When the landlord says no: Managing transaction risk after Mulberry Homes v Scoto 

The sale of leasehold property can become significantly more complicated where completion depends upon a landlord consenting to the sale. In Mulberry Homes (Hazel Grove) Ltd v Scoto Ltd, the High Court considered how that requirement interacts with the contractual provisions governing completion and rescission contained in the Standard Commercial Property Conditions.

The court was required to decide whether an allegedly unreasonable refusal of consent prevented those contractual provisions from continuing to operate. It concluded that it did not. Unless a court declaration is obtained, the contractual timetable continues to run, meaning a purchaser’s contractual rights may expire long before any dispute with the landlord has been resolved.

In practical terms, the judgment confirms that the contractual risk lies not simply in whether consent is granted, but whether there is sufficient time to challenge an unreasonable refusal before the rescission provisions take effect and should form part of the commercial risk assessment before contracts are exchanged.

The facts behind the decision

A developer had agreed to buy a site at Stockport that included both freehold and leasehold land, at a price of £1.525 million. The leasehold element could only be assigned with the landlord’s consent, and the local authority landlord refused that consent, then refused it again when asked a second time. The developer believed both refusals were unreasonable.

The contract incorporated the Standard Commercial Property Conditions, the standard set of terms commonly used in commercial property sale contracts to cover matters such as this, which postponed completion while consent was being sought but entitled either party to rescind if, after six months, consent had still not been obtained and no court declaration had been made. Six months came and went. Nobody had asked a court to rule on anything. The seller served notice ending the contract. The deposit was returned to the developer, since neither side was found to be at fault.

The developer argued that an unreasonable refusal of consent meant the seller could not rely upon the contractual rescission provisions. The court rejected that argument. The seller’s rescission stood, and the contract was at an end.

Why an unreasonable landlord does not save the deal

Where a landlord is genuinely acting unreasonably, the law already gives the tenant a way round it. In the relationship with that landlord alone, the tenant can simply proceed with the assignment as though consent had been given. This protects the tenant from being trapped indefinitely by an obstructive landlord. The developer’s argument was that the same logic should carry across into the sale contract, so that once the landlord’s refusal was shown to be unreasonable, the requirement for consent should fall away entirely, and with it the seller’s right to use the six-month deadline to walk away.

The court did not accept that. The relationship between a landlord and a tenant is one thing. The relationship between a seller and a buyer, set out in the sale contract, is a different one, and the sale contract in this case had its own rules for what happens when consent is delayed or refused. Those rules do not ask whether the landlord was being reasonable. They ask a much simpler question: has consent been given, yes or no, and if not, has a court said so. Until a court rules on the landlord’s conduct, the six-month clock in the contract keeps running regardless of how badly the landlord is behaving. The rules for each are different.

The developer argued that this should only apply to ordinary refusals, not to ones that were obviously and seriously unreasonable. The court rejected that too. The practical effect is straightforward. Buyers cannot afford to treat an unreasonable refusal as a problem that can be resolved later. If the contractual timetable is allowed to expire, the opportunity to complete the acquisition may disappear altogether, however strong the underlying complaint against the landlord turns out to be.

The lesson for buyers is a stark one. Believing, even correctly, that a landlord is behaving unreasonably does not protect a transaction. The only thing that stops the clock is a court order, obtained before the deadline in the contract expires.

From a commercial perspective, this changes the way buyers should view landlord’s consent at the outset of a deal. It is no longer enough simply to assess whether consent is likely to be granted. Buyers also need to understand what happens if it is refused, how quickly that refusal could threaten the transaction, and whether the contractual timetable gives enough opportunity to challenge the decision before the deal is lost. Our advice is always to err on the side of caution and allow as long a period as both parties can afford to get the consent and have provisions for extension if the consent is not obtained on the first request.

A significant point for buyers

One difficulty in these situations is that the seller may have little commercial incentive to challenge the landlord. Once a transaction begins to drift, a seller’s appetite for litigation may be limited, particularly where market conditions have changed, costs are mounting, or an alternative buyer has emerged. A buyer relying entirely on the seller to fight its own landlord is relying on someone whose interests may no longer be aligned with completing the deal.

