GMD Developments Ltd v Leeds City Council

A lease covenant permitting the erection and use of a building is not confined to a particular type of building unless the lease contains words of limitation. Where approval is required and must not be unreasonably withheld, the lessor must identify the reasons actually operating on its decision. It cannot rely on reasons developed later for the litigation. A lessor cannot use a consent provision to extract a payment for permitting a use which the lease already allows subject to approval. If consent has been unreasonably withheld, the lessee may proceed without approval.

GMD Developments Ltd held a lease from Leeds City Council containing a covenant permitting the parking of motor vehicles and the erection and use of a building, subject to planning permission and the Council’s approval, such approval not to be unreasonably withheld. GMD proposed a redevelopment including part of a residential or student accommodation block on the demised land.

The Council contended that the lease did not permit residential use and sought a substantial payment for a variation. GMD sought declarations concerning the proper construction of the covenant and whether approval had been unreasonably withheld.

1. Construction of the lease. The words “a building” in clause 4(viii) were general and contained no limitation excluding residential use. The lease referred to both erection and use, and did not define or restrict the possible use for which approval might be sought. Earlier negotiations, the identity of the original tenant, and other lease provisions did not justify reading in such a restriction.
2. GMD was therefore entitled to a declaration that the proposed development fell within clause 4(viii), subject to Council approval which was not to be unreasonably withheld. The parties had agreed that the separate argument concerning part of a building would not be determined in relation to the present proposal.
3. Unreasonable withholding of consent. Following Tollbench Ltd v Plymouth City Council [1988] 1 EGLR 79, the court had to ask first what reasons actually operated in the lessor’s mind and, secondly, whether those reasons were reasonable. The first inquiry was supported by Lovelock v Margo [1963] 3 QB 786 and Bromley Park Gardens Estates Ltd v Moss [1982] 1 WLR 1019.
4. The Council had not actually relied on the alleged effect on its retained land or on possible consequences under the Leasehold Reform Act 1967 and the Leasehold Reform, Housing & Urban Development Act 1993 when responding to the application. Those matters could not be relied on later. In any event, the proposed breach of the lease, the abandoned estoppel argument, and the wish to obtain substantial consideration were not proper reasons for withholding approval. The Council could not use the consent provision to extract payment for a development already permitted by the lease subject to approval.
5. The withholding of consent was unreasonable. GMD was entitled to implement the proposal described in its application without Council approval. The application was sufficiently clear and was not invalidated by the landscaping shown near the Council’s rights of way. An appropriate declaration was ordered.

First-instance decision. No prior or appellate decision was stated in the judgment.