[2023] UKUT 189 (LC)

The applicant is a special purpose vehicle with no assets other than its lease of the Site. It is said to be part of a substantial group of companies operating under the name “Commercial Property Centre” or “CPC” and controlled by Mr Aubrey Weis, a property investor based in Manchester. The applicant itself was described as dormant by Mr Benjamin Rose, who gave evidence on its behalf.

The Site comprises an area of approximately 1.49 acres situated between the Mancunian Way ring road to the south and Great Jackson Street to the north. The only buildings on the Site are the two warehouses which date from the 1970s. At that time the Site was part of a predominantly industrial area marked out by light industrial units separated by extensive surface car parking.

The warehouses were built pursuant to an Agreement for Lease dated 15 August 1973 by which the Council agreed to grant a predecessor of the applicants a term of 99 years from 25 March 1973. On completion of the warehouses the lease was granted on 18 July 1978 by the Council to Hanover St George Ltd. Later, a supplemental deed of 17 September 1985 between the Council and Pyrawand Ltd, in which the lease was then vested, extended the term to one of 99 years from 29 September 1984. At the date of the hearing before the Tribunal just under 61 years of that term remained unexpired.

The lease includes covenants by the lessee to which we will refer in greater detail below. None of those covenants is unusual or inappropriate for a long lease of premises intended to be used, initially at least, for light industrial or warehouse purposes.

The lease initially provided for rent review every 14 years to one sixth of the rack rental value of the land and warehouses. In 1985 these provisions were varied by deed. The rent was apportioned between the two warehouses, each occupying approximately half of the Site. The rent review dates were altered to fall in 1987 for one building and in 1994 for the other, and then every ten-years in each case. The basis of review was changed to one tenth of rack rental value. The effect of the rent review clause is therefore that, if the applicant carries out improvements by building the proposed residential towers it will pay rent equal to 10% of the rack rental value of one of them from 2054 and of the other from 2057, in each case until the expiry of the term in 2083.

The 1985 deed also introduced an option in favour of the tenant to acquire a further term of 26 years from the expiry of the lease in 2083. That right is exercisable only if the lessee has rebuilt or replaced at least one of the buildings on the Site “with the consent and approval of the Lessors (which consent shall not be unreasonably withheld or delayed)”. There was some debate about whether that option would be exercisable if the development takes place without the consent of the Council after the covenants had been modified by the Tribunal.

Shortly after the lease was extended in 1985, the Site was acquired by a company in the CPC group before eventually being transferred to the applicant in April 2019. Both warehouses were let until about 2008 but since then they have remained unoccupied, although, we were told, available to let.

By 2007 the Council had recognised that the area previously given over to light industrial and commercial uses on either side of Great Jackson Street was in decline and in need of regeneration. That area was first included as a distinct district with its own development framework in the Council’s 2007 Development Plan which forms part of the current City Centre Strategic Plan published in 2016. Under that framework the area bisected by Great Jackson Street and bounded by Chester Road and the River Medlock to the north and west and by Mancunian Way to the south is to become a new high-quality residential neighbourhood. The Site is designated as Plot G on the framework masterplan and was originally earmarked as a location for three new residential buildings.

The Council owns the freehold reversionary interest in three of the Great Jackson Street development plots, including Plot G. Some of those plots were the subject of long leases in terms very similar to the applicant’s lease of Plot G but the Council has worked with the holders of those leases to facilitate development. For example, it holds the freehold of part of Plot C subject to the residue of a number of long leases granted in the 1970s’. These were surrendered to the Council by the leaseholder, Renaker Build Ltd, in return for new 999-year building leases which provide for a phased development of Plot C to an agreed timetable. Companies in the Renaker group already owned the freehold of the remainder of Plot C and much of the rest of the land within the development framework masterplan. Since 2016 it has secured planning consent for eleven substantial residential towers in the immediate neighbourhood, four of which have been completed, with a further two nearing completion.

The applicant has been working on its own detailed proposals for the redevelopment of the Site since 2017 and was said by Mr Rose to have spent more than £700,000 on the project so far. The presence of a main sewer running under the Site has added significantly to the cost of redevelopment and prompted the applicant to redesign its original scheme for three more modest buildings and replace it with the current proposal for two 56 storey towers. An application for planning consent for that scheme was submitted in December 2020 and obtained the approval of the Council’s planning committee on 29 July 2021, subject to the negotiation of an acceptable section 106 agreement. We understand that the basic terms of a section 106 agreement are broadly agreed but have not yet been finalised.

We were given no reason to doubt that, acting in its capacity as local planning authority, the Council will enter into a section 106 agreement with the applicant and grant planning consent for the proposed development. We were provided with written evidence prepared by the applicant’s planning expert, Mr Murray Lloyd of Continuum, explaining how its proposals were consistent with the local development plan, but that proposition was never in doubt.

The Council has offered to grant the applicant a new lease of the Site for a term of 250 years to facilitate the implementation of the anticipated planning permission. The lease would be a building lease on terms very similar to those agreed with Renaker for the development of Plot C, and with other developers for different development sites in the city, and the Council regards its terms as standard. The applicant strongly disagrees and considers the proposed terms to be onerous and thinks that they would be unacceptable to any potential funder or investor in the project. Despite protracted negotiations the parties have so far been unable to reach agreement on terms acceptable to them both.

The applicant requested the Council’s consent to the proposed development under the terms of the existing lease on 27 May 2022, but it has not received an unqualified approval. The request for consent was contained in a letter before action threatening that in the absence of a positive response, proceedings for the discharge of the restriction would be commenced in this Tribunal. We were told that the Council’s response to the letter was marked “without prejudice” and we have not been shown it. Nevertheless, we understand the Council’s position to have been and to remain that while it is strongly in favour of the development of the Site, it is not willing to consent to the proposed works being carried out under the terms of the existing lease; it nevertheless remains willing to negotiate over the terms of a new building lease to be granted to the applicant to enable the works to proceed.