A reasonable approach to consent: how relevant is the lease?

It is rare to find a lease that does not contemplate the tenant doing something with the landlord’s consent, and the landlord may not unreasonably withhold consent.

But what is a landlord permitted to take into account in refusing consent, and when will it be reasonable to do so?

In Perry Park v City of Darwin[1] (Perry Park), the Court of Appeal of the Northern Territory looked to the English and Australian authorities on these questions, concluding that in the circumstances, the terms of the lease were determinative as to the matters that could be taken into account.

The court’s reasons provide a number of general propositions on the approach to landlord consent, including the rejection of the restrictive “property interests” approach adopted in some of the English cases.

Facts

The lessee in Perry Park operated a golf course on land leased from the Darwin City Council (DCC). The lease required the lessee to undertake lighting works to illuminate particular holes on the course.

The works were to be undertaken “with the prior written consent of the Owner and on such terms, conditions and directions as the Owner may reasonably specify or give as a condition of giving its consent”. The installation of the lights was to be staged, and the first stage (installed on the first hole) was completed.

Perry Park was then required to, and did, submit a plan for the second and third stages which required that lighting be installed on other holes. Community consultation was required in conjunction with the plan, and a consultant was engaged to prepare a report. This was intended to survey community views as to the installation of lighting on holes 2 to 9 of the golf course.

Shortly after, a public forum was held in relation to the proposed second and third stages. It was attended by about 15 to 20 members of the public, who expressed opposition to the project. Also in attendance were the CEO of the DCC and a number of councillors.

Immediately after the forum, the DCC resolved not to approve the installation of the lights and instead require alternate works to be undertaken. It was common ground that this resolution constituted a refusal to give consent to the proposed works under the lease.

Was the DCC lawfully permitted to refuse consent based on the public opposition to the proposed works?

The lease

In addition to providing that the installation of the second and third stages of lighting be undertaken subject to the DCC’s consent, the lease also included the following relevant provisions:

• Perry Park would prepare a master plan setting out the details of the proposed lighting works and that the master plan be suitable for a community consultation process.
• Perry Park would undertake a community consultation process by engaging a professional consulting firm (who would prepare a report).
• Perry Park would provide the DCC with the report and the responses received from the community consultation process.
• The DCC would:
  take into account, amongst other relevant matters, such responses outcomes and analysis as well as its own analysis of such matters in considering whether to consent to such works … and the terms and conditions on which such works are to be undertaken.[2]

The lease, therefore, appeared to confer on the DCC some flexibility as to the range of matters that might be taken into account, and those matters would undoubtedly include the views of the public.

Statutory qualification

The Law of Property Act 2000 (NT) contains provisions applicable to the giving of consent under a lease. In particular, s 134(2) (which has analogues in other states’ property law legislation)[3] provides that:

In a lease that contains a covenant, condition or agreement against the making of improvements without a licence or consent, the covenant, condition or agreement is, despite any express term in the lease to the contrary, to be taken to be subject to the qualification that the licence or consent is not to be unreasonably withheld.

The court recorded the following observations in relation to s 134 of the Act.

First, it implies into leases which require consent (in the relevant circumstances) a statutory proviso that consent may not be unreasonably withheld. If consent is unreasonably withheld, the tenant may either proceed with the works without consent, or seek declaratory relief from the court. A tenant does not, however, have a remedy in damages against the landlord.

Secondly, s 134 operates to invalidate a clause which, whether expressly or by implication, is to the effect that a lessor may unreasonably refuse consent.

An example of circumstances which will engage s 134 of the Act is where a clause purports to confer an unfettered discretion on a landlord. An illustration is found in Creery v Summersell Flowerdew & Co Ltd.[4] In that case, a clause providing (in the context of consent to a sublease) that “the lessor reserves the right not to give his consent if in his opinion the proposed … sublessee is for any reason in his discretion undesirable as an occupant” was found to be invalid. Another example is where the clause seeks to fix what is reasonable.[5]

What considerations may be taken into account?

There is a relatively recent line of English authority that says a landlord is not entitled to refuse consent on grounds unrelated to the landlord’s property interests.[6]

It was on this line of authority that the tenant in Perry Park relied, arguing that s 134 mandated such an approach and rendered unenforceable any clause that was inconsistent with it. Much of the English jurisprudence, however, provide that a landlord’s “property interests” are not limited to the landlord’s interests in the leased property.

In Sargeant v Macepark (Whittlebury) Ltd,[7] for example, it was held that a landlord was entitled to withhold consent where its commercial interests in a business conducted in an adjoining building might be detrimentally affected by the construction of improvements on the leased property.

Similarly, in Whiteminster Estates Ltd v Hodges Menswear Ltd,[8] a landlord was found to have reasonably refused consent to an assignment of a lease to a menswear business which would have competed with a menswear business conducted by the landlord in different premises.

A separate line of English authority focuses more on the subject matter of the lease rather than the more nebulous concept of a landlord’s property interests. Thus, in Ashworth Frazer Ltd v Gloucester City Council,[9] Lord Bingham concluded that a landlord was not entitled to refuse consent on a ground wholly extraneous and completely disassociated from the subject matter of the contract.

This approach was endorsed by the Victorian Supreme Court in Cathedral Place Pty Ltd v Hyatt of Australia Ltd.[10] In that case, Nettle J emphasised the significance of the terms of the contract, focusing on the proper construction of the lease covenant so as to ascertain the purpose for which the parties included it.

This approach was followed in Perry Park, the court concluding that:

So it can be seen that the concept of reasonableness within the meaning of s 134 of the Act is, as counsel for the respondent submitted, protean in its application; and the contract between the parties is a strong, if not determinative, factor in the assessment of what is reasonable.[11]

The outcome of the appeal in Perry Park was predictable once it was accepted that the DCC was not limited to a consideration of its “property interests” in considering the proposed works under the lease.

The lease between the parties plainly contemplated that consent to the works would involve a community consultation process, the purpose of which was to gauge the extent of public opposition to the works. It was such opposition that ultimately influenced the DCC to refuse consent, and these matters could not be said to be wholly disassociated with the parties’ contractual arrangements.

Conclusion

The decision in Perry Park establishes the following principles that guide a landlord’s approach to giving consent under a lease:

• Section 134 of the Act (and its analogues) will invalidate a term in a leasethat is to the effect that a lessor may unreasonably refuse consent(by, for example, conferring an unfettered discretion on a landlord).
• If the leasesets out matters to take into account in giving consent, those considerations will generally be determinative, but in all cases the landlord is entitled to consider the landlord’s own interests.
• If the leaseis silent, the landlord is unconstrained as to the matters that may be taken into account, but those matters must not be wholly extraneous or completely disassociated from the subject matter of the lease.
• The conclusion reached by the landlord is not open to challenge where it is one that could be reached by a reasonable person in the circumstances. It need not necessarily be the correct conclusion.