Schwarzschild Ochs Pty Limited v Concerto Properties Limited

A leasehold user covenant is not obsolete merely because the premises are difficult to let for the permitted use or the character of the surrounding area has changed. The question is whether its original purpose can no longer be achieved, in practice because the restriction is no longer enforceable.

Under section 84(1)(aa), an applicant need not invariably identify a definite project. It must provide sufficient detail, in the context of the proposed modification, to enable the Tribunal to assess reasonable use and any practical benefit secured by the restriction. A landlord's financial bargaining position, and protection from a remote risk of litigation over a reasonable refusal of consent, are not practical benefits of substantial value or advantage. Existing lease covenants may adequately protect legitimate landlord and occupier interests.

Schwarzschild Ochs Pty Limited held a long sub-underlease of vacant ground-floor and basement premises at 208–210 Great Portland Street. The lease permitted use as a shop and showroom, or, with the landlord's qualified consent, for former Class B1 business uses. It prohibited medical use without an absolute landlord veto.

The applicant sought modification under section 84(1) of the Law of Property Act 1925 to permit medical or health services, subject to consent not being unreasonably withheld or delayed. Its immediate landlord objected, relying on control of potentially unsuitable medical uses, protection of other occupiers and its ability to bargain for consent.

The Tribunal considered whether the covenant was obsolete under section 84(1)(a), and whether, under section 84(1)(aa), it impeded a reasonable use while securing no practical benefit of substantial value or advantage.

1. The application succeeded under section 84(1)(aa). Clause 3(9) was modified to permit use within Class E(e) or E(g), with the landlord's prior written consent not to be unreasonably withheld or delayed. No compensation was payable.

2. The application under section 84(1)(a) was dismissed. A change in the northern part of Great Portland Street towards medical uses, the premises' unsuitability for some retail uses, and the absence of tenants for the existing permitted uses did not make the covenant obsolete. The covenant continued to achieve its purpose by preventing unconsented non-retail use and remained enforceable. The Tribunal applied the meaning of obsolescence explained in Truman, Hanbury, Buxton & Co’s Application [1956] 1 QB 261.

3. Section 84(1)(aa) does not impose a freestanding requirement for a definite project. The applicant must provide sufficient information for the Tribunal to decide whether a reasonable use is impeded, whether the restriction secures a substantial practical benefit, and whether compensation is adequate. The required detail depends on the modification sought. Detailed plans are commonly important for building development, but were unnecessary for this proposed change of use without physical development.

4. Medical or health use was a reasonable use in this locality. The modified covenant would preserve the landlord's ability reasonably to refuse particular uses. General lease covenants against nuisance, overloading, harmful discharges, insurance prejudice and non-compliance with enactments adequately protected the landlord and residents. The modification would not create an inconsistency with the headlease.

5. The landlord's ability to extract a premium or increased rent for relaxing the restriction was not a practical land-related benefit for section 84(1)(aa). Nor was freedom from a remote possibility of litigation challenging a reasonable refusal of consent. The restriction therefore secured no practical benefit of substantial value or advantage. The evidence did not establish either loss from the modification or that the restriction had reduced the 1995 premium, so no compensation was warranted.

not stated in the judgment.