Case update Scotland: Retail park - whether tenant withholding consent to further development by landlord was reasonable

by DLA Piper
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Aviva Investors Pensions Ltd v McDonald's Restaurants Ltd [2014] CSOH 009A: 31 January 2014

Introduction

In this case, which was heard in the Outer House of the Court of Session, the judge (Lord Malcolm) held that a tenant of a unit in retail park had acted reasonably in withholding consent to a proposal by the landlord to develop an additional unit nearby, on the basis that there was insufficient car parking capacity.

Background

By way of background, Aviva Investors Pensions Ltd ("Aviva") is the landlord of Corstorphine Road Retail Park in Edinburgh, and McDonald's Restaurants Ltd ("McDonald's") is the tenant of a unit in the park, which is operated as a McDonald's restaurant with "drive-thru" lane.

Aviva entered into an agreement with Costa Ltd to construct a free standing retail unit with drive-thru lane on a part of the retail park's car park which was to be leased to Costa, and used as a coffee shop. The lease of McDonald's unit provided that the landlord (i.e. Aviva) could only pursue this arrangement (with Costa) with the consent of the tenant (i.e. McDonalds), "such consent not to be unreasonably withheld or delayed".

Tenant's deliberations and decision

As part of its deliberations over whether to agree to Aviva's request, McDonald's sought advice from an expert traffic engineer. The expert indicated that the increased levels of demand for parking spaces which would result from the opening of a Costa coffee shop would be detrimental to trade at the McDonald's restaurant. On the basis of the advice given, McDonald's refused to consent to the proposed development.

Landlord's arguments

Aviva raised a Court action for declarator that McDonald's had unreasonably withheld its consent, and was therefore in breach of the terms of its lease. Aviva argued that the advice given by the expert traffic engineer to McDonald's was flawed, and that any reasonable tenant would have allowed the Costa project to proceed.

Aviva alleged that in determining whether to withhold or grant consent, McDonald's should not have relied only on the expert advice given to them by the traffic engineer, but that they should also have undertaken a cost/benefit analysis, weighing the impact of the proposed development on McDonald's business against the significance of the deprival of benefit from the proposed Costa coffee shop (equating to a loss of rent equal to £85,000 per annum) on Aviva.

The decision of the Court

Lord Malcolm held that the onus was on Aviva to prove that McDonald's had acted unreasonably, but, in his opinion, they had not succeeded in doing so. The conclusions which underpinned McDonald's refusal of consent were open to McDonald's, and they had acted in a reasonable manner in relying upon the advice given to them by the expert. The expert had concluded that should the proposed development go ahead, the Costa unit would increase demand and reduce the number of parking spaces available in what, at peak times, was a busy car park. Lord Malcolm noted that if customers of McDonald's had difficulty finding a parking space, this may send them away, and even if a space was found, the customer may be discouraged from making a return visit.

Lord Malcolm was not persuaded by Aviva's argument that in considering whether to grant consent, McDonald's were required to weigh Aviva's interests in the balance. Aviva's proposal had not been rejected out of hand by McDonald's, and the matter had been under investigation and consideration for almost two years before a final decision was made. McDonald's had relied upon the expert advice of a competent traffic engineer, and there was nothing to suggest that the expert's conclusions were unprofessional or tainted by bias. In Lord Malcolm's opinion McDonald's had acted reasonably.

Comment

It is important to note that each case of this nature will be considered on its own merits. However, Lord Malcolm's judgement highlights that where a lease permits a tenant to withhold consent to future development by the landlord, parking capacity (or lack of it) could constitute a reasonable ground for withholding consent, and in considering whether to grant or withhold consent, there is no general obligation upon the tenant to undertake a cost/benefit assessment into the impact of the proposals on both the tenant's and the landlord's businesses.

For the full judgement please see the Scottish Courts website.

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