door to him". The correct construction of the restrictive covenant, was that no.89 was entitled to take into account the aesthetic design of the development proposals.
It has been established in earlier case law that there are some contexts in which a decision maker is entitled to refuse to consent to works on aesthetic grounds – see Lambert v FW Woolworth & Co Ltd (No 2)  Ch 883. But this is a contentious issue and continues to be the subject of many disputes about the particular context in which this general rule may apply.
Mr Rainey KC, acting for Ms Hicks, argued that aesthetic objections in this case cannot be objectively evaluated and that it should only be a relevant factor where it can be established that the design would had a detrimental impact on the value of the adjoining land. This argument was ultimately rejected as being too narrow a view of the covenant.
Now that the Court of Appeal has clarified that the long leaseholders are entitled to have regard to their own interests, and that those interests can include aesthetic considerations, the High Court has to determine whether the reasons they gave for refusing consent were, in fact, reasonable.
Lewison LJ noted that the letter presented a rational case "but rational is not necessarily the same as reasonable".
How Lewison LJ's comments regarding aesthetics are to be applied in practice is therefore yet to be seen, but he gave some pointers in his judgment, noting that it would be too narrow to limit aesthetic objections to a case where there is an effect on capital or rental value. Furthermore, that it might be enough to show that the plans are out of keeping with what is already there. Albeit it is not necessarily enough to say that the proposals are not to the taste of the leaseholders.
Lessons from the decision
The two key points to take from this decision are:
- how section 78 of the Law of Property Act 1925 operates in situations where a freehold with the benefit of a covenant is subject to long leasehold interests and
- how aesthetic factors can be a relevant consideration in applying the test of reasonableness in refusing or withholding consent under a qualified covenant.
Section 78 Law of Property Act 1925
Section 78 states that a covenant is deemed to be made with the covenantee, his (or her) successors in title and the persons deriving title under them, and shall have effect as if such successors and other persons were expressed.
The Court of Appeal said that if the Court now decided that, notwithstanding the earlier decision that the leaseholders had the benefit of the covenant, in reality they could not take into account their own interests, that would render the previous decision and any benefit they derive from the covenant as "almost worthless".
The correct interpretation of this provision, as per Lewison LJ, is that the "decision-maker considering whether or not to approve plans is entitled to take into account the interests of those with the benefit of the covenant. Those persons include both the owners and the occupiers of the land. If it were otherwise the general purpose of the covenant would be undermined".
Many residential properties across the country are now owned in the same way as 89 Holland Park, with long leaseholders each owning a share of freehold that is held by a management company.
This decision makes clear that in cases where the freehold has the benefit of a restrictive covenant, those individuals with long leases, should they meet the other tests under which the benefit of a restrictive covenant may pass to them, will be able to take their interests into account when considering whether or not to grant consent.
Lewison LJ made several obiter comments worth taking note of:
- An objection based on the fact that proposed works are "out of keeping" with the area may be enough;
- The current state of the land may be a relevant consideration;
- Objections on the basis merely that the proposals are not to someone's taste would not in itself be enough; and
- Expert evidence may assist in such disputes when determining reasonableness.
As the case is now remitted to the High Court, further updates will follow when the final decision as to whether consent was in fact reasonably withheld is determined.