Snarecroft Ltd v Quantum Securities Ltd

A covenant restricting premises to residential purposes must be construed in the context of the particular lease. Short-term hotel accommodation is distinct from residential occupation where the intended use is transient and commercially operated. Planning permission for hotel use does not override or modify the contractual restriction merely because the tenant must comply with planning legislation. A 999-year lease remains legally distinct from a freehold, and its covenants remain enforceable according to their terms.

The claimant, the freehold owner of 46 Brick Lane, granted a 999-year lease of upper floors and airspace to Rosedraft Ltd. The lease was later assigned to the defendant. The lease contemplated the creation of two flats and contained a covenant in paragraph 11 of the fourth schedule restricting use, following residential planning consent, to residential purposes.

The defendant obtained planning permission to convert the premises into a boutique hotel. The claimant sought summary judgment on whether that use was permitted by the covenant. The central issue was whether hotel accommodation constituted use for residential purposes and whether the later planning permission affected the contractual restriction.

1. Summary judgment. Under Civil Procedure Rules 1998, Part 24 and rule 24.2, the court may determine a short construction issue summarily where there is no real prospect of successfully defending it, no compelling reason for trial, and the evidence relevant to construction is complete without procedural disadvantage.
2. Construction of the lease. The relevant intention was that of the original contracting parties, the claimant and Rosedraft Ltd, assessed objectively from the lease. The current tenant’s subjective intention was irrelevant. The lease had to be read as a whole and in its documentary, factual and commercial context, having regard to the natural and ordinary meaning of the words, other provisions, the purpose of the clause and lease, known circumstances, and commercial common sense, while disregarding subjective evidence.
3. Meaning of residential purposes. In this lease, the references to creating two flats showed that residential use contemplated stable occupation, potentially including weekly or monthly lettings or bedsitting accommodation. A hotel serving short-stay travellers involved transient occupation and the business of providing serviced accommodation. It was therefore a business use, not residential use, in the context of this lease. The hotel also included areas used as places of work by staff.
4. Planning permission. The tenant’s obligation under paragraph 24 of the fourth schedule to comply with planning requirements and provide planning documents did not modify the separate covenant restricting use to residential purposes.
5. Disposition. The proposed boutique hotel would infringe paragraph 11 of the fourth schedule. Summary judgment was therefore granted for the claimant on that issue.

First-instance decision. The judgment refers to earlier interim proceedings and appearances before Mr Edwin Johnson QC and Mr Andrew Sutcliffe QC, but gives no citation for a lower-court decision.