Withholding Consent to “Dead Frontage” Applications In The Interests of Good Estate Management, by Louise Wright published in the Conveyancing and Property Law Journal, Thomson Reuters, Round Hall – (Summer 2024) Vol. 2 (21-36)
The article ‘Withholding Consent to “Dead Frontage” Applications In The Interests of Good Estate Management’ was published in the Conveyancing and Property Law Journal, Thomson Reuters, Round Hall – – (Summer 2024) Vol. 2 (21-36). The article is available on www.westlaw.ie or alternatively in print via email TLRUKI.orders@thomsonreuters.com
The article specifically examines the circumstances where the withholding of consent to an application for an assignment and proposed change of use of a unit comprised within a shopping centre is considered reasonable in the interests of good estate management as held in the recent case of Cambervale Ltd v Westside Shopping Centre [2024] IEHC 61 (Cambervale).
A. Recent Case
The Cambervale case involved a long leasehold interest held by Cambervale Ltd (Tenant) in a unit (Unit) contained within a multi-unit shopping centre known as Westside Shopping Centre (Centre) located in Galway for a term of 500 years dated 17 January 1984 (Lease). The Tenant held the interest in the Lease since 20 November 1990. Westside Shopping Centre Ltd (Landlord), which is a wholly owned subsidiary of the Elkstone Capital Partners (Elkstone), held the interest in the Centre since 7 February 2020. The Centre comprises of mixed retail use with Dunnes Stores as the anchor tenant and 14 additional retail units. It is a single level trading mall with a surface car park onto which the majority of the retail units front.
The Lease provided that the User of the Unit was a licensed premises. The Unit had been sub-let as a licensed premises from 1990 to 2018. The Unit at the time of the case was in a dilapidated state. The Tenant sought to sell its interest in the Unit for a number of years; it then negotiated the sale of the Unit to the Western Islamic Cultural Centre (Proposed Assignee) who intended to use the Unit as a community centre. The Tenant and the Proposed Assignee entered into a contract for sale which was conditional upon the issuing of the Landlord’s consent.
The Tenant notified the Landlord of its intention to assign the Lease in January 2020.
The Landlord’s agents responded highlighting the User clause in the Lease, which was followed on by a questionnaire sent to the Tenant in March 2020. The Tenant did not return the questionnaire until 22 October 2020, and when returned did not fully disclose the intended use, responding “as in the lease” i.e. a public house and that there would be no requirement for planning permission. When this was queried by the Landlord’s solicitor, the Tenant’s solicitor reverted in November 2020 stating:-
“… Our clients will ultimately revert to the Landlords seeking the consent to Change of Use from its existing use as a Public House to a Community Centre…In the event that the consent from the Head Landlord is refused and or the consent from the Planning Office is refused for Change of Use, then our clients will put the premises as a Public House with a seven day licence attaching thereto on the market.”
The Tenant’s solicitor sent follow-up letters on 8 and 17 December 2020, with the latter letter requesting a response to the change of use application by 7 January 2021. On 8 January 2021 the Tenant’s solicitor wrote to the Landlord’s solicitor advising that they were instructing counsel and queried whether they had authority to accept service of proceedings which were then issued in the Circuit Court on 22 January 2021. The Landlord delivered a defence on 14 May 2021. An order was made by the Circuit Court waiving the Landlord’s consent. The Landlord then appealed the order to the High Court.
B. Tenant’s Arguments
Long Leasehold Title
The Tenant submitted, given the long term of the leasehold interest held, i.e. 500 years, that the title was similar to a freehold interest and therefore it could apply, pursuant to s.50 of the Land and Conveyancing Law Reform Act 2009, to have a freehold covenant discharged. This was rejected by Simons J.
Separate Applications
The Tenant also submitted that the application for consent to assignment was a separate application to the change of use, which could be applied for and then considered by the Landlord after the assignment application had been dealt with. Simons J. refuted this on the grounds that it was unrealistic to expect a landlord to consider an application to assign where a consent application for change of use was imminent or required.
Ulterior Motive
The Tenant also argued that the Landlord’s refusal to grant consent was motivated by an ulterior motive, namely to acquire the Unit at an undervalue. The Tenant also alleged that the primary objective of the Landlord was to frustrate the contract entered into with the Proposed Assignee in an effort for the Landlord or Elkstone to secure the Unit for an amount less than the market value. Simons J. found on the balance of probabilities that the withholding of consent was not due to any ulterior motive.