There is a genuinely useful development in this judgment that addresses exactly that risk. One of the commercial risks in these transactions is relying on the seller to protect your position. The court has now confirmed that buyers are not wholly dependent on the seller, because a buyer with a genuine interest in the transaction can bring its own claim asking the court to rule that the landlord’s refusal is unreasonable, even before the sale has completed, provided both the landlord and the seller are brought into the proceedings so that the ruling binds them too.

The judgment therefore gives buyers a practical mechanism for protecting their own position. Rather than sitting on the sidelines hoping the seller pursues the point, or watching a difficult seller quietly run down the clock, a buyer can take the initiative itself. The difficulty in this strategy may be cost, so some thought needs to be given to how any action will be funded.

The developer in this case had that option available for the full six months and never used it. When it argued to the court that six months was not long enough to bring a claim like this, the judge was unmoved, pointing out that six months is only the standard period under the usual sale conditions, and the parties were always free to agree a longer one if they had turned their minds to it at the outset. They had not, and the time that was available simply went unused.

Managing the risk once consent is refused

The practical question this raises for any buyer facing a difficult landlord is timing. Waiting to see whether the landlord eventually relents is no longer a safe strategy on its own, because the contractual deadline keeps running in the background Court proceedings are not something to start lightly, and most disputes over consent do resolve without needing a judge. The moment a refusal starts to look genuinely unreasonable, rather than simply slow or frustrating, is the moment to take advice on whether to apply to the court, not the moment the six-month deadline starts to loom.

That matters because litigation takes time to set up properly. Instructing lawyers, preparing evidence and getting a hearing listed does not happen overnight. A claim that could comfortably have been brought in month two has very little room to succeed if it is only being considered in month five, with the deadline only weeks away.

For buyers currently in this position, with a landlord’s consent outstanding and a deadline running in the sale contract, the priority is to establish exactly how much time is left, rather than wait for the seller to raise the point. Early advice should be sought on whether the refusal is genuinely arguable as unreasonable, and the relevant deadline in the sale contract should be treated as the point by which any application to the court needs to have been made, not the point by which it needs to have been started.

What to do differently on your next acquisition

This case is as much about preparation as it is about litigation. Where a site includes leasehold land and the landlord’s cooperation cannot be taken for granted, whether because of a difficult history, a local authority landlord with its own competing plans for the site, or simply an unfamiliar counterparty, that risk deserves attention before contracts are exchanged, not after consent is refused. Map out a timetable in the contract that legislates for every eventuality, consent, refusal or delay.

For developers, that means identifying at the heads of terms stage whether landlord’s consent is likely to become a critical path item. If it is, the transaction timetable, funding arrangements and contractual longstop provisions should all be considered,  with litigation being a last resort.

The six- month period in the standard sale conditions is not fixed in stone. It can be extended by agreement, and this judgment is a clear signal that a longer, deliberately negotiated period will be respected by the courts rather than treated with suspicion. Buyers negotiating a purchase where consent is a live risk should consider asking for more time, agreeing a point at which the seller is obliged to take action if consent has still not been given, and, where they have the negotiating strength to do so, securing an express right to bring or join proceedings themselves rather than relying solely on the ability to do so that this judgment has now confirmed.

Where this leaves the parties

The seller had applied to have the developer’s claim thrown out without a full trial and succeeded. The developer’s claim, which asked the court to force the sale through, has failed, and the sale contract stands as validly rescinded. The court did not need to decide, and did not decide, whether the landlord’s refusal of consent was actually unreasonable. It reached its conclusion regardless of the answer to that question. Other issues in the wider dispute, including questions of damages and any liability as between the seller and the landlord, are separate matters and are unaffected by this summary of the judgment.

The bottom line

The significance of this decision lies not in the law governing landlords’ consent, but in the way contractual deadlines continue to operate while that issue remains unresolved. A buyer who assumes an unreasonable refusal will automatically protect the deal may find the deal has already come to an end. The safer course is to identify the risk before exchange, negotiate a realistic timetable, and cover each eventuality in the drafting including costs. Litigation should be a last resort   if provisions are drafted well.