C. Good Estate Management
Tenant’s Witness
The Tenant engaged the services of Mr. Niall Browne, an estate agent, to act on its behalf in relation to the sale of its interest in the Unit. However, Mr. Browne did not have any specific experience in relation to the sale, letting, and operation and management of shopping centres. When providing his oral evidence, he confirmed upon carrying out his research, that he had identified two shopping centres which contained cultural centres, namely Ahlul Bayt Islamic Centre, Cork (Cork Unit) and Masjib Islamic Cultural Centre, Carlow (Carlow Unit). However, he conceded during cross-examination that the Cork Unit was contained in an industrial estate and that the Carlow Unit was a small unit (1,500 square feet) and held under a short-term lease. Mr. Browne, when responding to a direct question of the court, also agreed (to a degree) with the proposition that it was reasonable to refuse consent to a use that was considered dead frontage in respect of a multi-unit shopping centre.
Landlord’s Witness
Mr. Potter was engaged by the Landlord for the purpose of providing expert evidence. He has extensive experience in the area of commercial lettings, and landlord and tenant disputes particularly in the area of shopping centres. He explained that shopping centres, to operate effectively, were reliant upon a wide variety of complementary uses to drive the commercial footfall, which was particularly important for small shopping centres. Mr. Potter did not consider the proposed use as a community centre to be appropriate or in the best interests of the Centre, because (i) the focus and dwell times of patrons attending a non-commercial unit would be different to those attending for the purpose of shopping; and (ii) it could result in a strain on the availability of car parking spaces.
D. Decision
Simons J. outlined when considering whether an application for change of use was unreasonably withheld, the facts and circumstances of the case had to be examined. In this case the Proposed Assignee outlined that if it was not granted the required planning permission for its proposed use as a community centre or the Landlord’s consent to the change of use, that it would then sell the Unit. He found that this was a relevant factor for the Landlord to consider when deciding whether to grant consent. Additionally, it was not necessary for the Landlord to enter into the process of having to grant consent, when it was indisputable thereafter that the Landlord would be entitled to refuse consent. He held in favour of the Landlord for the following reasons:
1. Case law confirming that it is reasonable for a landlord to withhold consent to an assignment and a change of use for reasons of good estate management is well established particularly where multi-unit shopping centres are involved, see the cases of O.H.S. Ltd v Green Property Company Ltd [1986] I.R 39 and Wanze Properties (Ireland) Ltd v Mastertron Ltd [1992] I.L.R.M 746.
2. It is well recognised that good estate management ensures a good retail mix in a multi-unit shopping centre and avoids dead frontage, with expert evidence to support this and no contrary evidence provided by the Tenant.
3. The allegation of the Tenant that the Landlord’s refusal to grant consent was motivated by ulterior motives failed to stand as the Tenant could not substantiate its allegation; and
4. The Tenant failed to prove that the Landlord had unreasonably withheld its consent.
Simons J. made an order allowing the appeal and setting aside the order of the Circuit Court.
E. Takeaways
This case underscores, along with many other previous cases, the importance of the definition of the User, and User and alienation clauses, for both a landlord to protect its equity and the viability of its rent roll, and for a tenant to operate its business. The significance of the User becomes particularly heightened when the area, the subject of the demise, is comprised within a multi-let shopping centre. There are many factors to be considered from a trading perspective including exclusivity, competition and dead frontage. It is not in the interest of either the landlord or the occupying tenants of a shopping centre that an incoming tenant/assignee has been granted a use which will detract from the viability of the shopping centre, in particular dead frontage. This will not only impact on the trade of the remaining tenants, but will inevitability negatively impact the rent roll of the landlord as the shopping centre will become less attractive for incoming tenants/assignees.
As with all cases in relating to consent applications, the onus remains with the tenant to prove that the landlord has acted unreasonably if consent is refused. A tenant will have to weigh up carefully whether it has the necessary grounds to prove that the landlord acted unreasonably particularly where the refusal is for reasons of good estate management. Additionally, it is not in the interest of any tenant to argue that the landlord’s refusal was due to an ulterior motive when it does not have the grounds to substantiate such an argument.
This Moran & Ryan LLP material is not intended to provide, and does not constitute or comprise, legal advice on any particular matter and is provided for general information purposes only. You should not act or refrain from acting on the basis of any information contained in this material, without seeking appropriate legal or other professional advice.
Louise Wright
Partner
T: + 353 1 5450374
E: lwright@moranryan.com
